<PAGE>
 
   As filed with the Securities and Exchange Commission on December 19, 1997

                                                    Registration No. 33-________

================================================================================

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549
 
                                   FORM S-1

                            REGISTRATION STATEMENT
                       UNDER THE SECURITIES ACT OF 1933
                          FIRST SOURCE BANCORP, INC.
  (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CERTIFICATE OF INCORPORATION)

DELAWARE
(state or other jurisdiction of                BEING APPLIED FOR
incorporation or organization)                 (IRS Employer Identification No.)
                               (Primary Standard
                          Classification Code Number)

                         1000 WOODBRIDGE CENTER DRIVE 
                         WOODBRIDGE, NEW JERSEY 07095 
                                (732) 726-9700 
              (Address, including zip code, and telephone number,
      including area code, of registrant's principal executive offices) 

                               JOHN P. MULKERIN 
                    PRESIDENT AND CHIEF EXECUTIVE OFFICER 
                           FIRST SAVINGS BANK, SLA 
                         1000 WOODBRIDGE CENTER DRIVE 
                         WOODBRIDGE, NEW JERSEY 07095 
                             (732) 726-9700 
               (Name, address, including zip code, and telephone
              number, including area code, of agent for service) 

                                  Copies to: 
                       JOSEPH G. PASSAIC, JR., ESQUIRE 
                            ANN COX CLANCY, ESQUIRE
                          THOMAS W. FRANCE, ESQUIRE 
                          MULDOON, MURPHY & FAUCETTE 
                          5101 WISCONSIN AVENUE, N.W.
                            WASHINGTON, D.C. 20016 
                                (202) 362-0840

     APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:  As soon as
practicable after this Registration Statement becomes effective.

     If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / X /
                               ---- 

     If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.  /   /
                                                         ---- 

     If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering.   /   /
            ---- 
 
     If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /   /
                                ----
 
<TABLE> 
<CAPTION> 
=================================================================================================================
        Title of each Class of         Amount to       Purchase Price     Aggregate Offering    Registration
     Securities to be Registered     be Registered        Per Share            Price(1)              Fee    
-----------------------------------------------------------------------------------------------------------------
<S>                                  <C>               <C>                <C>                   <C>
            Common Stock               31,740,000
           $.01 par Value                Shares            $10.00            $317,400,000         $93,633
=================================================================================================================
           Participation                           
             Interests                    (2)              _______           $  9,890,490            (3) 
                                                                              ------------
=================================================================================================================
</TABLE>

(1)  Estimated solely for the purpose of calculating the registration fee.
(2)  In addition, this registration statement also covers an indeterminate
     amount of interests to be offered or sold pursuant to The Incentive Savings
     Plan for Employees of First Savings Bank, SLA.
(3)  The securities of First Source Bancorp, Inc. to be purchased by First
     Savings Bank, SLA 401(k) Savings Plan are included in the amount shown for
     Common Stock. Accordingly, no separate fee is required for the
     participation interests. In accordance with Rule 457(h) of the Securities
     Act, as amended, the registration fee has been calculated on the basis of
     the number of shares of Common Stock that may be purchased with the current
     assets of such Plan.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
<PAGE>
 
                          FIRST SOURCE BANCORP, INC.

  Cross Reference Sheet Showing Location in the Subscription and Community
Offering Prospectus ("Prospectus") of Information Required by Items of Form S-l:

 
     Registration Statement Item and Caption     Prospectus Headings
     ---------------------------------------     -------------------
 
l.   Forepart of the Registration                Front Cover Page
     Statement and Outside Front Cover
     Page of Prospectus
 
2.   Inside Front and Outside Back Cover         Inside Front and Outside Back 
     Page of Prospectus                          Cover Pages
 
3.   Summary Information, Risk Factors and       Summary; Risk Factors
     Ratio of Earnings to Fixed Charges
 
4.   Use of Proceeds                             Use of Proceeds
 
5.   Determination of Offering Price             The Conversion and 
                                                 Reorganization-- Stock Pricing
                                                 and Exchange Ratio
 
6.   Dilution                                    Not Applicable
 
7.   Selling Security Holders                    Not Applicable
 
8.   Plan of Distribution                        Front Cover Page; The
                                                 Conversion and Reorganization--
                                                 Subscription Offering and
                                                 Subscription Rights; --
                                                 Community Offering;--Syndicated
                                                 Community Offering
 
9.   Description of Securities to be             The Conversion and
     Registered                                  Reorganization -- Certain
                                                 Restrictions on Purchase or
                                                 Transfer of Shares After
                                                 Conversion; Restrictions on
                                                 Acquisition of the Company and
                                                 the Bank; Description of
                                                 Capital Stock of the Company;
                                                 Description of Capital Stock of
                                                 the Bank

10.  Interests of Named Experts and Counsel      Not Applicable
 
11.  Information with Respect to the             Front Cover Page; First Source
     Registrant                                  Bancorp, Inc.; First Savings
                                                 Bank, SLA; First Savings
                                                 Bancshares, MHC; Dividend
                                                 Policy; Consolidated Statements
                                                 of Income; Management's
                                                 Discussion and Analysis of
                                                 Financial Condition and Results
                                                 of Operations of the Bank;
                                                 Business of the Bank;
                                                 Regulation; Management of the
                                                 Company; Management of the
                                                 Bank; The Conversion and
                                                 Reorganization; Description of
                                                 Capital Stock of the Company;
                                                 Description of Capital Stock of
                                                 Bank; Financial Statements

12.  Disclosure of Commission Position on        Not Applicable
     Indemnification for Securities Act
     Liabilities
<PAGE>
 
[To be used in connection with sales to Participants in the Incentive Savings
Plan for the Employees of First Savings Bank, SLA]
 

PROSPECTUS SUPPLEMENT
---------------------


                          FIRST SOURCE BANCORP, INC.
                            FIRST SAVINGS BANK, SLA

                            PARTICIPATION INTERESTS

                  THE INCENTIVE SAVINGS PLAN FOR EMPLOYEES OF
                            FIRST SAVINGS BANK, SLA

     This Prospectus Supplement relates to the offer and sale to participants
(the "Participants") in The Incentive Savings Plan for Employees of First
Savings Bank, SLA (the "Plan") of participation interests and shares of common
stock, par value $.01 per share of First Source Bancorp, Inc. (the "Common
Stock"), as set forth herein.

     In connection with the offering of Common Stock by First Source Bancorp,
Inc. (the "Holding Company") Participants will be permitted to direct the
trustee of the Plan (the "Trustee") to  invest in Common Stock with amounts in
the Plan attributable to such Participants.  Such investments in Common Stock
would be made by means of the First Source Bancorp, Inc. Stock Fund, formerly
the First Savings Stock Fund (the "Employer Stock Fund" or the "First Source
Bancorp, Inc. Stock Fund").  Based upon the value of the Plan assets at
September 30, 1997, 893,399 shares of Common Stock could be purchased with Plan
assets (assuming a purchase price of $10.00 per share).  This Prospectus
Supplement relates to the initial election of Participants to direct that all or
a portion of their accounts be invested in the Employer Stock Fund in connection
with the Offering and also to elections by Participants to direct that all or a
portion of their accounts be invested in the Employer Stock Fund after the close
of the Offering.

     The prospectus dated _______________________________, 1998 of the Holding
Company (the "Prospectus"), which is attached to this Prospectus Supplement,
includes detailed information with respect to the Offering, the Common Stock and
the financial condition, results of operations and business of the Bank.  This
Prospectus Supplement, which provides detailed information with respect to the
Plan, should be read only in conjunction with the Prospectus and should be
retained for future reference.

     FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PARTICIPANT, SEE "RISK FACTORS."

      THE DATE OF THIS PROSPECTUS SUPPLEMENT IS ____________________, 1997.
<PAGE>
 
     THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, THE NEW JERSEY
DEPARTMENT OF BANKING, OR ANY OTHER FEDERAL AGENCY OR ANY STATE SECURITIES
COMMISSION, NOR HAS SUCH COMMISSION, OFFICE OR OTHER AGENCY OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

     THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT FEDERALLY INSURED OR GUARANTEED, NOR ARE THE SHARES OF
COMMON STOCK GUARANTEED BY THE COMPANY OR THE BANK.  THE ENTIRE AMOUNT OF A
PURCHASER'S PRINCIPAL IS SUBJECT TO LOSS.

     No person has been authorized to give any information or to make any
representations other than those contained in the Prospectus or this Prospectus
Supplement, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Bank or the Plan.  This
Prospectus Supplement does not constitute an offer to sell or solicitation of an
offer to buy any securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction.  Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Bank or the Plan since the date hereof, or
that the information herein contained or incorporated by reference is correct as
of any time subsequent to the date hereof.
<PAGE>
 
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
<S>                                                            <C>
THE OFFERING.................................................   1
     Securities Offered......................................   1
     Election to Purchase Common Stock in the Offering.......   1
     Value of Participation Interests........................   1
     Method of Directing Transfer............................   2
     Time for Directing Transfer.............................   2
     Irrevocability of Transfer Direction....................   2
     Direction to Purchase Common Stock After the Offering...   2
     Purchase Price of Common Stock..........................   2
     Nature of a Participant's Interest in the Common Stock..   3
     Voting and Tender Rights of Common Stock................   3
 
DESCRIPTION OF THE PLAN......................................   4
     Introduction............................................   4
     Eligibility and Participation...........................   5
     Contributions Under the Plan............................   5
     Limitations on Contributions............................   6
     Investment of Contributions.............................   8
     Benefits Under the Plan.................................  12
     Withdrawals and Distributions From the Plan.............  12
     Administration of the Plan..............................  13
     Reports to Plan Participants............................  13
     Plan Administrator......................................  14
     Amendment and Termination...............................  14
     Merger, Consolidation or Transfer.......................  14
     Federal Income Tax Consequences.........................  14
     ERISA and Other Qualification...........................  16
     Restrictions on Resale..................................  17
     SEC Reporting and Short-Swing Profit Liability..........  17

EXPERTS......................................................  18
LEGAL OPINION................................................  18
INVESTMENT FORM
</TABLE> 
<PAGE>
 
                                  THE OFFERING

SECURITIES OFFERED

     The securities offered hereby are participation interests in the Plan. Up
to 893,399 shares (assuming the actual purchase price is $10.00 per share) of
Common Stock may be acquired by the Plan to be held in the Employer Stock Fund.
The Holding Company is the issuer of the Common Stock. Only employees of the
Bank who have completed 1,000 hours of service and attained age 21 (hereinafter
referred to as the "Employer") may participate in the Plan. The Common Stock to
be issued hereby is conditioned on the consummation of the Offering. A
Participant's investment in units in the Employer Stock Fund in the Offering is
subject to the priority set forth in the Plan of Conversion and Reorganization.

     Information with regard to the Plan is contained in this Prospectus
Supplement and information with regard to the Offering and the financial
condition, results of operations and business of the Bank is contained in the
attached Prospectus.  The address of the principal executive office of the Bank
is 1000 Woodbridge Center Drive, Woodbridge, New Jersey 07095.  The Bank's
telephone number is (732) 726-9700.

ELECTION TO PURCHASE COMMON STOCK IN THE OFFERING

     In connection with First Source Bancorp, Inc.'s offering of Common Stock
(the "Offering"), the Plan permits each Participant to direct that all or part
of the funds which represent his or her beneficial interest in the assets of the
Plan may be transferred to the Employer Stock Fund, an investment fund in the
Plan that will invest in Common Stock.  If there is not enough Common Stock in
the Offering to fill all subscriptions, the Common Stock would be apportioned
and the Plan may not be able to purchase all of the Common Stock requested by
the Participants. In such case, the Trustee will purchase shares in the open
market after the close of the Offering to fulfill Participants' requests.  Such
purchases may be at prices higher than the purchase price in the Offering.  The
ability of each Participant to  invest in the Employer Stock Fund  in the
Offering pursuant to directions to transfer all or a portion of their beneficial
assets in the Plan will be based on such Participant's status as an Eligible
Account Holder or Supplemental Eligible Account Holder pursuant to the Plan of
Conversion and Reorganization, the subscription priorities set forth in the Plan
of Conversion and Reorganization and the availability of Common Stock.

VALUE OF PARTICIPATION INTERESTS

     The market value of the assets of the Plan, as of September 30, 1997, was
$8,933,992 and each Participant was informed of the value of his or her
beneficial interest in the Plan. This value represented the past contributions
to the Plan by the Employers and the Participants and any earnings or losses
thereon, less previous withdrawals.

                                       1
<PAGE>
 
METHOD OF DIRECTING TRANSFER

     The last page of this Prospectus Supplement is a form to direct a transfer
to the Employer Stock Fund (the "Investment Form").  If a Participant wishes to
transfer all or part of his or her beneficial interest in the assets of the Plan
to the Employer Stock Fund, he or she should indicate that decision in Part 2 of
the Investment Form.  If a Participant does not wish to make such an election,
he or she does not need to take any action.

TIME FOR DIRECTING TRANSFER

     The deadline for submitting a direction to transfer amounts to the Employer
Stock Fund  which will purchase Common Stock issued in connection with the
Offering is ten days prior to ____________________(the "Expiration Date") of the
Offering.  The Investment Form should be returned to the Bank's Human Resources
Department by 4:00 p.m. on such date.

IRREVOCABILITY OF TRANSFER DIRECTION

     A Participant's direction to transfer amounts credited to his or her
account in the Plan to the Employer Stock Fund  in connection with the Offering
shall be irrevocable.  Participants, however, will be able to direct the
investment of their accounts ("Accounts") after the Offering under the Plan as
explained below.

DIRECTION TO PURCHASE COMMON STOCK AFTER THE OFFERING

     A Participant shall be able to direct that a certain percentage of the net
value of such Participant's interests in the trust fund established for the Plan
(the "Trust Fund") be transferred to the Employer Stock Fund and invested in
Common Stock, or to the other investment funds available under the Plan.
Alternatively, a Participant may direct that a certain percentage of such
Participant's interest in the Employer Stock Fund be transferred to the Trust
Fund to be invested by the Trustee.  Participants will be permitted to direct
that future contributions made to the Plan by or on their behalf will be
invested in Common Stock.  Following the initial election, the allocation of a
Participant's interest in the First Source Bancorp, Inc. Stock Fund and the
First Savings CD Fund may be made only during a 10 day window period prior to
the beginning of each quarter; other investment funds may be re-allocated on a
daily basis using the Plan's administrative phone system.  Special restrictions
apply to transfers directed by those Participants who are officers, directors
and principal shareholders of the Bank who are subject to the provisions of
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "1934
Act").

PURCHASE PRICE OF COMMON STOCK

     The funds transferred to the First Source Bancorp, Inc. Stock Fund for the
purchase of Common Stock in connection with the Offering will be used by the
Trustee to purchase shares of Common Stock.  The price to be paid by the Trust
Fund  for such shares of Common Stock will be the same price as is paid by all
persons who purchase shares of Common Stock in the Offering.

                                       2
<PAGE>
 
     Common Stock purchased by the Trustee after the Offering will be acquired
in open market transactions.  The prices paid by the Trustee for shares of
Common Stock will not exceed "adequate consideration" as defined in Section
3(18) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA").

NATURE OF A PARTICIPANT'S INTEREST IN THE COMMON STOCK

     The Common Stock will be held in the name of the Trustee for the Plan, as
trustee.  Each Participant has an allocable interest in the investment funds of
the Plan but not in any particular assets of the Plan.  Accordingly, a specific
number of shares of Common Stock will not be directly attributable to the
account of any Participant.  Earnings, e.g., gains and losses, are allocated to
the Account of a Participant based on units in the Employer Stock Fund held by
the Participants.  Therefore, earnings with respect to a Participant's Account
should not be affected by the investment designations (including investments in
Common Stock) of other Participants.

VOTING AND TENDER RIGHTS OF COMMON STOCK

     The Trustee generally will exercise voting and tender rights attributable
to all Common Stock held by the Trust Fund as directed by Participants with
interests in the Employer Stock Fund.  With respect to each matter as to which
holders of Common Stock have a right to vote, each Participant will be allocated
a number of voting instruction rights reflecting such Participant's
proportionate interest in the Employer Stock Fund.  The number of shares of
Common Stock held in the Employer Stock Fund that are voted in the affirmative
and negative on each matter shall be proportionate to the number of voting
instruction rights exercised in the affirmative and negative, respectively.  In
the event of a tender offer for Common Stock, the Plan provides that each
Participant will be allotted a number of tender instruction rights reflecting
such Participant's proportionate interest in the Employer Stock Fund.  The
percentage of shares of Common Stock held in the Employer Stock Fund that will
be tendered will be the same as the percentage of the total number of tender
instruction rights that are exercised in favor of tendering.  The remaining
shares of Common Stock held in the Employer Stock Fund will not be tendered.
The Plan makes provision for Participants to exercise their voting instruction
rights and tender instruction rights on a confidential basis.

                                       3
<PAGE>
 
                            DESCRIPTION OF THE PLAN

I.   INTRODUCTION

     The Incentive Savings Plan for Employees of First Savings Bank, SLA (the
"Plan") became effective January 1, 1981 as a cash or deferred arrangement
pursuant to Section 401(a) and Section 401(k) of the Internal Revenue Code of
1954 as amended (the "1954 Code").  The Plan was subsequently amended and
restated in its entirety effective July 1, 1984, in order to comply with
statutorily required changes and to implement administrative changes.  The
Internal Revenue Service (the "IRS") issued a determination letter confirming
that the Plan, amended and restated as of July 1, 1984, was qualified under
Section 401(a) of the 1954 Code, and the trust pursuant to which the assets of
the Plan are held by the Bank, as trustee, was exempt from tax under Section
501(a) of the 1954 Code.

     At the time of the Bank's reorganization from a mutual savings association
to a mutual holding company, the Bank amended the Plan to implement the First
Savings Stock Fund.  The Plan as amended was submitted to the IRS for a
determination that the Plan, as amended, qualifies under Section 401(a) of the
Internal Revenue code of 1986 as amended (the "Code") and that it satisfies the
requirements for a qualified cash or deferred arrangement under Section 401(k)
of the Code.  A determination letter was received from the IRS on July 20, 1995.
In connection with the current reorganization of the Bank and the conversion of
the mutual holding company to the stock form of organization, the First Savings
Stock Fund will be converted to the First Source Bancorp, Inc. Stock Fund.

     Employee Retirement Income Security Act.  The Plan is an "individual
     ---------------------------------------                             
account plan" other than a "money purchase pension plan" within the meaning of
ERISA.  As such, the Plan is subject to all of the provisions of Title I
(Protection of Employee Benefit Rights) and Title II (Amendments to the Internal
Revenue Code Relating to Retirement Plans) of ERISA, except the funding
requirements contained in Part 3 of Title I of ERISA which by their terms do not
apply to an individual account plan (other than a money purchase pension plan).
The Plan is not subject to Title IV (Plan Termination Insurance) of ERISA.
Neither the funding requirements contained in Part 3 of Title I of ERISA nor the
plan termination insurance provisions contained in Title IV of ERISA will be
extended to Participants (as defined below) or beneficiaries under the Plan.

     APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS BENEFIT
UNDER THE PLAN PRIOR TO THE PARTICIPANT'S TERMINATION OF EMPLOYMENT WITH THE
BANK. A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE IMPOSED ON WITHDRAWALS MADE
PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59-1/2, REGARDLESS OF WHETHER SUCH
A WITHDRAWAL OCCURS DURING HIS EMPLOYMENT WITH THE BANK OR AFTER TERMINATION OF
EMPLOYMENT.

                                       4
<PAGE>
 
     Reference to Full Text of Plan.  The following statements are summaries of
     ------------------------------                                            
certain provisions of the Plan.  They are not complete and are qualified in
their entirety by the full text of the Plan.  Copies of the Plan are available
to all employees by filing a request with the Plan Administrator, John Mulkerin,
First Savings Bank, SLA, 1000 Woodbridge Drive, Woodbridge, New Jersey.  The
Plan Administrator's telephone number is (732) 726-9700.  Each employee is urged
to read carefully the full text of the Plan.

II.  ELIGIBILITY AND PARTICIPATION

     All employees of the Employer who have attained age 21 are eligible to
participate in the Plan on the first day of January following one year of
service with the Employer.  An eligible employee will become a participant on
the first day of January after the employee completes an Elective Deferral
Agreement.

     As of September 30, 1997, there were approximately 168 employees eligible
to participate in the Plan, and 153 employees had elected to participate in the
Plan.

III. CONTRIBUTIONS UNDER THE PLAN

     401(k) Plan Contributions.  Subject to certain limitations on
     -------------------------                                    
contributions, each Participant in the Plan is permitted to elect to reduce such
Participant's Compensation (as defined below) pursuant to an "Elective Deferral
Agreement" by an amount not less than 2% and not more than 12% and have that
amount contributed to the Plan on such Participant's behalf.  Such amounts are
credited to the Participant's " Elective Deferral Account."  See "Section IV
Limitations on Contributions" below.  For purposes of the Plan, "Compensation"
means a Participant's compensation from the Employer, including amounts subject
to an Elective Deferral Agreement, but excluding bonuses, overtime, commissions,
expense allowance, profit sharing or any other extra compensation in any form.
As of January 1, 1998, the annual compensation of each Participant taken into
account under the Plan is limited to $160,000 (adjusted for increases in the
cost of living as permitted by the Code).  Generally, a Participant may elect to
modify the amount contributed to the Plan under such Participant's Elective
Deferral Agreement not more often than twice a year by providing notice to the
Plan Administrator.  However, special restrictions apply to persons subject to
Section 16 of the 1934 Act. Elective deferrals are transferred by the Employer
to the Trustee of the Plan.

     Notwithstanding the preceding, a Participant who receives a hardship
distribution under the terms of the Plan may not be eligible to make additional
contributions under a Elective Deferral Agreement or have matching contributions
made on his behalf for a period of twelve (12) months after the receipt of the
hardship distribution.

                                       5
<PAGE>
 
     Employer Contributions.  The Employer contributes to the Plan for each Plan
     ----------------------                                                     
Year 50% of the Participant's elective deferrals, up to 3% of the Participant's
Compensation for the Plan Year.  Such amounts are credited to the Participant's
"Employer Contribution Account."

IV.  LIMITATIONS ON CONTRIBUTIONS

     Limitations on Annual Additions and Benefits.  Pursuant to the requirements
     --------------------------------------------                               
of the Code, the Plan provides that the amount of contributions  allocated to
each Participant's Elective Deferral Account and Employer Contribution Account
during any Plan Year may not exceed the lesser of 25% of the Participant's
(S)415 Compensation for the Plan Year or $30,000 (adjusted for increases in the
cost of living as permitted by the Code).  A Participant's (S)415 Compensation
is a Participant's Compensation, excluding any Employer contribution to the Plan
or to any other plan of deferred compensation or any distributions from a plan
of deferred compensation.  In addition, annual additions shall be limited to the
extent necessary to prevent the limitations set forth in the Code for all of the
qualified defined benefit plans and defined contribution plans maintained by the
Bank from being exceeded.  To the extent that these limitations would be
exceeded by reason of excess annual additions with respect to a Participant,
such excess will be disposed of as follows:

     (i)    Any non-deductible voluntary employee contributions, to the extent
that would reduce the excess amount, will be returned to the Participant;

     (ii)   If, after the application of (i) above, an excess still exists and
the Participant is covered by the Plan at the end of the Limitation Year, the
excess amount in the Participant's Account will be used to reduce the Employer
contributions for such Participant in the next Limitation Year, and each
succeeding Limitation Year if necessary;

     (iii)  If, after the application of (i) above, an excess amount still
exists, and the Participant is not covered by the Plan at the end of the
                               ---                                      
Limitation Year, the excess amount will be held unallocated in a suspense
account which will then be applied to reduce future Employer contributions for
al remaining Participants in the next Limitation Year, and each succeeding
Limitation Year if necessary;

     (iv)   If a suspense account is in existence at any time during the
Limitation Year, it will not participate in the allocation of investment gains
and losses.

     Limitation on 401(k) Plan Contributions.  The annual amount of deferred
     ---------------------------------------                                
Compensation under a Elective Deferral Agreement of a Participant (when
aggregated with any elective deferrals of the Participant under a simplified
employee pension plan or a tax-deferred annuity) may not exceed $7,000 adjusted
for increases in the cost of living as permitted by the Code (the limitation for
1998 is $10,000). Contributions in excess of this limitation ("excess
deferrals") will be included in the Participant's gross income for federal
income tax purposes in the year they are made. In addition, any such excess
deferral will again be subject to federal income tax when distributed by the
Plan to the Participant, unless the excess deferral (together with any income
allocable thereto) is distributed to the Participant not later than the first
April 15th following the close of the taxable

                                       6
<PAGE>
 
year in which the excess deferral is made.  Any income on the excess
deferral that is distributed not later than such date shall be treated, for
federal income tax purposes, as earned and received by the Participant in the
taxable year in which the excess deferral is made.

     Limitation on Plan Contributions for Highly Compensated Employees.
     -----------------------------------------------------------------  
Sections 401(k) and 401(m) of the Code limit the amount of deferred compensation
that may be made to the Plan in any Plan Year on behalf of Highly Compensated
Employees (defined below) in relation to the amount of deferred compensation
made by or on behalf of all other employees eligible to participate in the Plan.
Specifically, the actual deferral percentage (i.e., the average of the ratios,
calculated separately for each eligible employee in each group, by dividing the
amount of deferred compensation credited to the Elective Deferral Account of
such eligible employee by such eligible employee's compensation for the Plan
Year) of the Highly Compensated Employees may not exceed the greater of (i) 125%
of the actual deferral percentage of all other eligible employees, or (ii) the
lesser of (x) 200% of the actual deferral percentage of all other eligible
employees, or (y) the actual deferral percentage of all other eligible employees
plus two percentage points.  In addition, the actual contribution percentage for
such Plan Years (i.e., the average of the ratios calculated separately for each
eligible employee in each group, by dividing the amount of voluntary employee
and employer matching contributions credited to the Employer Contribution
Account of such eligible employee by such eligible employee's compensation for
the Plan Year) of the Highly Compensated Employees may not exceed the greater of
(i) 125% of the actual contribution percentage of all other eligible employees,
or (ii) the lesser of (x) 200% of the actual contribution percentage of all
other eligible employees, or (y) the actual contribution percentage of all other
eligible employees plus two percentage points.

     In general, a Highly Compensated Employee includes any employee who, (1)
was a five percent owner of the Employer at any time during the year or
preceding year; or (2) had compensation for the preceding year in excess of
$80,000 and, if the Employer so elects, was in the top 20% of employees by
compensation for such year.  The dollar amounts in the foregoing sentence are
for 1998.  Such amounts are adjusted annually to reflect increases in the cost
of living.

     In addition, the compensation of an employee who is a family member of a 5%
owner, or one of the ten most highly compensated employees during the relevant
period is aggregated with that of the Highly Compensated Employee. All such
family members are treated as a single employee with respect to the application
of the limitations on Highly Compensated Employees.

     In order to prevent the disqualification of the Plan, any amount
contributed by Highly Compensated Employees that exceed the average deferral
limitation in any Plan Year ("excess contributions"), together with any income
allocable thereto, must be distributed to such Highly Compensated Employees
before the close of the following Plan Year. However, the Employer will be
subject to a 10% excise tax on any excess contributions unless such excess
contributions, together with any income allocable thereto, either are
recharacterized or are distributed before the close of the first 2 1/2 months
following the Plan Year to which such excess contributions relate.

                                       7
<PAGE>
 
     Top-Heavy Plan Requirements.  If for any Plan Year the Plan is a Top-Heavy
     ---------------------------                                               
Plan (as defined below), then (i) the Bank may be required to make certain
minimum contributions to the Plan on behalf of non-key employees (as defined
below), and (ii) certain additional restrictions would apply with respect to the
combination of annual additions to the Plan and projected annual benefits under
any defined benefit plan maintained by the Bank.

     In general, the Plan will be regarded as a "Top-Heavy Plan" for any Plan
Year if, as of the last day of the preceding Plan Year, the aggregate balance of
the Accounts of Participants who are Key Employees (as defined below) exceeds
60% of the aggregate balance of the Accounts of all Participants.  Key Employees
generally include any employee who, at any time during the Plan Year or any of
the four preceding Plan Years, is (1) an officer of the Bank having annual
compensation in excess of $60,000 who is in an administrative or policy-making
capacity, (2) one of the ten employees having annual compensation in excess of
$30,000 and owning, directly or indirectly, the largest interests in the Bank,
(3) a 5% owner of the Bank, (i.e., owns directly or indirectly more than 5% of
the stock of the Bank, or stock possessing more than 5% of the total combined
voting power of all stock of the Bank) or (4) a 1% owner of the Bank having
annual compensation in excess of $150,000.  The dollar amounts in the foregoing
sentence are for 1998.

V.   INVESTMENT OF CONTRIBUTIONS

     All amounts credited to Participants' Accounts under the Plan are held in
the Plan Trust (the "Trust") which is administered by the Trustee appointed by
the Bank's Board of Directors.

     Prior to [insert date of Prospectus here], the Participant Accounts have
been invested by the Trustee, at the direction of the Participants, in the
following funds:

     Fidelity Magellan Fund
     Fidelity Puritan Fund
     Nationwide Bond Fund
     Nationwide Money Market Fund
     Twentieth Century U.S. Government Bond
     First Savings Stock Fund
     First Savings CD Fund
 
     Effective _______, 1998, the First Savings Stock Fund will be converted
into the First Source Bancorp, Inc. Stock Fund.

                                       8
<PAGE>
 
      Each fund has unique investment goals and methodologies

(i)   Fidelity Magellan Fund:
 .     invests primarily in common stocks and convertible securities;

 .     may invest up to 20% of its assets in debt securities of all types and
      qualities;

 .     features domestic corporations operating primarily in the United States,
      domestic corporations that have significant activities and interests
      outside the U.S., and foreign companies;

 .     has no limitation on total foreign investment, but no more than 40% of
      fund assets will be invested in companies operating exclusively in one
      foreign country;

 .     is managed by Fidelity Management & Research Company.

(ii)  Fidelity Puritan Fund:

 .     seeks as much income as possible, consistent with the preservation and
      conservation of capital;

 .     invests in common stocks, and bonds, seeking to diversify in terms of both
      companies and industries;

 .     has historically used income-producing securities as the principal
      holding;

 .     is managed by Fidelity Management & Research Company.

(iii) Nationwide Bond Fund:

 .     seeks as high a level of income as is consistent with capital
      preservation;

 .     invests in high quality bonds and other fixed income securities;

 .     may include investments such as corporate bonds rated A or better, U.S.
      Government obligations, Canadian government bonds, and the highest
      investment grades of commercial paper;

 .     is managed by Nationwide Financial Services.

(iv)  Nationwide Money Market Fund:

 .     provides as high a level of current income as is consistent with the
      preservation of capital and maintenance of liquidity;

                                       9
<PAGE>
 
 .     invests in a diversified portfolio of high-quality money market
      instruments maturing in 397 days or less;

 .     accomplishes is objectives by investing mainly in debt, but retains
      maximum flexibility in the management of its portfolio;

 .     is managed by Nationwide Financial Services.

(v)   Twentieth Century U.S. Gov't Bond:

 .     may invest in direct obligations of the United States, which are supported
      by the full faith and credit of the United States, and in obligations of
      agencies and instrumentalities of the U.S. government that are established
      under authority of an act of Congress;

 .     maintains an average weighted maturity of four years or less;

 .     is managed by Investors Research Corporation.

(vi)  First Savings Stock Fund invests primarily in the Common Stock of First
      Savings Bank, SLA.

(vii) First Savings CD Fund holds funds in insured deposits at First Savings
      Bank, SLA at market rates and other conditions equal to those provided
      other customers of First Savings Bank, SLA.

      The net gain (or loss) of the Funds from investments (including interest
payments, dividends, realized and unrealized gains and losses on securities, and
expenses paid from the Trust will be determined as of the first day of each June
and December during the Plan Year (the "Valuation Dates") and will be allocated
among the Accounts of Participants according to the balance of such Accounts as
of each Valuation Date.

      Any amounts credited to a Participant's Accounts for which investment
directions are not given will be invested in the Nationwide Money Market Fund by
the Trustee.

                                       10
<PAGE>
 
     A.   Previous Funds.
          -------------- 

     Prior to _________________________, contributions under the Plan were
invested in the following funds.  The annual percentage return on these funds
for the prior three years was:

<TABLE>
<CAPTION>
                                      1996  1995   1994
<S>                                   <C>   <C>    <C>
Fidelity Magellan Fund                             (1.8)%
 
Fidelity Puritan Fund                               1.8
 
Nationwide Bond Fund                               (8.1)
 
Nationwide Money Market Fund                        3.7
 
Twentieth Century U.S. Government                  (0.5)
Bond Fund
 
First Savings CD Fund                               7.0
 
First Savings Stock Fund                           11.7
</TABLE>

     B.   The First Source Bancorp, Inc. Stock Fund.
          ----------------------------------------- 

          The First Source Bancorp, Inc. Stock Fund will consist of investments
in Common Stock made on and after the effective date of the Offering.   Each
Participant's proportionate undivided beneficial interest in the First Source
Bancorp, Inc. Stock Fund is measured by units.  Each day a unit value will be
calculated by determining the market value of the Common Stock actually held and
adding to that any cash held by the Trustee.  This total will be divided by the
number of units outstanding to determine the unit value of the First Source
Bancorp, Inc. Stock Fund.

     On the occasion of the payment of a cash dividend, the unit value will be
determined before the dividend is distributed.  The Trustee may use the dividend
to purchase additional shares of Common Stock, thereby increasing the total
value of the First Source Bancorp, Inc. Stock Fund, and the value of each unit.
The Board of Directors of the Holding Company may consider a policy of paying
cash dividends on the Common Stock in the future; however, no decision as to the
amount or timing of cash dividends, if any, has been made.  The Trustee will, to
the extent practicable, use all amounts held by it in the First Source Bancorp,
Inc. Stock Fund  to purchase shares of Common Stock of the Holding Company.  It
is expected that all purchases will be made at prevailing market prices.  Under
certain circumstances, the Trustee may be required to limit the daily volume of
shares purchased. Pending investment in Common Stock, assets held in the First
Source Bancorp, Inc. Stock Fund will be placed in bank deposits and other short-
term investments.

     Any brokerage commissions, transfer fees and other expenses incurred in the
sale and purchase of Common Stock for the First Source Bancorp, Inc. Stock Fund
will be paid out of a cash

                                       11
<PAGE>
 
account managed by the Trustee. Therefore, although Participants' Accounts will
not be directly adjusted for such fees, the market value of their accounts will
be reduced.

     As of the date of this Prospectus Supplement, none of the shares of Common
Stock have been issued or are outstanding and there is no established market for
the Common Stock.  Accordingly, there is no record of the historical performance
of the First Source Bancorp, Inc. Stock Fund.  Performance will be dependent
upon a number of factors, including the financial condition and profitability of
the Holding Company and the Bank and market conditions for the Common Stock
generally.  See "Market for the Common Stock" in the Prospectus.

     INVESTMENTS IN THE FIRST SOURCE BANCORP, INC. STOCK FUND MAY INVOLVE
CERTAIN SPECIAL RISKS IN INVESTMENTS IN COMMON STOCK OF THE COMPANY.  FOR A
DISCUSSION OF THESE RISK FACTORS, SEE "RISK FACTORS" IN THE PROSPECTUS.

VI.  BENEFITS UNDER THE PLAN

     A Participant, at all times, has a fully vested, nonforfeitable interest in
his or her Accounts and the earnings thereon under the Plan.

VII. WITHDRAWALS AND DISTRIBUTIONS FROM THE PLAN

     Withdrawals Prior to Termination of Employment.  Subject to the hardship
     ----------------------------------------------                          
distribution rules under the Plan, a Participant may withdraw all or a portion
of his or her Accounts under the Plan.  The hardship distribution requirements
ensure that Participants have a true financial need before a withdrawal may be
made.

     A Participant may make a withdrawal from his Employer Contribution Account
following five years of participation in the Plan.  However, if a Participant
makes such a withdrawal, he or she is precluded from making any further
withdrawals from his Employer Contribution Account for a twelve-month period.

     Distribution Upon Retirement, Disability or Termination of Employment.
     ---------------------------------------------------------------------  
Payment of benefits to a Participant who retires, incurs a disability, or
otherwise terminates employment generally shall be made in a lump sum cash
payment as soon as administratively feasible after such termination of
employment if the vested value of the Participant's Account is $3,500 or less.
If the vested portion of the Participant's Account balance is greater than
$3,500, the Participant may request a distribution (subject to the minimum
distribution rules) in a lump sum payment: (a) as soon as administratively
possible after termination, (b) as of any valuation date up to 13 months after
termination or (c) as of the date the Participant attains normal retirement age.
At the request of the Participant, the distribution may include an in kind
distribution of Common Stock of the Holding Company equal to the number of
shares that can be purchased with the Participant's balance in the First Source
Bancorp, Inc. Stock Fund. Benefit payments ordinarily shall be made not later
than 60 days following the end of the Plan Year in which occurs the latest of
the Participant's: (i) termination of employment; (ii) the attainment of age 65
or (iii) 10th anniversary of commencement

                                       12
<PAGE>
 
of participation in the Plan; but in no event later than the April 1 following
the calendar year in which the Participant attains age 70 1/2. However, if the
vested portion of the Participant's Account balances exceeds or has ever
exceeded $3,500, no distribution shall be made from the Plan prior to the
Participant's attaining age 65 unless the Participant elects to receive an
earlier distribution.

     Distribution upon Death.  Unless otherwise elected as above, a Participant
     -----------------------                                                   
who dies prior to the benefit commencement date for retirement, disability or
termination of employment, and who has a surviving spouse shall have his
benefits paid to the surviving spouse in a lump sum as soon as administratively
possible following the date of his death, unless the Participant elected prior
to his death or the beneficiary so elects within 90 days of the Participant's
death, to receive such distribution in a lump sum payment as of any Valuation
Date which occurs within one year of the Participant's death.  With respect to
an unmarried Participant, and in the case of a married Participant with spousal
consent to the designation of another beneficiary, payment of benefits to the
beneficiary of a deceased Participant shall be made in the form of a lump-sum
payment in cash or in Common Stock in the same manner described above as to a
Participant with a surviving spouse.

     Nonalienation of Benefits.  Except with respect to federal income tax
     -------------------------                                            
withholding and as provided with respect to a qualified domestic relations order
(as defined in the Code), benefits payable under the Plan shall not be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to
benefits payable under the Plan shall be void.

ADMINISTRATION OF THE PLAN

     The Trustee with respect to the Plan is the named fiduciary of the Plan for
purposes of Section 402 of ERISA.

     Trustees.  The Trustee is appointed by the Board of Directors of the Bank
     --------                                                                 
to serve at its pleasure. The current Trustees of the Plan are designated
members of the Board. An unaffiliated Trustee has been appointed to hold funds
invested in the First Source Bancorp, Inc. Stock Fund.

     The Trustee receives, holds and invests the contributions to the Plan in
trust and distributes them to Participants and beneficiaries in accordance with
the terms of the Plan and the directions of the Plan Administrator.  The Trustee
is responsible for investment of the assets of the Trust.

REPORTS TO PLAN PARTICIPANTS

     Once a year, the Plan Administrator furnishes to each Participant a
statement showing (i) the balance in the Participant's Account as of the end of
that period, (ii) the amount of contributions allocated to such participant's
Account for that period, and (iii) the adjustments to such participant's Account
to reflect earnings or losses (if any).

                                       13
<PAGE>
 
PLAN ADMINISTRATOR

     Pursuant to the terms of the Plan, the Plan is administered by one or more
persons who are appointed by and who serve at the pleasure of the Bank.
Currently, the Plan Administrator is John Mulkerin of the Bank.  The address and
telephone number of the Plan Administrator is c/o First Savings Bank, SLA, 1000
Woodbridge Center Drive, Woodbridge, New Jersey, 07095.  The Plan Administrator
is responsible for the administration of the Plan, interpretation of the
provisions of the Plan, prescribing procedures for filing applications for
benefits, preparation and distribution of information explaining the Plan,
maintenance of Plan records, books of account and all other data necessary for
the proper administration of the Plan, and preparation and filing of all returns
and reports relating to the Plan which are required to be filed with the U.S.
Department of Labor and the IRS, and for all disclosures required to be made to
Participants, Beneficiaries and others under Sections 104 and 105 of ERISA.

AMENDMENT AND TERMINATION

     It is the intention of the Bank to continue the Plan indefinitely.
Nevertheless, the Bank may terminate the Plan at any time.  If the Plan is
terminated in whole or in part, then regardless of other provisions in the Plan,
each employee affected by such termination shall have a fully vested interest in
his Accounts.  The Bank reserves the right to make, from time to time, any
amendment or amendments to the Plan which do not cause any part of the Trust to
be used for, or diverted to, any purpose other than the exclusive benefit of
Participants or their beneficiaries; provided, however, that the Bank may make
any amendment it determines necessary or desirable, with or without retroactive
effect, to comply with ERISA.

MERGER, CONSOLIDATION OR TRANSFER

     In the event of the merger or consolidation of the Plan with another plan,
or the transfer of the Trust assets to another plan, the Plan requires that each
Participant would (if either the Plan or the other plan then terminated) receive
a benefit immediately after the merger, consolidation or transfer which is equal
to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation or transfer (if the Plan had then
terminated).

FEDERAL INCOME TAX CONSEQUENCES

     The following is only a brief summary of certain federal income tax aspects
of the Plan which are of general application under the Code and is not intended
to be a complete or definitive description of the federal income tax
consequences of participating in or receiving distributions from the Plan.  The
summary is necessarily general in nature and does not purport to be complete.
Moreover, statutory provisions are subject to change, as are their
interpretations, and their application may vary in individual circumstances.
Finally, the consequences under applicable state and local income tax laws may
not be the same as under the federal income tax laws. PARTICIPANTS ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO ANY DISTRIBUTION FROM THE PLAN AND
TRANSACTIONS INVOLVING THE PLAN.

                                       14
<PAGE>
 
     The Plan has received a determination that it is qualified under Section
401(a) and 401(k) of the Code, and that the related Trust is exempt from tax
under Section 501(a) of the Code.  A plan that is "qualified" under these
sections of the Code is afforded special tax treatment which include the
following:  (1) The sponsoring employer is allowed an immediate tax deduction
for the amount contributed to the Plan each year; (2) Participants pay no
current income tax on amounts contributed by the employer on their behalf; and
(3) earnings of the plan are tax-deferred thereby permitting the tax-free
accumulation of income and gains on investments.  The Plan will be administered
to comply in operation with the requirements of the Code as of the applicable
effective date of any change in the law.  The Bank expects to timely adopt any
amendments to the Plan that may be necessary to maintain the qualified status of
the Plan under the Code.

     Lump Sum Distribution.  A distribution from the Plan to a Participant or
     ---------------------                                                   
the beneficiary of a Participant will qualify as a Lump Sum Distribution if it
is made:  (i) within one taxable year of the Participant or beneficiary; (ii) on
account of the Participant's death, disability or separation from service, or
after the Participant attains age 59 1/2; and (iii) consists of the balance to
the credit of the Participant under this Plan and all other profit sharing
plans, if any, maintained by the Bank.  The portion of any Lump Sum Distribution
that is required to be included in the Participant's or beneficiary's taxable
income for federal income tax purposes (the "total taxable amount") consists of
the entire amount of such Lump Sum Distribution less the amount of after-tax
contributions, if any, made by the Participant to any other profit sharing plans
maintained by the Bank which is included in such distribution.

     Averaging Rules.  The portion of the total taxable amount of a Lump Sum
     ---------------                                                        
Distribution that is attributable to participation after 1973 in this Plan or in
any other profit-sharing plan maintained by the Bank (the "ordinary income
portion") will be taxable generally as ordinary income for federal income tax
purposes.  However, a Participant who has completed at least five years of
participation in this Plan before the taxable year in which the distribution is
made, or a beneficiary who receives a Lump Sum Distribution on account of the
Participant's death (regardless of the period of the Participant's participation
in this Plan or any other profit-sharing plan maintained by the Employers), may
elect to have the ordinary income portion of such Lump Sum Distribution taxed
according to a special averaging rule ("five-year averaging"). The election of
the special averaging rules may apply only to one Lump Sum Distribution received
by the Participant or beneficiary, provided such amount is received on or after
the Participant turns 59-1/2 and the recipient elects to have any other Lump Sum
Distribution from a qualified plan received in the same taxable year taxed under
the special averaging rule. Under a special grandfather rule, individuals who
turned 50 by 1986 may elect to have their Lump Sum Distribution taxed under
either the five-year averaging rule or under the prior law ten-year averaging
rule. Such individuals also may elect to have that portion of the Lump Sum
Distribution attributable to the participant's pre-1974 participation in the
Plan taxed at a flat 20% rate as gain from the sale of a capital asset.

     Common Stock Included in Lump Sum Distribution.  If a Lump Sum Distribution
     ----------------------------------------------                             
includes Common Stock, the distribution generally will be taxed in the manner
described above, except that the total taxable amount will be reduced by the
amount of any net unrealized appreciation with respect to such Common Stock,
i.e., the excess of the value of such Common Stock at the time of

                                       15
<PAGE>
 
the distribution over its cost or other basis of the securities to the Trust.
The tax basis of such Common Stock to the Participant or beneficiary for
purposes of computing gain or loss on its subsequent sale will be the value of
the Common Stock at the time of distribution less the amount of net unrealized
appreciation. Any gain on a subsequent sale or other taxable disposition of such
Common Stock, to the extent of the amount of net unrealized appreciation at the
time of distribution, will be considered long-term capital gain regardless of
the holding period of such Common Stock. Any gain on a subsequent sale or other
taxable disposition of the Common Stock in excess of the amount of net
unrealized appreciation at the time of distribution will be considered either
short-term capital gain or long-term capital gain depending upon the length of
the holding period of the Common Stock. The recipient of a distribution may
elect to include the amount of any net unrealized appreciation in the total
taxable amount of such distribution to the extent allowed by the regulations to
be issued by the IRS.

     Distributions:  Rollovers and Direct Transfers to Another Qualified Plan or
     ---------------------------------------------------------------------------
to an IRA.  Pursuant to a change in the law, effective January 1, 1993,
----------                                                             
virtually all distributions from the Plan may be rolled over to another
qualified Plan or to an individual retirement account ("IRA") without regard to
whether the distribution is a Lump Sum Distribution or a Partial Distribution.
Effective January 1, 1993, Participants have the right to elect to have the
Trustee transfer all or any portion of an "eligible rollover distribution"
directly to another plan qualified under Section 401(a) of the Code or to an
IRA.  If the Participant does not elect to have an "eligible rollover
distribution" transferred directly to another qualified plan or to an IRA, the
distribution will be subject to an mandatory federal withholding tax equal to
20% of the taxable distribution. An "eligible rollover distribution" means any
amount distributed from the Plan except: (1) a distribution that is (a) one of a
series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the Participant or the joint
lines of the Participant and his or her designated beneficiary, or (b) for a
specified period of ten years or more; (2) any amount that is required to be
distributed under the minimum distribution rules; and (3) any other
distributions excepted under applicable federal law. The tax law change
described above did not modify the special tax treatment of Lump Sum
Distributions, that are not rolled over or transferred i.e., forward averaging,
capital gains tax treatment and the nonrecognition of net unrealized
appreciation, discussed earlier.

ERISA AND OTHER QUALIFICATION

     As noted above, the Plan is subject to certain provisions of ERISA and will
be submitted to the IRS for a determination that it is qualified under Section
401(a) of the Code.

     THE FOREGOING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX ASPECTS
OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT INTENDED
TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN.
ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT A TAX ADVISOR CONCERNING THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING
DISTRIBUTIONS FROM THE PLAN.

                                       16
<PAGE>
 
RESTRICTIONS ON RESALE

     Any person receiving a distribution of shares of Common Stock under the
Plan who is an "affiliate" of the Bank as the term "affiliate" is used in Rules
144 and 405 under the Securities Act of 1933, as amended (the "Securities Act")
(e.g., directors, officers and substantial shareholders of the Bank) may reoffer
or resell such shares only pursuant to a registration statement filed under the
Securities Act assuming the availability thereof, pursuant to Rule 144 or some
other exemption of the registration requirements of the Securities Act Any
person who may be an "affiliate" of the Bank may wish to consult with counsel
before transferring any Common Stock owned by him.  In addition, Participants
are advised to consult with counsel as to the applicability of Section 16 of the
1934 Act which may restrict the sale of Common Stock where acquired under the
Plan, or other sales of Common Stock.

     Persons who are not deemed to be "affiliates" of the Bank at the time of
                     ---                                                     
resale will be free to resell any shares of Common Stock to them under the Plan,
either publicly or privately, without regard to the Registration and Prospectus
delivery requirements of the Securities Act or compliance with the restrictions
and conditions contained in the exemptive rules thereunder. An "affiliate" of
the Bank is someone who directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control, with the
Bank. Normally, a director, principal officer or major shareholder of a
corporation may be deemed to be an "affiliate" of that corporation. A person who
may be deemed an "affiliate" of the Bank at the time of a proposed resale will
be permitted to make public resales of the Bank's Common Stock only pursuant to
a "reoffer" Prospectus or in accordance with the restrictions and conditions
contained in Rule 144 under the Securities Act or some other exemption from
registration, and will not be permitted to use this Prospectus in connection
with any such resale. In general, the amount of the Bank's Common Stock which
any such affiliate may publicly resell pursuant to Rule 144 in any three-month
period may not exceed the greater of one percent of the Bank's Common Stock then
outstanding or the average weekly trading volume reported on the National
Association of Securities Dealers Automated Quotation System during the four
calendar weeks prior to the sale. Such sales may be made only through brokers
without solicitation and only at a time when the Bank is current in filing the
reports required of it under the 1934 Act.

SEC REPORTING AND SHORT-SWING PROFIT LIABILITY

     Section 16 of the 1934 Act imposes reporting and liability requirements on
officers, directors and persons beneficially owning more than ten percent of
public companies such as the Holding Company.  Section 16(a) of the 1934 Act
requires the filing of reports of beneficial ownership.  Within ten days of
becoming a person subject to the reporting requirements of Section 16(a), a Form
3 reporting initial beneficial ownership must be filed with the Securities and
Exchange Commission.  Certain changes in beneficial ownership, such as
purchases, sales, gifts and participation in savings and retirement plans must
be reported periodically, either on a Form 4 within ten days after the end of
the month in which a change occurs, or annually on a Form 5 within 45 days after
the close of the Bank's fiscal year.  Participation in the Employer Stock Fund
of the Plan by officers, directors and

                                       17
<PAGE>
 
persons beneficially owning more than ten percent of Common Stock of the Holding
Company must be reported to the SEC annually on a Form 5 by such individuals.

     In addition to the reporting requirements described above, Section 16(b) of
the 1934 Act provides for the recovery by the Holding Company of profits
realized by any officer, director or any person beneficially owning more than
ten percent of the Holding Company's Common Stock ("Section 16(b) Persons")
resulting from the purchase and sale or sale and purchase of the Holding
Company's Common Stock within any six-month period.

     The SEC has adopted rules that provide exemption from the profit recovery
provisions of Section 16(b) for participant-directed employer security
transactions within an employee benefit plan, such as the Plan, provided certain
requirements are met.  These requirements generally involve restrictions upon
the timing of elections to acquire or dispose of employer securities for the
accounts of Section 16(b) Persons.

     Except for distributions of Common Stock due to death, disability,
retirement, termination of employment or under a qualified domestic relations
order, Section 16(b) Persons are required to hold shares of Common Stock
distributed from the Plan for six months following such distribution.

                                    EXPERTS

     The financial statements and schedules of the Incentive Savings Plan for
the Employees of First Savings, SLA as of December 31, 1996 and 1995 and for the
years then ended have been included in reliance upon the report of KPMG Peat
Marwick, independent certified public accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.

                                 LEGAL OPINION

     The validity of the issuance of the Common Stock will be passed upon by
Muldoon, Murphy & Faucette, Washington, D.C., which firm acted as special
counsel for the Holding Company in connection with the Holding Company's
Offering. 

                                       18
<PAGE>
 
                          INDEPENDENT AUDITORS' REPORT
                                        

The Board of Directors
First Savings Bank, SLA:


We have audited the accompanying statements of net assets available for plan
benefits (with fund information) of the Incentive Savings Plan for Employees of
First Savings Bank, SLA as of December 31, 1996 and 1995, and the related
statements of changes in net assets available for plan benefits (with fund
information) for the years then ended.  These financial statements are the
responsibility of the Plan's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of the
Incentive Savings Plan for Employees of First Savings Bank, SLA as of December
31, 1996 and 1995, and the changes in net assets available for plan benefits for
the years then ended in conformity with generally accepted accounting
principles.

Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole.  The supplemental schedules of assets
held for investment purposes, and reportable transactions are presented for the
purpose of additional analysis and are not a required part of the basic
financial statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974.  The fund information in
the statements of net assets available for plan benefits (with fund information)
and the statements of changes in net assets available for plan benefits (with
fund information) is presented for purposes of additional analysis rather than
to present the net assets available for plan benefits and changes in net assets
available for plan benefits of each fund.  The supplemental schedules and fund
information have been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
<PAGE>
 
                                       2


The schedule of assets held for investment purposes that accompanies the Plan's
financial statements does not disclose the historical cost of certain plan
assets held by the Plan trustee.  Disclosure of this information is required by
the Department of Labor's Rules and Regulations for Reporting and Disclosure
under the Employee Retirement Income Security Act of 1974.



June 6, 1997
<PAGE>
 
                     INCENTIVE SAVINGS PLAN FOR EMPLOYEES
                          OF FIRST SAVINGS BANK, SLA

                      Statements of Net Assets Available
                   for Plan Benefits (With Fund Information)

                          December 31, 1996 and 1995

                                (In Thousands)

<TABLE> 
<CAPTION> 
                                                      1996                                     1995
                                        -----------------------------------     ------------------------------------
                                                  Employer                                Employer
                                        General    stock    Mutual              General    stock    Mutual
                                          fund      fund     funds   Total        fund      fund     funds    Total
                                        -------   --------  ------  -------     -------   --------  ------   -------
<S>                                     <C>       <C>       <C>     <C>         <C>       <C>       <C>      <C> 
Assets - investments (note 3):          
  Money market fund (plan sponsor)      $    25         --      --       25           9         --      --         9
  Certificates of deposit                 1,367         98      --    1,465       1,299         95      --     1,394
  Mutual funds                               --         --   1,344    1,344          --         --     812       812
  Common stock                               --      2,841      --    2,841          --      3,191      --     3,191
  Members' loans                            233         --      --      233         154         --      --       154
                                        -------   --------  ------  -------     -------   --------  ------   -------

        Net asets available for
         plan benefits                  $ 1,625      2,939   1,344    5,908       1,462      3,286     812     5,560
                                        =======   ========  ======  =======     =======   ========  ======   =======

</TABLE> 
See accompanying notes to financial statements.

<PAGE>
 
                     INCENTIVE SAVINGS PLAN FOR EMPLOYEES
                          OF FIRST SAVINGS BANK, SLA

                 Statements of Changes in Net Assets Available
                   for Plan Benefits (With Fund Information)

                    Years ended December 31, 1996 and 1995

                                (In Thousands)

<TABLE> 
<CAPTION> 
                                                                            1996                              1995                 
                                                             --------------------------------  ---------------------------------
                                                                      Employer                          Employer                
                                                             General   stock   Mutual          General   stock   Mutual         
                                                               fund     fund    funds  Total     fund     fund    funds   Total 
                                                             -------  -------- ------ -------  -------  -------- ------  ------- 
<S>                                                          <C>      <C>      <C>    <C>      <C>      <C>      <C>     <C> 
Additions to net assets attributed to:                                                                                  
  Interest and dividend income                               $   111       110     --     221      101        71     --      172
                                                             -------  -------- ------ -------  -------  -------- ------  -------
  Contributions:                                              
    Employer                                                      50        --     85     135       49        --     66      115
    Employee                                                     219        --    211     430      122        --    155      277
                                                             -------  -------- ------ -------  -------  -------- ------  ------- 

        Total contributions                                      269        --    296     565      171        --    221      392
                                                             -------  -------- ------ -------  -------  -------- ------  -------

  Net transfers among funds                                     (110)      (40)   150      --     (155)      420   (265)      --
  Net realized and unrealized appreciation in fair           
    value of plan assets                                          --       893     86     979       --       630    195      825
                                                             -------  -------- ------ -------  -------  -------- ------  -------
        Total additions                                          270       963    532   1,765      117     1,121    151    1,389
                                                             
Deductions from net assets attributed to benefits to         
  participants                                                   107     1,310     --   1,417      134        --     --      134
                                                             -------  -------- ------ -------  -------  -------- ------  ------- 
        Net increase (decrease)                                  163      (347)   532     348      (17)    1,121    151    1,255 
                                                             
Net assets available for plan benefits at beginning of year    1,462     3,286    812   5,560    1,479     2,165    661    4,305
                                                             -------  -------- ------ -------  -------  -------- ------  -------
 
Net assets available for plan benefits at end of year        $ 1,625     2,939  1,344   5,908    1,462     3,286    812    5,560
                                                             =======  ======== ====== =======  =======  ======== ======  =======
</TABLE> 

See accompanying notes to financial statements.  
<PAGE>
 
                      INCENTIVE SAVINGS PLAN FOR EMPLOYEES
                           OF FIRST SAVINGS BANK, SLA
                                        
                         Notes to Financial Statements

                           December 31, 1996 and 1995



(1)  GENERAL

   The Incentive Savings Plan for Employees of First Savings Bank, SLA (the
   Plan), a participant directed, defined contribution plan, is a voluntary
   savings plan available to all eligible employees of First Savings Bank, SLA
   (the Bank).

   The accompanying financial statements have been prepared on an accrual basis.
   Purchases and sales of investments are recorded on a trade-date basis.
   Certain amounts in the 1995 financial statements have been reclassified to
   comply with the 1996 presentation.

   In preparing plan financial statements, a number of estimates and assumptions
   have been made relating to the reporting of assets and liabilities and the
   disclosure of contingent assets and liabilities to prepare these financial
   statements in conformity with generally accepted accounting principles.
   Actual results could differ from those estimates.

   The assets of the Plan are primarily financial instruments which are monetary
   in nature.  As a result, interest rates have a more significant impact on the
   Plan's performance than the effects of general levels of inflation.  Interest
   rates do not necessarily move in the same direction or in the same magnitude
   as the prices of goods and services as measured by the consumer price index.
   Investments in funds are subject to risk conditions of the individual fund
   objectives, stock market interest rates, economic conditions and world
   affairs.

   All contributions are invested in a trust fund managed by a committee
   consisting of at least three members appointed by the Board of Directors of
   the Bank.  The Plan is subject to the provisions of the Employee Retirement
   Income Security Act of 1974 (ERISA).


(2)  PLAN DESCRIPTION

   The following description of the Plan provides only general information.
   Eligible employees who participate (members) should refer to the plan
   agreement for a more complete description of the Plan's provisions.

   ELIGIBILITY

   All employees over age 21 are eligible to participate in the Plan on the
   first day of January or July following the completion of one year of service,
   as defined.

   EMPLOYEE CONTRIBUTIONS

   A member may make basic contributions to the Plan, through payroll
   deductions, of any whole percentage from 2% to 12% of the member's
   compensation, as defined.  Cumulative employee contributions total
   approximately $2,283,000 and $1,853,000 at December 31, 1996 and 1995,
   respectively.
<PAGE>
 
                                       2


                      INCENTIVE SAVINGS PLAN FOR EMPLOYEES
                           OF FIRST SAVINGS BANK, SLA
                                        
                   Notes to Financial Statements, Continued

(2), CONTINUED

   BANK CONTRIBUTIONS

   The Bank matches 50% of a member's basic contribution, up to 6% of that
   member's compensation, as defined.  Bank contributions are funded biweekly.
   At its discretion, the Bank may make an additional contribution to the Plan
   as of the end of a plan year in an amount determined by the Bank.  For the
   years ended December 31, 1996 and 1995, the Bank elected not to make an
   additional discretionary match.

   VESTING

   All member contributions, employer contributions and income or loss thereon
   are fully vested at all times.

   WITHDRAWALS

   Money can be withdrawn from the Plan when a member reaches age 59-1/2,
   terminates employment, dies, becomes disabled or experiences financial
   hardship.

   BENEFIT PAYMENTS

   Upon termination of employment, a member's vested amount under the Plan is
   paid in a lump-sum distribution.  During 1996, included in deductions from
   plan assets attributed to benefits to participants is a $1,321,897 payment
   relating to the passing of the Bank's long-time President.

   MEMBERS' ACCOUNTS

   Each member's account is credited with the member's contribution, the
   appropriate amount of the Bank's contribution and an allocation of the Plan's
   earnings or losses.  Allocations are based on the member's relative
   contribution to the individual funds.

   LOANS TO PARTICIPANT

   Participants are permitted to borrow from the Plan as defined in the plan
   document.  In no event shall the loan exceed the lesser of (a) $50,000,
   reduced by the highest loan balance outstanding during the one-year period
   ending on the day before the date on which the new loan is granted; or (b)
   50% of the participant's vested amount under the Plan on the date the
   loan is granted.  Interest shall be charged thereon at a rate for similar
   loans in the Bank's portfolio  and the loan shall be repaid by payroll
   deduction or in a manner determined by the Trustee, but not less frequently
   than quarterly.
<PAGE>
 
                                       3


                      INCENTIVE SAVINGS PLAN FOR EMPLOYEES
                           OF FIRST SAVINGS BANK, SLA
                                        
                   Notes to Financial Statements, Continued


(2), CONTINUED

   INVESTMENTS

   Contributions to the Plan by a member and by the Bank will be invested in
   various types of investments, as determined by the trust fund committee, such
   as certificates of deposit, mutual funds and the Bank's common stock.
   Certificates of deposit and loans to members are carried at cost plus accrued
   interest.  Mutual funds and common stock, which represent the Bank's common
   stock, are carried at fair value.  Fair value is determined by quoted market
   prices.


(3)  INVESTMENTS

   The investments of the Plan are held in a trust fund managed by a committee
   appointed by the Board of Directors of the Bank.  Investments at December 31,
   1996 and 1995 are composed of certificates of deposit, mutual funds, loans to
   members and common stock issued by the Bank.

   Individual investments in excess of 5% of net assets available for plan
   benefits at December 31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
 
 
                                               Stated      Maturity
                 Description                    rate         date      1996    1995
                 -----------                ------------  ----------  ------   -----
<S>                                         <C>           <C>         <C>      <C>   
 
      First Savings Bank, SLA (the plan
        sponsor) certificate of deposit            6.79%  Oct.7,2004  $ 1,367  1,299
                                                 ======   ==========   
      Mutual fund -- Fidelity Magellan                                    564    407
      Mutual fund -- Fidelity Puritan                                     460    289
                                                                       ------  -----
                                                                        2,391  1,995        
                                                                                             
      Common stock -- First Savings Bank,                                                    
        SLA (the plan sponsor)                                          2,841  3,191        
                                                                       ------  -----        
                                                                                             
                                                                       $5,232  5,186
                                                                       ======  =====
 
</TABLE>

   As noted above, the Plan has a significant concentration of investments
   associated with the Bank.
<PAGE>
 
                                       4


                      INCENTIVE SAVINGS PLAN FOR EMPLOYEES
                           OF FIRST SAVINGS BANK, SLA
                                        
                   Notes to Financial Statements, Continued


(4)  PLAN EXPENSES

   Administrative expenses of the Plan may be paid in whole or in part by the
   Bank at its discretion, and any expenses not paid by the Bank shall be paid
   by the trustee out of the principal or income of the trust fund.  All
   administrative expenses for the years ended December 31, 1996 and 1995 were
   paid by the Bank.


(5)  PLAN TERMINATION

   The Plan has no termination date, and it is the Bank's intention to continue
   the Plan indefinitely.  However, the Bank may terminate, amend or modify the
   Plan at any time that it may deem advisable.  In the event of the termination
   of the Plan, an appraisal of the trust fund shall be made and, after
   deducting termination expenses, the members will be paid their vested
   amounts.


(6)  INCOME TAXES

   The plan administrator has obtained a tax determination letter dated July 20,
   1995 from the Internal Revenue Service stating that the Plan qualifies under
   the provisions of Section 401(a) of the Internal Revenue Code (the Code) and
   the related trust is exempt from federal income taxes under Section 501(a) of
   the Code.  In the opinion of the plan administrator, the Plan and its
   underlying trust have operated within the terms of the Plan and remain
   qualified under the applicable provisions of the Code.
<PAGE>
 
                                                            Schedule 1
                                                            ----------
                      INCENTIVE SAVINGS PLAN FOR EMPLOYEES
                           OF FIRST SAVINGS BANK, SLA
                                        
                      Item 27a -- Schedule of Assets Held
                            for Investment Purposes

                               December 31, 1996

                             (Dollars in Thousands)


<TABLE>
<CAPTION>
                                     Stated   Maturity             Fair
     Description of investment        rate      date       Cost    value
     -------------------------        ----      ----       ----    -----
<S>                                  <C>      <C>         <C>      <C>
Certificates of deposit:
 First Savings Bank, SLA (the plan
   sponsor) certificate of deposit     6.79%  Oct.7,2004  $ 1,367  1,367

 First Savings Bank, SLA (the plan
   sponsor) certificate of deposit     5.84   Nov.3,1997       98     98
                                      =====   ==========  -------  ----- 
          Total certificates of
            deposit                                         1,465  1,465
 
Money market fund (plan sponsor)                               25     25
Common stock -- First Savings Bank,
 SLA (the plan sponsor) -- 147,598
 shares                                                       847  2,841
 
Mutual funds:
 Fidelity Magellan                                             *     564
 Fidelity Puritan                                              *     460
 Money Market                                                  *      78
 20th Century Growth                                           *      21
 20th Century Growth                                           *     145
 Dreyfus A Bonds                                               *      12
 N+B Partners Trust                                            *      64
                                                          -------  -----
                                                               *   1,344
 
Loans to members                                              233    233
                                                          -------  -----
          Total investments                               $ 2,570  5,908
                                                          =======  =====
</TABLE>

*The historical cost of the investments in mutual funds was not provided by the
 Plan trustee.
<PAGE>
 
                                                                    Schedule 2
                                                                    ----------
                      INCENTIVE SAVINGS PLAN FOR EMPLOYEES
                           OF FIRST SAVINGS BANK, SLA
                                        
                 Item 27d -- Schedule of Reportable Transactions

                          Year ended December 31, 1996

                             (Dollars in Thousands)



<TABLE>
<CAPTION>
 
                                    Number
                            Number    of
      Description of          of    trans-   Purchase
  investments purchased     shares  actions   price
--------------------------  ------  -------  --------
<S>                         <C>     <C>      <C>   
Mutual fund -- Nationwide      --        32  $480,769
                            ======  =======  ========
 
</TABLE> 


<TABLE> 
<CAPTION> 

 
                                     Number
                            Number    of
 Description of               of     trans-                          Gain
 investments sold           shares  actions  Proceeds     Cost      (loss)
--------------------------  ------  -------  --------   ---------  --------
<S>                         <C>     <C>      <C>        <C>        <C> 
 
Employer stock fund         71,611       1*  $1,253,190  342,015    911,175
                            ======  =======  ==========  =======    =======
 
</TABLE>
*Represents payout as a result of the passing of the Bank's long-time President
 in 1996.
<PAGE>
 
 
                          THE INCENTIVE SAVINGS PLAN
                 FOR THE EMPLOYEES OF FIRST SAVINGS BANK, SLA

                                Investment Form
                                ---------------
                                    for the
                              Employer Stock Fund
                              -------------------

Name of Plan Participant:___________________________________

Social Security Number:  ___________________________________

1.   INSTRUCTIONS.   The Incentive Savings Plan permits participants to direct
some or all of their account balances into the Employer Stock Fund.  Amounts
transferred at the direction of participants into the Employer Stock Fund will
be used to purchase shares of the Common Stock pursuant to the terms and
conditions of the Offering.

        To direct a transfer of all or a part of the funds credited to your
accounts to the Employer Stock Fund, you should complete and file this form with
________________, or the Plan Administrator, no later than _______________,
1998.  A representative for the Plan Administrator will retain a copy of this
form and return a copy of it to you.  If you need any assistance in completing
this form, please contact __________ at _________.  If you do not complete and
return this form to the Plan Administrator by __________, the funds credited to
your accounts under the Incentive Savings Plan will remain invested by the
Trustee in the Trust Fund.

2.   TRANSFER DIRECTIONS.   I hereby direct the Plan Administrator to transfer
the following dollar amount credited to my accounts into the:

        EMPLOYER STOCK FUND $_________   Note: The total amount transferred may
                                         not exceed the total value of your
                                         accounts.

        Unless indicated otherwise below, each of my accounts under the
        Incentive Savings Plan will be invested proportionately in the Employer
        Stock Fund.

3.   ACKNOWLEDGMENT OF PARTICIPANT.   I understand that this Investment Form
shall be subject to all of the terms and conditions of the Incentive Savings
Plan.  I acknowledge that I have received a copy of the Prospectus  and
Supplement thereto.

______________________________              _______________________ 

Signature of Participant            Date

_______________________________________________________________________________

ACKNOWLEDGMENT OF RECEIPT BY ADMINISTRATOR.  This Investment Form was received
by the Plan Administrator and will become effective on the date noted below.

______________________________              _______________________
                                            Date

By:___________________________

                                       

<PAGE>
 
PROSPECTUS

                          FIRST SOURCE BANCORP, INC.
            (Proposed Holding Company for First Savings Bank, SLA)
                       27,600,000 Shares of Common Stock

     First Source Bancorp, Inc. (the "Company" or "First Savings Bancshares"), a
Delaware corporation, is offering up to 27,600,000 shares of its common stock,
par value $.01 per share (the "Common Stock"), in connection with the
reorganization of First Savings Bank, SLA ("First Savings" or the "Bank") and
First Savings Bancshares, MHC, the mutual holding company of the Bank (the
"Mutual Holding Company" or "MHC") into the stock holding company structure
pursuant to the Mutual Holding Company's Plan of Conversion and Agreement and
Plan of Reorganization (the "Plan" or "Plan of Conversion").  In certain
circumstances, the Company may increase the amount of Common Stock offered
hereby to 31,740,000 shares.  See Footnote 4 to the table below.

                                                   (continued on following page)

     FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" BEGINNING ON PAGE __.

   THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
   AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, THE NEW JERSEY
        DEPARTMENT OF BANKING, OR ANY OTHER FEDERAL AGENCY OR ANY STATE
    SECURITIES COMMISSION, NOR HAS SUCH COMMISSION, OFFICE OR OTHER AGENCY
        OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
            ADEQUACY OF THIS PROSPECTUS.  ANY REPRESENTATION TO THE
                        CONTRARY IS A CRIMINAL OFFENSE.

     THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
  DEPOSITS AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
 CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND
   OR ANY OTHER GOVERNMENT AGENCY, NOR ARE THEY INSURED OR GUARANTEED BY THE
                             BANK OR THE COMPANY.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
                                                                   ESTIMATED UNDERWRITING
                                      SUBSCRIPTION PRICE(1)             COMMISSIONS               ESTIMATED NET PROCEEDS(3)
                                                               AND OTHER FEES AND EXPENSES(2)
-----------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>                      <C>                                <C>
Minimum Per Share..................           $10.00                        $0.16                            $9.84
-----------------------------------------------------------------------------------------------------------------------------
Midpoint Per Share.................           $10.00                        $0.15                            $9.85
-----------------------------------------------------------------------------------------------------------------------------
Maximum Per Share..................           $10.00                        $0.15                            $9.85
-----------------------------------------------------------------------------------------------------------------------------
Total Minimum(1)...................       $105,269,170                   $1,707,000                      $103,562,170
-----------------------------------------------------------------------------------------------------------------------------
Total Midpoint(1)..................       $123,844,950                   $1,903,000                      $121,941,950
-----------------------------------------------------------------------------------------------------------------------------
Total Maximum(1)...................       $142,420,720                   $2,100,000                      $140,320,720
-----------------------------------------------------------------------------------------------------------------------------
Total Maximum, as adjusted(4)......       $163,784,210                   $2,326,000                      $161,458,210
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Based upon the minimum, midpoint and maximum of the valuation price range,
     which was determined in accordance with an independent appraisal prepared
     by FinPro, Inc. ("FinPro") dated December 18, 1997.  Does not include
     shares of Common Stock issued to Public Stockholders in the Exchange (as
     both are hereinafter defined).  See "The Conversion and Reorganization -
     Stock Pricing and Exchange Ratio" and "- Number of Shares to be Issued."
(2)  Consists of the estimated costs to the Bank and the Company arising from
     the Conversion and Reorganization, including estimated fixed expenses of
     $600,000 and marketing fees to be paid to Sandler O'Neill & Partners, L.P.
     ("Sandler O'Neill")  estimated to be $1.1 million and $1.5 million at the
     minimum and the maximum of the Estimated Price Range, respectively.  See
     "The Conversion and Reorganization - Marketing and Underwriting
     Arrangements."  See "Pro Forma Data" for the assumptions used to arrive at
     these estimates.  The actual fees and expenses may vary from the estimates.
(3)  Actual net proceeds may vary substantially from estimated amounts depending
     on the number of shares sold in each of the offerings and other factors.
     Includes the purchase of shares of Common Stock by the First Savings Bank,
     SLA Employee Stock Ownership Plan and related trust (the "ESOP") which will
     be funded by a loan to the ESOP from the Company or a third party and which
     will be deducted from the Company's stockholders' equity.  See "Use of
     Proceeds" and "Pro Forma Data."
(4)  As adjusted to reflect the sale of up to an additional 15% of the Common
     Stock which may be offered at the $10 per share price ("Purchase Price"),
     without resolicitation of subscribers or any right of cancellation, due to
     regulatory considerations or changes in market or general financial and
     economic conditions.  See "Pro Forma Data" and "The Conversion and
     Reorganization - Stock Pricing and Exchange Ratio."  For a discussion of
     the distribution and allocation of the additional shares, if any, see "The
     Conversion and Reorganization - Subscription Offering and Subscription
     Rights," "- Community Offering" and  "- Limitations on Conversion Stock
     Purchases."

                           ________________________

                       SANDLER O'NEILL & PARTNERS, L.P.

                           ________________________


             THE DATE OF THIS PROSPECTUS IS _______________, 1998.
<PAGE>
 
     Pursuant to the Plan adopted by the Bank and the Mutual Holding Company,
the Bank will become a subsidiary of the Company upon consummation of the
transactions described herein (collectively, with the Offerings, the "Conversion
and Reorganization"). As a result of the Conversion and Reorganization, each
share of common stock, par value $.01 per share, of the Bank ("Bank Common
Stock") held by the Mutual Holding Company will be cancelled and each share of
Bank Common Stock held by the Bank's public stockholders (the "Public Bank
Shares") will be converted into shares of the Company's Common Stock ("Exchange
Shares") pursuant to a ratio (the "Exchange Ratio") that will result in the
holders of such shares (the "Public Stockholders") owning in the aggregate
approximately the same percentage of the Company as they owned of the Bank,
before giving effect to (a) the payment of cash in lieu of fractional Exchange
Shares, or (b) any shares of Common Stock purchased by such stockholders in the
Offerings described herein or by the Bank's ESOP in the Offerings or thereafter
(the "Exchange"). As of October 31, 1997, the Mutual Holding Company held
4,134,812, or 51.6%, of the outstanding shares of Bank Common Stock and Public
Stockholders held 3,881,539, or 48.4%, of outstanding shares of the Bank's
Common Stock.

     IN ADDITION TO THE EXCHANGE, NON-TRANSFERABLE SUBSCRIPTION RIGHTS TO
SUBSCRIBE FOR UP TO 14,242,072 SHARES (WHICH MAY BE INCREASED TO 16,378,421
SHARES UNDER CERTAIN CIRCUMSTANCES DESCRIBED BELOW) OF COMMON STOCK (THE
"CONVERSION STOCK") HAVE BEEN GRANTED, IN ORDER OF PRIORITY, TO EACH OF THE
BANK'S ELIGIBLE ACCOUNT HOLDERS, TO THE ESOP, TO EACH OF THE BANK'S SUPPLEMENTAL
ELIGIBLE ACCOUNT HOLDERS, AND TO CERTAIN OTHER MEMBERS (EACH AS DEFINED HEREIN)
IN A SUBSCRIPTION OFFERING (THE "SUBSCRIPTION OFFERING").  SUBSCRIPTION RIGHTS
ARE NONTRANSFERABLE.  PERSONS FOUND TO BE TRANSFERRING SUBSCRIPTION RIGHTS WILL
BE SUBJECT TO THE FORFEITURE OF SUCH RIGHTS AND POSSIBLE FURTHER SANCTIONS AND
PENALTIES IMPOSED BY THE OFFICE OF THRIFT SUPERVISION ("OTS").  Concurrently,
and subject to the prior rights of holders of subscription rights, the Company
is offering the shares of Conversion Stock not subscribed for in the
Subscription Offering for sale in a community offering to certain members of the
general public, with a first preference given to holders of the Public Bank
Shares (the "Community Offering") (the Subscription Offering and Community
Offering are referred to collectively as the "Subscription and Community
Offerings").  Shares not subscribed for in the Subscription and Community
Offerings will be offered to members of the general public in a syndicated
community offering (the "Syndicated Community Offering") (the Subscription and
Community Offerings and the Syndicated Community Offering are referred to
collectively as the "Offerings").

     Except for the ESOP, no Eligible Account Holder, Supplemental Eligible
Account Holder or Other Member may, in their respective capacities as such,
purchase in the Subscription Offering more than $250,000 of Conversion Stock
offered for sale in the Conversion and Reorganization; no person, together with
associates of or persons acting in concert with such person, may purchase in the
Community Offering and the Syndicated Community Offering more than $250,000 of
Conversion Stock offered for sale in the Conversion and Reorganization; and no
person, together with associates of or persons acting in concert with such
person, may purchase in the aggregate more than the number of shares of
Conversion Stock that when combined with Exchange Shares received by such person
would exceed the overall maximum purchase limitation of 4.0% of the total number
of shares of Conversion Stock offered for sale in the Conversion and
Reorganization; provided, however, that such purchase limitations and the amount
that may be subscribed for may be increased or decreased in the sole discretion
of the Company, the Mutual Holding Company and the Bank (the "Primary Parties")
without further approval of the Mutual Holding Company's members or the Public
Stockholders.  See "The Conversion and Reorganization - Subscription Offering
and Subscription Rights," "- Community Offering" and "- Limitations on
Conversion Stock Purchases."  The minimum purchase is 25 shares.

     THE SUBSCRIPTION AND COMMUNITY OFFERINGS WILL TERMINATE AT _____ __ .M.,
NEW JERSEY TIME, ON _________, 1998 (THE "EXPIRATION DATE"), UNLESS EXTENDED BY
THE PRIMARY PARTIES, WITH APPROVAL OF THE OTS, IF NECESSARY. Orders submitted
are irrevocable until the completion of the Conversion and Reorganization;
provided that, if the Conversion and Reorganization is not completed within 45
days after the close of the Subscription and Community Offerings, unless such
period has been extended with the consent of the OTS, if necessary, all
subscribers will have their funds returned promptly with interest, and all
withdrawal authorizations will be cancelled. Such extensions may not go beyond
____________, 2000. See "The Conversion and Reorganization -- Subscription
Offering and Subscription Rights" and "-- Procedure for Purchasing Shares in
Subscription and Community Offerings."

     The Company has received conditional approval to have its Common Stock
traded on the Nasdaq National Market under the symbol "FSLA" upon completion of
the Conversion and Reorganization.  The Bank's Common Stock currently trades on
the Nasdaq National Market under the symbol "FSLA."  See "Market for the Common
Stock."

                                       2
<PAGE>
 
                                [MAP GOES HERE]

                                       3
<PAGE>
 
                                    SUMMARY

     This summary is qualified in its entirety by the more detailed information
and Consolidated Financial Statements of the Bank and Notes thereto appearing
elsewhere in this Prospectus.

FIRST SOURCE BANCORP, INC.

     First Source Bancorp, Inc. is a Delaware corporation recently organized by
the Bank for the purpose of holding all of the capital stock of the Bank and
facilitating the Conversion and Reorganization. Immediately following the
Conversion and Reorganization, the only significant assets of the Company will
be the capital stock of the Bank, two loans to the ESOP and the net proceeds of
the Offerings retained by the Company. The Company will transfer to the Bank 50%
of the net proceeds from the Offerings with the remaining net proceeds to be
retained by the Company. Funds retained by the Company will be used for general
business activities, including a new loan to the ESOP to enable the ESOP to
purchase up to 8% of the aggregate of the Conversion Stock issued, as well as
the assumption of an existing loan to the ESOP. On an interim basis, the net
proceeds are expected to be deposited by the Company into a deposit account at
the Bank. See "Use of Proceeds." The business of the Company will initially
consist of the business of the Bank. See "Business of the Bank" and 
"Regulation - Holding Company Regulation."

     The Company's executive offices are located at the administrative office
of the Bank at 1000 Woodbridge Center Drive, Woodbridge, New Jersey 07095. The
Company's telephone number is (732) 726-9700.

FIRST SAVINGS BANK, SLA

     First Savings is a New Jersey-chartered capital stock savings and loan
association headquartered in Woodbridge, New Jersey. First Savings has operated
in its present market area since 1901. Until 1992, the Bank operated in the
mutual form of organization. In July 1992, First Savings reorganized to become a
federally-chartered mutual holding company, First Savings Bancshares, MHC, and
simultaneously formed the Bank as a majority-owned subsidiary of the Company
("1992 MHC Reorganization"). The Mutual Holding Company transferred
substantially all of its assets (except $1.0 million in cash) and all its
liabilities to the newly organized Bank in exchange for 1,660,000 shares of the
Bank's common stock. Concurrently with the 1992 MHC Reorganization, the Bank
sold one million shares of its common stock to the general public at $10 per
share, resulting in net proceeds of $9.2 million. Upon completion of the 1992
MHC Reorganization, 62.4% of the Bank's Common Stock outstanding was held by the
Mutual Holding Company. Subsequently, the Bank completed a Secondary Stock
Offering of 600,000 shares of common stock at $13.00 per share on July 11, 1995
("1995 Secondary Offering"), which resulted in a decrease in the Mutual Holding
Company's ownership interest from 62.4% to 52.5%.

     First Savings' deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC") under the Savings Association Insurance Fund ("SAIF"). The
Bank has been a member of the Federal Home Loan Bank System ("FHLB") System
since 1945. At September 30, 1997, the Bank had total assets of $1.0 billion,
total deposits of $809.4 million and stockholders' equity of $99.2 million. The
Mutual Holding Company's assets at September 30, 1997 consisted of $491,000 in
cash and certificates of deposit, a loan to the Bank's ESOP of $571,000, and a
51.6% interest in the Bank's outstanding common stock.

     The Bank is a community-oriented institution that offers traditional
deposit and loan products. It operates 17 full service offices in its market
area of Middlesex, Monmouth and Union Counties in New Jersey. Based on an
evaluation of its retail operations, the Bank has entered into an agreement to
sell its Eatontown branch with deposits totalling $28.2 million at September 30,
1997 for $1.2 million in cash. The

                                       4
<PAGE>
 
Bank's principal business has been, and continues to be, attracting retail
deposits from the general public and investing those deposits, together with
funds generated from operations and borrowings, primarily in one- to four-family
residential mortgage loans, real estate construction loans, commercial real
estate loans, home equity loans and lines of credit. The Bank also invests in
U.S. Government and federal agency securities and other marketable securities.
The Bank's revenues are derived principally from interest on its mortgage loan
and mortgage-backed securities portfolios, and interest and dividends on its
investment securities. The Bank's total loan portfolio amounted to $573.0
million at September 30, 1997, which represented 54.3% of total assets. One- to
four-family residential mortgage loans accounted for 81.8% of total loans, while
home equity loans and lines of credit equalled 7.3% of total loans. In addition,
the Bank had investments in mortgage-backed securities, including those
available for sale, totalling $350.5 million, or 33.6% of total assets, at
September 30, 1997.

THE CONVERSION AND REORGANIZATION

     On October 24, 1997, the Boards of Directors of the Bank and the Mutual
Holding Company adopted the Plan, and in December 1997, the Company was
incorporated under Delaware law. Subsequent to its incorporation, the Company
became a first-tier wholly owned subsidiary of the Bank. Pursuant to the Plan,
(i) the Mutual Holding Company will convert to an interim federal stock savings
institution ("MHC Interim Savings Bank") and simultaneously merge with and into
the Bank, pursuant to which the Mutual Holding Company will cease to exist and
the 51.6% of the outstanding Bank Common Stock held by the Mutual Holding
Company will be canceled, and (ii) an interim savings association, First Interim
Savings Bank, FSB ("First Interim") to be formed as a wholly-owned subsidiary of
the Company solely for purposes of the Reorganization, will then merge with and
into the Bank. As a result of the merger of First Interim with and into the
Bank, the Bank will become a wholly-owned subsidiary of the Company and the
outstanding Public Bank Shares will be converted into the Exchange Shares
pursuant to the Exchange Ratio. This will result in the holders of such shares
owning in the aggregate approximately the same percentage of the Common Stock to
be outstanding upon completion of the Conversion and Reorganization (i.e., the
Conversion Stock) as the percentage of Bank Common Stock owned by them in the
aggregate immediately prior to consummation of the Conversion and
Reorganization, before giving effect to (a) the payment of cash in lieu of
issuing fractional Exchange Shares, or (b) any shares of Conversion Stock
purchased by the Bank's Stockholders or by the ESOP in the Offerings or
thereafter.

     In addition to shares of Common Stock to be issued pursuant to the
Exchange, the Company is offering shares of Conversion Stock in the Offerings as
part of the Conversion and Reorganization. See "-- The Offerings" below and "The
Conversion and Reorganization."

     Pursuant to OTS regulations, consummation of the Conversion and
Reorganization is conditioned upon the approval of the Plan by the OTS, as well
as (1) the approval of the holders of at least a majority of the total number of
votes eligible to be cast by the members of the Mutual Holding Company
("Members") as of the close of business on __________, 1998 (the "Voting Record
Date") at a special meeting of Members called for the purpose of submitting the
Plan for approval (the "Members' Meeting"), and (2) the approval of the holders
of at least two-thirds of the shares of the outstanding Bank Common Stock held
by the stockholders, as of the Voting Record Date at a special meeting of
stockholders called for the purpose of considering the Plan (the "Stockholders'
Meeting"). In addition, in accordance with current OTS policy, the Plan must be
approved by a majority of the votes cast in person or by proxy by the holders of
the Public Bank Shares at the Stockholders' Meeting. The Mutual Holding Company
intends to vote its shares of Bank Common Stock, which amounts to 51.6% of the
outstanding shares, in favor of the Plan at the Stockholders' Meeting. Officers
and directors of the Bank, who owned in the aggregate 9.3% of the Bank's Common
Stock as of November 30, 1997, also intend to vote in favor of the Plan.

                                       5
<PAGE>
 
     Under New Jersey law, Public Stockholders of the Bank will not have
dissenters' rights or appraisal rights in connection with the Conversion and
Reorganization. See "The Conversion and Reorganization -- Effects of the
Conversion and Reorganization -- Effect on Public Bank Shares."

PURPOSES OF THE CONVERSION AND REORGANIZATION

     The Boards of Directors of the Bank and the Mutual Holding Company believe
that the Conversion and Reorganization is in the best interests of their
respective stockholders and members. A principal purpose of the Conversion and
Reorganization is to structure the Mutual Holding Company and the Bank in a form
used by most other holding companies of savings institutions and commercial
banks and most other business entities. The Conversion and Reorganization will
also support future expansion of operations of the Bank, as well as possible
diversification into other banking-related businesses. Although there are no
current arrangements, understandings or agreements regarding such opportunities,
the Company will be in a position after the Conversion and Reorganization,
subject to regulatory limitations and the Company's financial position, to take
advantage of any additional opportunities for such expansion that may arise.

     In addition, the Mutual Holding Company and the Bank considered various
regulatory uncertainties associated with the mutual holding company structure,
including the ability to waive dividends from the Bank in the future, the tax
limitation on the Bank to repurchase its Common Stock as well as the general
uncertainty regarding a possible elimination of the thrift charter. See "Use of
Proceeds" and "Dividend Policy." The Offerings will also result in more shares
of stock outstanding, which should result in a more active and liquid market for
the Common Stock than currently exists for the Bank Common Stock, although there
can be no assurances that this will be the case. See "Market for the Common
Stock."

     In light of the foregoing, the Boards of Directors of the Bank and the
Mutual Holding Company believe that the Conversion and Reorganization is in the
best interests of such companies and their respective stockholders and Members.
See "The Conversion and Reorganization."

EFFECTS OF THE REORGANIZATION ON PUBLIC STOCKHOLDERS

     The following table sets forth the effects of the Conversion and
Reorganization on Public Stockholders, assuming that at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Price Range, as defined
herein, one Public Bank Share will be exchanged for 2.5436, 2.9925, 3.4414 and
3.9576 shares of Company Common Stock. See "Pro Forma Data."

                                       6
<PAGE>
 
<TABLE>
<CAPTION>
                                                                    PRO FORMA AT OR FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
                                                                                 BASED UPON SALE AT $10.00 PER SHARE
                                                                 -----------------------------------------------------------------
                                                   HISTORICAL                                                       16,378,421
                                                   AT OR FOR       10,526,917        12,384,495     14,242,072         SHARES
                                                    THE NINE         SHARES            SHARES         SHARES         (15% ABOVE
                                                  MONTHS ENDED    (MINIMUM OF      (MIDPOINT OF     (MAXIMUM OF      MAXIMUM OF
                                                   SEPTEMBER       ESTIMATED         ESTIMATED       ESTIMATED        ESTIMATED
                                                    30, 1997      PRICE RANGE)     PRICE RANGE)     PRICE RANGE)     PRICE RANGE)
                                                  ------------   --------------   --------------   --------------   --------------
<S>                                               <C>            <C>              <C>              <C>              <C>
Stockholders' equity per share:

  Tangible stockholders' equity per share........     $11.26          $ 8.93           $ 8.26           $7.76           $ 7.35

  Tangible stockholders' equity of
     Exchange Shares(1)(2).......................       N/A            22.71            24.72           26.74            29.05

  Total stockholders' equity per share...........      12.39            9.37             8.64            8.09             7.63

  Total stockholders' equity of
     Exchange Shares (1).........................       N/A            23.83            25.86           27.84            30.20

Earnings:

  Earnings per share.............................       0.84            0.44             0.39            0.35             0.31

  Earnings on Exchange Shares(1).................       N/A             1.12             1.17            1.20             1.23

Dividends:

  Dividends per share, as adjusted
     (annualized) (3)............................       0.43            0.12             0.12            0.12             0.12

  Dividends on Exchange Shares (1)(4)............       N/A             0.31             0.36            0.41             0.47

Market value:

  Price per share(5).............................      32.27           10.00            10.00           10.00            10.00

  Price of Exchange Shares (1)...................       N/A            25.44            29.93           34.41            39.58
</TABLE>

____________________
(1)  Based on 2.5436, 2.9925, 3.4414 and 3.9576 shares of Company Common Stock
     being exchanged for one Public Bank Share at the minimum, midpoint, 
     maximum and maximum, as adjusted, of the Estimated Price Range.
(2)  Represents a pro forma increase of 174.9%, 199.3%, 223.7% and 251.7% on an
     exchange basis at the minimum, midpoint, maximum, and maximum, as adjusted,
     of the Estimated Price Range.
(3)  Dividends have been adjusted to reflect a 10% stock dividend paid on
     October 30, 1997. Pro forma dividends reflect the Company's intention to
     pay a quarterly dividend of $.03 per share.
(4)  No assurance can be given that the dividend will not be reduced or
     eliminated in future periods. See "Dividend Policy."
(5)  The price of a Public Bank Share was $______ on __________, 1998, the most
     recent day on which trading of the Bank Common Stock occurred preceding the
     date on this Prospectus. Pro forma price per share is reflected as the
     $10.00 Purchase Price.

                                       7
<PAGE>
 
     THE VALUE OF THE EXCHANGE SHARES TO BE RECEIVED FOR EACH PUBLIC BANK SHARE
MAY BE LESS THAN THE MARKET PRICE OF THE PUBLIC BANK SHARES AT THE TIME OF THE
EXCHANGE, BASED ON THE FINAL EXCHANGE RATIO AND THE MARKET PRICE AT THE TIME OF
THE EXCHANGE. IN ADDITION, THE BOOK VALUE PER SHARE WILL DECLINE AFTER
CONSUMMATION OF THE CONVERSION AND REORGANIZATION DUE TO THE INCREASE IN THE
NUMBER OF SHARES OUTSTANDING. SEE "--STOCK PRICING AND NUMBER OF SHARES TO BE
ISSUED IN THE CONVERSION AND REORGANIZATION" AND "RISK FACTORS--ESTIMATED PRICE
RANGE BELOW MARKET PRICE."

THE OFFERINGS

     Pursuant to the Plan and in connection with the Conversion and
Reorganization, the Company is offering up to 14,242,072 shares of Conversion
Stock in the Offerings. Conversion Stock will be offered in the Subscription and
Community Offerings and, to the extent shares are available, in the Syndicated
Community Offering. Conversion Stock offered in the Subscription Offering will
be offered in the following order of priority: (1) holders of savings accounts
in the Bank totalling $50 or more on December 31, 1995 ("Eligible Account
Holders"); (2) the ESOP; (3) holders of savings accounts in the Bank totalling
$50 or more on December 31, 1997 ("Supplemental Eligible Account Holders"); and
(4) other members of the MHC, consisting of depositors of the Bank as of
______________, 1998, the Voting Record Date for the special meeting of members
to vote on the Conversion, and borrowers with loans outstanding as of July 10,
1992, which continue to be outstanding as of the Voting Record Date, other than
those members who otherwise qualify as Eligible Account Holders or Supplemental
Eligible Account Holders ("Other Members"). Subject to the prior rights of
holders of subscription rights, Conversion Stock not subscribed for in the
Subscription Offering is being concurrently offered in the Community Offering to
certain members of the general public, with a preference given to the Public
Stockholders. The Primary Parties reserve the absolute right to reject or accept
any orders in the Community Offering, in whole or in part, either at the time of
receipt of an order or as soon as practicable following the Expiration Date.

     All shares of Conversion Stock not purchased in the Subscription and
Community Offerings, if any, will be offered for sale to the general public in a
Syndicated Community Offering through a syndicate of registered broker-dealers
to be formed and managed by Sandler O'Neill acting as agent of the Company to
assist the Company and the Bank in the sale of the Conversion Stock. The Primary
Parties reserve the absolute right to reject orders, in whole or part, in their
sole discretion, in the Syndicated Community Offering.

PROSPECTUS DELIVERY AND PROCEDURE FOR PURCHASING SHARES

     To ensure that each purchaser receives a prospectus at least 48 hours prior
to the Expiration Date in accordance with Rule 15c2-8 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), no prospectus will be mailed any
later than five days prior to the Expiration Date or hand delivered any later
than two days prior to such date. Stock order forms will only be distributed
with a prospectus. The Bank is not obligated to accept for processing orders not
submitted on original stock order forms. Stock order forms unaccompanied by an
executed certification form will not be accepted. Payment by check, money order,
bank draft, cash or debit authorization to an existing account at the Bank must
accompany the stock order and certification forms. No wire transfers will be
accepted. The Bank is prohibited from lending funds to any person or entity for
the purpose of purchasing shares of Conversion Stock in the Conversion and
Reorganization. See "The Conversion and Reorganization --Procedure for
Purchasing Shares in Subscription and Community Offerings."

                                       8
<PAGE>
 
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES

     Prior to the completion of the Conversion and Reorganization, no person may
transfer or enter into any agreement or understanding to transfer the legal or
beneficial ownership of the subscription rights issued under the Plan or the
shares of Common Stock to be issued upon their exercise. Following the
Conversion and Reorganization, there generally will be no restrictions on the
transfer or sale of shares by purchasers other than affiliates of the Company
and the Bank. See "Regulation --Federal Securities Laws" and "The Conversion and
Reorganization -- Certain Restrictions on Purchase or Transfer of Shares After
Conversion."

PURCHASE LIMITATIONS

     The minimum purchase in the Subscription and Community Offerings is 25
shares. With the exception of the ESOP, no Eligible Account Holder, Supplemental
Eligible Account Holder or Other Member, in their capacity as such, may
subscribe in the Subscription Offering for more than $250,000 of Conversion
Stock offered; no person, together with associates of or persons acting in
concert with such person, may purchase in the Community Offering and the
Syndicated Community Offering in the aggregate more than $250,000 of Conversion
Stock offered; and no person, together with associates of or persons acting in
concert with such person, may purchase in the Offerings the number of shares of
Conversion Stock that, when combined with any Exchange Shares received by such
person, aggregates to more than the overall maximum purchase limitation of 4.0%
of the total number of shares of Conversion Stock offered in the Conversion and
Reorganization, exclusive of any shares issued pursuant to an increase in the
Estimated Price Range of up to 15%. See "Risk Factors - Effect of Purchase
Limitations on Ability of Public Stockholders to Purchase Conversion Shares." At
any time during the Conversion and Reorganization and without further approval
by the Mutual Holding Company's Members or the Bank's Public Stockholders, the
Primary Parties may in their sole discretion decrease the maximum purchase
limitation to 1% of the number of shares of Conversion Stock to be issued in the
Subscription and Community Offerings, when aggregated with any Exchange Shares,
and/or may decrease the amount that may be subscribed for in the Subscription
and Community Offerings. Additionally, at any time during the Conversion and
Reorganization and without further approval by the Mutual Holding Company's
Members or the Bank's Public Stockholders, the Primary Parties may in their sole
discretion increase the overall maximum purchase limitation and/or increase the
amount that may be subscribed for in the Subscription and Community Offerings,
up to 5% of the Conversion Stock to be offered in the Conversion and
Reorganization. Prior to consummation of the Conversion and Reorganization, if
the maximum purchase limitation is increased, subscribers for the maximum amount
will be, and certain other large subscribers in the sole discretion of the
Primary Parties may be, given the opportunity to increase their subscriptions up
to the then applicable limit. IN ANY EVENT, PURSUANT TO OTS POLICY, ANY EXCHANGE
SHARES RECEIVED BY AN INDIVIDUAL WILL BE AGGREGATED WITH SHARES SUBSCRIBED FOR
BY SUCH PERSON FOR PURPOSES OF APPLYING THE MAXIMUM PURCHASE LIMITATION. In the
event of an increase in the Estimated Price Range, the additional shares will be
distributed and allocated to fill unfilled orders in the Subscription and
Community Offerings, with priority given to the ESOP, without any resolicitation
of subscribers, as described in "The Conversion and Reorganization --
Subscription Offering and Subscription Rights," "-- Community Offering" and "--
Limitations on Conversion Stock Purchases." PURSUANT TO OTS POLICY, BECAUSE THE
OVERALL MAXIMUM PURCHASE LIMITATION CONTAINED IN THE PLAN OF CONVERSION INCLUDES
EXCHANGE SHARES TO BE ISSUED TO PUBLIC STOCKHOLDERS FOR THEIR PUBLIC BANK
SHARES, CERTAIN HOLDERS OF PUBLIC BANK SHARES MAY BE LIMITED IN THEIR ABILITY TO
SUBSCRIBE FOR CONVERSION STOCK IN THE OFFERINGS. See "Risk Factors - Effect of
Purchase Limitations on Ability of Public Stockholders to Purchase Conversion
Shares."

                                       9
<PAGE>
 
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED IN THE CONVERSION AND
REORGANIZATION

     Federal regulations require that the aggregate purchase price of the
Conversion Stock to be offered in the Conversion and Reorganization be
consistent with an independent appraisal of the estimated pro forma market value
of the Bank and the Mutual Holding Company. FinPro, an independent appraiser,
has advised the Primary Parties that in its opinion, dated December 18, 1997,
the estimated aggregate pro forma market value of the Common Stock of the
Company was $240.0 million (the "Appraisal"). Because the holders of the Public
Bank Shares will continue to hold approximately the same aggregate percentage
ownership interest in the Company as they held in the Bank (before giving effect
to any shares of Conversion Stock purchased by the Bank's stockholders in the
Offerings or by the ESOP in the Offerings or thereafter or the payment of cash
in lieu of issuing fractional Exchange Shares), the Appraisal was multiplied by
the Mutual Holding Company's percentage interest in the Bank, which corresponds
with the amount of Conversion Stock to be sold in the Offerings (i.e., 51.6% as
of October 31, 1997), to determine the midpoint of the price range, which was
$123.8 million. In accordance with OTS regulations, the minimum and maximum of
the offering range were set at 15% below and above the midpoint, respectively,
resulting in an offering range of $105.3 million to $142.4 million (the
"Estimated Price Range"). The full text of the appraisal report of FinPro
describes the procedures followed, the assumptions made, limitations on the
review undertaken and matters considered, which included the trading market for
the Bank Common Stock (see "Market for the Common Stock") but was not solely
dependent thereon. (Based on the $39.25 and $____ closing prices of the Bank
Common Stock on October 23, 1997, the day preceding the Bank's announcement of
the Conversion and the Reorganization and _________, 1998, respectively, the
estimated market value of all outstanding shares of Bank Common Stock (including
shares held by the Mutual Holding Company) was $314.6 million and $_____
million, respectively.) For further information, see "The Conversion and
Reorganization -- Stock Pricing and Exchange Ratio." THE APPRAISAL OF THE COMMON
STOCK IS NOT INTENDED AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION OF ANY
KIND AS TO THE ADVISABILITY OF PURCHASING SUCH STOCK NOR CAN ANY ASSURANCE BE
GIVEN THAT PURCHASERS OF THE COMMON STOCK IN THE CONVERSION AND REORGANIZATION
WILL BE ABLE TO SELL SUCH SHARES AFTER THE COMPLETION OF THE CONVERSION AND
REORGANIZATION AT OR ABOVE THE PURCHASE PRICE.

     All shares of Conversion Stock issued in the Conversion and Reorganization
will be sold at the Purchase Price of $10.00 per share, as determined by the
Primary Parties. The actual number of shares to be issued in the Offerings will
be determined by the Primary Parties based upon the final updated estimate of
the aggregate pro forma market value of the Common Stock of the Company, giving
effect to the Conversion and Reorganization, at the completion of the Offerings.
The maximum of the Estimated Price Range may be increased by up to 15% and the
number of shares of Conversion Stock to be issued in the Conversion and
Reorganization may be increased to 16,378,421 shares due to regulatory
considerations or changes in market or general financial and economic
conditions. No resolicitation of subscribers will be made and subscribers will
not be permitted to modify or cancel their subscriptions unless the gross
proceeds from the sale of the Conversion Stock are less than the minimum or more
than 15% above the maximum of the current Estimated Price Range. Any increase or
decrease in the number of shares of Conversion Stock will result in a
corresponding change in the number of Exchange Shares, so that upon consummation
of the Conversion and Reorganization, the Conversion Stock and the Exchange
Shares will represent approximately 51.6% and 48.4%, respectively, of the
Company's total outstanding shares. Furthermore, Exchange Shares may represent
less than 48.4% of the Company's total outstanding shares if there are
insufficient shares for the ESOP to purchase 8.0% of the Conversion Stock and,
consequently, the Company issues authorized but unissued shares to the ESOP in
order to satisfy its order to purchase such amount of Conversion Stock in the
Offerings. See "Risk Factors -- Possible Increase in Estimated Price Range and
Number of Shares Issued," "Pro Forma Data," and "The Conversion and
Reorganization -- Stock Pricing and Exchange Ratio" and "-- Number of Shares to
be Issued."

                                       10
<PAGE>
 
     Based on the 3,881,539 Public Bank Shares outstanding at October 31, 1997,
and assuming a minimum of 10,526,917 and a maximum of 14,242,072 shares of
Conversion Stock are issued in the Offerings, the Exchange Ratio is expected to
range from approximately 2.5436 Exchange Shares to 3.4414 Exchange Shares for
each Public Bank Share outstanding immediately prior to the consummation of the
Conversion and Reorganization. The Exchange Ratio will be affected if any stock
options to purchase shares of Bank Common Stock are exercised after October 31,
1997 and prior to consummation of the Conversion and Reorganization. If any of
such stock options are outstanding immediately prior to consummation of the
Conversion and Reorganization, they will be converted into options to purchase
shares of Common Stock, with the number of shares subject to the option and the
exercise price per share to be adjusted based upon the Exchange Ratio so that
the aggregate exercise price remains unchanged, and with the duration of the
option remaining unchanged. At October 31, 1997, there were options exercisable
to purchase 77,201 shares of Bank Common Stock outstanding, which have a
weighted average exercise price of $4.32 per share. Another 65,340 options had
been awarded, but were not exercisable at October 31, 1997. The weighted average
exercise price of these options was $14.35. The Bank has no plans to grant
additional stock options prior to the consummation of the Conversion and
Reorganization.

     The following table sets forth, based upon the minimum, midpoint, maximum
and 15% above the maximum of the Estimated Price Range: (i) the total number of
shares of Conversion Stock and Exchange Shares to be issued in the Conversion
and Reorganization, (ii) the percentage of the total Common Stock represented by
the Conversion Stock and the Exchange Shares, and (iii) the Exchange Ratio. The
table does not give effect to cash paid in lieu of issuing fractional Exchange
Shares.

<TABLE>
<CAPTION>
                                                                                             TOTAL SHARES
                                                                                              OF COMMON
                                  CONVERSION STOCK                EXCHANGE SHARES            STOCK TO BE             EXCHANGE 
                                  TO BE OFFERED(1)              TO BE ISSUED(1)(2)          OUTSTANDING(1)            RATIO(1)
                              -------------------------     -------------------------     ------------------     -----------------
                                AMOUNT        PERCENT         AMOUNT        PERCENT
<S>                           <C>             <C>           <C>             <C>           <C>                    <C>
Minimum ..................    10,526,917         51.6%       9,873,083         48.4%         20,400,000                2.5436
Midpoint .................    12,384,495         51.6       11,615,505         48.4          24,000,000                2.9925
Maximum ..................    14,242,072         51.6       13,357,928         48.4          27,600,000                3.4414
15% above maximum ........    16,378,421         51.6       15,361,579         48.4          31,740,000                3.9576
</TABLE>

___________________
(1)  Assumes that outstanding options to purchase 142,541 shares of Bank Common
     Stock at October 31, 1997 are not exercised prior to consummation of the
     Conversion and Reorganization.
(2)  Based upon 3,881,539 Public Bank Shares outstanding as of October 31, 1997.
     Does not reflect unexercised options.


     The final Exchange Ratio will be determined based upon the number of shares
issued in the Offerings in order to maintain the Public Stockholders'
approximately 48.4% ownership interest in the Bank at October 31, 1997. The
final Exchange Ratio will not be based upon the market value of the Public Bank
Shares. At the minimum, midpoint and maximum of the Estimated Price Range, one
Public Bank Share will be exchanged for 2.5436, 2.9925, 3.4414, and 3.9576
shares of Common Stock, respectively (which have a calculated equivalent value
of $25.44, $29.93, $34.41, and $39.58 based on the $10.00 Purchase Price of a
share of Common Stock in the Offerings and the aforementioned Exchange Ratios).
THE VALUE OF THE EXCHANGE SHARES TO BE RECEIVED FOR EACH PUBLIC BANK SHARE MAY
BE LESS THAN THE MARKET PRICE OF THE PUBLIC BANK SHARES AT THE TIME OF THE
EXCHANGE, BASED ON THE FINAL EXCHANGE RATIO AND THE MARKET PRICE AT THE TIME OF
THE EXCHANGE. Further, there can be no assurance as to the actual market value
of a share of Common Stock after the Conversion and Reorganization or that such
shares could be sold at or above the $10.00 Purchase Price. Public Stockholders
will be paid cash in lieu of issuing fractional Exchange Shares.

                                       11
<PAGE>
 
USE OF PROCEEDS

     Net proceeds from the sale of the Conversion Stock are estimated to be
between $103.6 million and $140.3 million (or $161.5 million if the Estimated
Price Range is increased by 15%) depending on the number of shares sold and the
expenses of the Conversion and Reorganization. See "Pro Forma Data." The Company
plans to contribute to the Bank 50% of the net proceeds from the Offerings, and
to retain the remaining net proceeds. Net proceeds to be retained by the Company
after the contribution to the Bank are estimated to be between $51.8 million and
$70.2 million (or $80.8 million if the Estimated Price Range is increased by
15%). The Company will be unable to utilize any of the net proceeds until the
close of the Offerings.

     Funds retained by the Company will be used for general business activities,
including a loan to the ESOP to purchase Conversion Stock in the Offerings (to
the extent such loan is not funded by a third party), the refinancing of an
existing loan to the ESOP and, subject to applicable limitations, the possible
payment of dividends and repurchases of Common Stock. Assuming the acquisition
by the ESOP of 8% of the aggregate of the number of shares of Conversion Stock
to be issued in the Conversion and Reorganization, the amount of the loan to the
ESOP is estimated to be between $8.4 million and $11.4 million (or $13.1 million
if the Estimated Price Range is increased by 15%) to be repaid over a 15-year
period at the prevailing market rate of interest. See "Management of the Bank --
Benefits -- Employee Stock Ownership Plan and Trust." Funds received by the Bank
from the Company's purchase of its capital stock will be used for general
business purposes. The Company and the Bank may also use such funds to expand
operations through the acquisition or establishment of branch offices and the
acquisition of smaller financial institutions or assets of other financial
institutions. Neither the Bank nor the Company has any pending agreements or
understandings regarding acquisitions of any specific financial institutions,
branch offices or assets of other financial institutions. See "Use of Proceeds"
and "Business of the Bank." To the extent that the stock-based benefit programs
which the Company or Bank intend to adopt subsequent to the Conversion and
Reorganization are not funded with authorized but unissued common stock of the
Company, the Company or Bank may use net proceeds from the Conversion and
Reorganization to fund the purchase of stock in the open market to be awarded
under such stock benefit programs. See "Management of the Bank -- Benefits --
Stock-Based Incentive Plan."

DIVIDENDS

     The Bank has paid cash dividends on each Minority Share for each quarter
since reorganizing in July 1992. The Bank intends to continue to pay regular
quarterly dividends through either the date of consummation of the Conversion
and Reorganization (on a pro rata basis) or the end of the fiscal quarter during
which the consummation of the Conversion and Reorganization occurs.

     Commencing with the first full quarter following consummation of the
Conversion and Reorganization, the Board of Directors of the Company intends to
pay cash dividends on the Common Stock at an initial quarterly rate of $.03 per
share, regardless of the total number of shares of Common Stock outstanding.
Declarations of dividends by the Company's Board of Directors will depend upon a
number of factors, however, including the amount of the net proceeds from the
Offerings retained by the Company, investment opportunities available to the
Company or the Bank, capital requirements, regulatory limitations, the Company's
and the Bank's financial condition and results of operations, tax considerations
and general economic conditions. Consequently, there can be no assurance that
dividends will in fact be paid on the Common Stock or that, if paid, such
dividends will not be reduced or eliminated in future periods. See "Dividend
Policy" and "Market for the Common Stock."

                                       12
<PAGE>
 
BENEFITS OF THE CONVERSION AND REORGANIZATION TO MANAGEMENT

     Among the benefits to the Company and the Bank anticipated from the
Conversion and Reorganization is the ability to attract and retain personnel
through the prudent use of stock options and other stock related benefit
programs. Subsequent to the Conversion and Reorganization, the Company intends
to adopt one or more stock-based benefit plans to provide stock options,
restricted stock awards and certain related rights to directors, officers and
employees (hereinafter individually or collectively referred to as the "Stock-
Based Incentive Plan"). If such Stock-Based Incentive Plan is adopted within one
year after the Conversion and Reorganization, under current OTS regulations the
plan will be subject to stockholders' approval at a meeting of stockholders
which may not be held earlier than six months after the Conversion and
Reorganization. The Company intends to adopt a plan which would provide for the
granting of Common Stock to officers, directors and employees of the Bank and
Company in an amount equal to 4% of the Conversion Stock issued in the
Conversion and Reorganization. The Company also intends to adopt a plan to
provide the Company with the ability to grant options to officers, directors and
employees of the Bank and Company to purchase Common Stock equal to 10% of the
number of shares of Conversion Stock sold in the Conversion and Reorganization.
For a further description of the Stock-Based Incentive Plan, see "Risk Factors -
Stock Based Benefits to Management and Directors" and "Management of the Bank -
Benefits -- Stock-Based Incentive Plan." See "Beneficial Ownership of Capital
Stock - Subscriptions of Executive Officers and Directors," and "Restrictions on
Acquisition of the Company and the Bank - Restrictions in the Company's
Certificate of Incorporation and Bylaws."

RISK FACTORS

     See "Risk Factors" for a discussion of certain factors that should be
considered by prospective investors.

                                       13
<PAGE>
 
                       SELECTED FINANCIAL AND OTHER DATA

     The selected data presented below under the captions "Selected Consolidated
Financial Data" and "Selected Operating Data" for, and as of the end of each of
the years in the five-year period ended December 31, 1996, are derived from the
consolidated financial statements of First Savings Bank, SLA, and subsidiaries,
which financial statements have been audited by KPMG Peat Marwick LLP,
independent certified accountants. The selected data presented below for the
nine month periods ended September 30, 1997 and 1996, are derived from the
unaudited consolidated financial statements of First Savings Bank, SLA, and
subsidiaries included elsewhere in this prospectus.

<TABLE>
<CAPTION>
                                              AT SEPTEMBER 30,                            AT DECEMBER 31,
                                          ------------------------   --------------------------------------------------------------
                                            1997(1)      1996(1)        1996         1995         1994         1993         1992
                                          -----------  -----------   ----------   ----------   ----------   ----------   ----------
                                                                               (IN THOUSANDS)
<S>                                       <C>          <C>           <C>          <C>          <C>          <C>          <C>
SELECTED CONSOLIDATED FINANCIAL DATA:
 Total assets............................  $1,044,513    $ 974,771    $ 987,115     $945,012     $798,350     $783,846     $759,495
 Loan receivable, net....................     567,197      498,472      509,627      457,756      415,902      415,010      413,748
 Loans available for sale................          --          149          287          424          148        1,595        2,287
 Investment securities...................      40,959       39,968       38,955       39,003       23,997       19,019       43,039
 Investment securities available
  for sale...............................      18,024       21,690       14,831        2,058       13,206       41,064        8,960
 Other interest-earning assets(2)........      25,970        7,428        9,278       24,151       10,066        9,967        9,475
 Mortgage-backed securities, net.........     228,158      270,855      252,383      288,143      283,263      244,187      255,931
 Mortgage-backed securities available
   for sale..............................     122,371       93,402      120,797       89,339       24,367       28,314        3,528
 Deposits................................     809,449      800,441      794,595      806,338      681,613      678,961      673,031
 Borrowed funds..........................     124,465       70,108       88,640       39,496       34,300       26,400       20,600
 Stockholders' equity....................      99,213       90,226       92,863       89,713       74,064       68,809       58,551
</TABLE> 

<TABLE> 
<CAPTION>
                                            FOR THE NINE MONTHS
                                                  ENDED
                                               SEPTEMBER 30,                      FOR THE YEARS ENDED DECEMBER 31,
                                          ------------------------   --------------------------------------------------------------
                                            1997(1)      1996(1)        1996         1995         1994         1993         1992
                                          -----------  -----------   ----------   ----------   ----------   ----------   ----------
                                                                         (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                       <C>          <C>           <C>          <C>          <C>          <C>          <C>
SELECTED OPERATING DATA:
 Interest income.........................  $   54,636    $  50,499    $  68,039     $ 64,573     $ 52,909     $ 54,665     $ 62,142
 Interest expense........................      30,591       27,644       37,264       35,691       25,135       26,448       33,810
                                           ----------    ---------    ---------     --------     --------     --------     --------
   Net interest income before
    provision for loan losses............      24,045       22,855       30,775       28,882       27,774       28,217       28,332
 Provision for loan losses...............         900          375          550          310          300        1,200        2,400
                                           ----------    ---------    ---------     --------     --------     --------     --------
   Net interest income after
    provision for loan losses............      23,145       22,480       30,225       28,572       27,474       27,017       25,932

 Other operating income..................       2,186        1,382        1,995        2,171        1,734        2,791        2,786
 Operating expenses......................      14,581       20,122(3)    24,701(3)    17,830       16,021       15,551       15,194
                                           ----------    ---------    ---------     --------     --------     --------     --------
 Income before income taxes, and
   cumulative effect of accounting
    changes..............................      10,750        3,740        7,519       12,913       13,187       14,257       13,524
 Income taxes............................       3,990        1,376        2,809        4,611        4,912        5,352        5,495
                                           ----------    ---------    ---------     --------     --------     --------     --------
      Income before cumulative
       effect of accounting changes......       6,760        2,364        4,710        8,302        8,275        8,905        8,029
 Cumulative effect of accounting
   changes(4)............................          --           --           --           --           --          398           --
                                           ----------    ---------    ---------     --------     --------     --------     --------
       Net income........................  $    6,760    $   2,364    $   4,710     $  8,302     $  8,275     $  9,303     $  8,029
                                           ==========    =========    =========     ========     ========     ========     ========
 Net income per share before cumulative
   effect of accounting changes(5).......       $0.84        $0.29        $0.59        $1.04        $1.03        $1.16        N/A
 Cumulative effect of accounting
   changes(4)(5).........................          --           --           --           --           --         0.05        N/A
                                           ----------    ---------    ---------     --------     --------     --------     --------
 Net income per share after cumulative
   effect of accounting changes(5).......       $0.84        $0.29        $0.59        $1.04        $1.03        $1.21        N/A
                                           ==========    =========    =========     ========     ========     ========     ========
 Dividends per share, as adjusted(5)(6)..       $0.31        $0.25        $0.33        $0.30        $0.27        $0.27        N/A
                                           ==========    =========    =========     ========     ========     ========     ========
</TABLE>

                                                  (footnotes on following pages)

                                       14
<PAGE>
 
<TABLE>
<CAPTION>
                                              AT OR FOR THE NINE
                                                 MONTHS ENDED
                                                 SEPTEMBER 30,                    AT OR FOR THE YEARS ENDED DECEMBER 31,
                                           ------------------------   --------------------------------------------------------------
                                             1997(1)      1996(1)        1996         1995         1994         1993         1992
                                           -----------  -----------   ----------   ----------   ----------   ----------   ----------
<S>                                         <C>         <C>           <C>          <C>          <C>          <C>          <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA(5):
  Return on average assets(4)..............   0.87%        0.33%         0.49%         0.91%        1.04%       1.20%        1.04%
  Return on average stockholder's
    equity(4)..............................   9.37         3.46          5.12         10.14        11.63       14.70        15.84
  Average stockholder's equity to
    average assets.........................   9.31         9.44          9.52          8.95         8.92        8.19         6.58
  Stockholders' equity to total assets.....   9.50         9.26          9.41          9.49         9.28        8.78         7.71
  Interest rate spread.....................   2.83         2.86          2.88          2.77         3.26        3.40         3.46
  Net interest margin (7)..................   3.25         3.29          3.30          3.22         3.58        3.74         3.78
  Operating expenses to average
    assets(8)..............................   1.63         2.62(3)       2.42(3)       1.83         1.98        1.99         1.92
  Net interest income before provision
  for loan losses to operating
    expenses (8)...........................   1.90x        1.20x(3)      1.32x(3)      1.72x        1.76x       1.84x        1.91x
  Non-performing loans to total loans
    receivable, net........................   0.69         0.93          0.94          1.32         2.17        2.77         3.81
  Non-performing assets to total assets....   0.51         0.67          0.64          0.97         1.34        1.73         2.25
  Allowance for loan losses to non-
    performing loans....................... 151.83       110.27        110.58         86.90        63.52       51.09        36.32
  Allowance for loan losses to non-
    performing assets...................... 112.06        77.90         84.08         57.23        53.81       43.42        33.60
  Allowance for loan losses to total
    loans receivable, net..................   1.05         1.02          1.04          1.15         1.38        1.42         1.38
  Dividend payout ratio(6).................  17.59        39.26         26.29         12.09         9.51        7.36           --
  Average interest-earning assets to
    average interest-bearing
    liabilities............................   1.10x        1.11x         1.11x         1.11x        1.10x       1.10x         1.07x
Full service offices.......................     17(9)        16            16            17           15          15            15
</TABLE>

                                                   (footnotes on following page)

                                       15
<PAGE>
 
___________________
(1)  The data presented at September 30, 1997 and for the nine months ended
     September 30, 1997 and 1996 were derived from unaudited financial
     statements and reflect, in the opinion of management, all adjustments
     (consisting only of normal recurring adjustments) which are necessary to
     present fairly the results for such interim periods. Interim results for
     the nine months ended September 30, 1997 are not necessarily indicative of
     the results that may be expected for the year ending December 31, 1997. All
     selected financial ratios and other data relating to operating results for
     the nine month periods ended September 30, 1997 and September 30, 1996 are
     presented on an annualized basis.
(2)  Includes federal funds sold and investment in the stock of the FHLB-NY.
(3)  Includes the Savings Association Insurance Fund ("SAIF") special assessment
     of $5.2 million for the nine months ended September 30, 1996 and for the
     year ended December 31, 1996.
(4)  Reflects the implementation of Statement of Financial Accounting Standards
     ("SFAS") No. 106 -- Accounting for Postretirement Benefits and SFAS No. 
     109 -- Accounting for Income Taxes.
(5)  Per share data reflects 10% stock dividends paid July 1, 1993, April 1,
     1994, December 16, 1996 and October 30, 1997, as well as a 2-for-1 stock
     split on December 1, 1994, adjusted retroactively.
(6)  Excludes shares owned by the MHC, for which cash dividends were waived with
     regulatory approval, after giving effect to prior stock dividends and the
     two-for-one stock split.
(7)  Calculation is based upon the net interest income before provision for loan
     losses divided by interest earning assets.
(8)  For purposes of calculating these ratios, operating expenses equal total
     operating expenses less amortization of intangibles.
(9)  The Bank has signed an agreement to sell the branch deposits of its
     Eatontown location, which totalled $28.2 million at September 30, 1997, for
     cash of $1.2 million. The closing date is scheduled for February 1998.

                                       16
<PAGE>
 
                                 RISK FACTORS

     The following risk factors, in addition to those discussed elsewhere in
this Prospectus, should be considered by investors in deciding whether to
purchase the Common Stock offered hereby.

COMPETITION

     The Bank faces significant competition both in originating loans and in
attracting deposits. The State of New Jersey has a high density of financial
institutions, many of which are branches of significantly larger institutions
which have greater financial resources than the Bank and all of which are
competitors of the Bank to varying degrees. The Bank's competition for loans
comes principally from commercial banks, savings banks, savings and loan
associations, credit unions, mortgage banking companies and insurance companies.
Its most direct competition for deposits has historically come from commercial
banks, savings banks, savings and loans associations and credit unions. The Bank
faces additional competition for deposits from short-term money market funds,
other corporate and government securities funds and from other financial
institutions such as brokerage firms, mutual funds, and insurance companies. See
"Business of the Bank."

     Competitive mortgage lending and deposit opportunities in the Bank's
primary market area may exist for the foreseeable future, preventing the Bank
from achieving significant growth within its primary market area. In an effort
to address diminished mortgage loan demand and increased competition for
deposits, the Bank may seek to expand its market area and the loan and deposit
products it offers. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Business Strategy," "Business of the 
Bank - Lending Activities" and "- Sources of Funds."

POTENTIAL IMPACT OF CHANGES IN INTEREST RATES

     The Bank's profitability, like that of most financial institutions, is
dependent to a large extent upon its net interest income, which is the
difference between its interest income on interest-earning assets, such as loans
and investments, and its interest expense on interest-bearing liabilities, such
as deposits and borrowed funds. Accordingly, the Bank's results of operations
and financial condition are affected by on movements in market interest rates
and its ability to manage its assets and liabilities in response to such
movements. At September 30, 1997, total interest-bearing liabilities maturing or
repricing within one year exceeded total interest-earning assets maturing or
repricing in the same time period by $136.9 million based upon national interest
rate sensitivity assumptions and the Bank's historical experience. This
represents a cumulative one year gap as a percentage of total assets of negative
13.09%. As a result of its negative gap position, the yield on interest-earning
assets of the Bank will adjust to changes in interest rates at a slower rate
than the cost of the Bank's interest-bearing liabilities. Consequently, the
Bank's net interest income may be adversely affected during periods of rapidly
rising interest rates.

     The Bank's interest rate sensitivity is also monitored by management
through the use of an OTS Net Portfolio Value Model which generates estimates of
the change in the Bank's net portfolio value ("NPV") over a range of interest
rate scenarios. NPV is the present value of expected cash flows from assets,
liabilities, and off-balance sheet contracts. The NPV ratio, under any interest
rate scenario, is defined as the NPV in that scenario divided by the market
value of assets in the same scenario. As of September 30, 1997, the Bank's NPV
was $127.4 million, or 11.92% of the market value of assets. A 200 basis point
increase in interest rates would result in a decrease in the Bank's NPV to
$104.7 million, representing an 18.0% reduction in the value of the Bank's
discounted cash flows. Conversely, a 200 basis point decrease in interest rates
would result in an increase in the Bank's NPV to $132.7 million, representing
only a 4.0% increase in

                                       17
<PAGE>
 
the value of the Bank's discounted cash flows. Consequently, an increase in
interest rates will have a significantly greater impact on the Bank's NPV than a
corresponding decrease in interest rates.

     Increases in market interest rates also can affect the type (fixed-rate or
adjustable-rate) and amount of loans originated by the Bank and the average life
of loans and securities, which can adversely impact the yields earned on the
Bank's loan and securities portfolio. In addition, increases in interest rates
could result in interest rates on the Bank's adjustable-rate loans increasing,
thereby resulting in increased loan payment amounts by the borrowers which, in
turn, may result in higher delinquencies on such loans. In periods of decreasing
interest rates, the average life of loans held by the Bank may be shortened to
the extent increased prepayment activity occurs during such periods which, in
turn, may result in the Bank investing funds from such prepayments in lower
yielding assets. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Management of Interest Rate Risk."

DEPENDENCE UPON LOCAL ECONOMY

     The Bank's market area is concentrated in north and central New Jersey and
therefore, its results of operations are largely dependent on the economy of the
New Jersey area. In the late 1980s and early 1990s, due in part to the effects
of a prolonged decline in the national and regional economy, layoffs in the
financial services industry and corporate relocations, New Jersey experienced
reduced levels of employment. These events, in conjunction with a surplus of
available commercial and residential properties, resulted in an overall decline
during this period in the underlying values of properties located in New Jersey.

     New Jersey's real estate market has stabilized in recent periods. The
population of Middlesex County is growing, but at a declining rate, and new
housing starts in the Bank's primary market area are still lower than those in
the state of New Jersey generally. For the nine months ended September 30, 1997
and the years ended December 31, 1996 and 1995, the Bank originated $76.2
million, $100.0 million and $75.5 million of one- to four-family residential
loans, respectively. Repayments on total mortgage loans were $48.1 million,
$77.1 million and $52.2 million, respectively, for the same periods. While the
Bank's total loan portfolio has grown in the 1990s in dollar amount, from $416.0
million at December 31, 1992, to $567.2 million at September 30, 1997, it has
decreased as a percentage of total assets over the same period. Total loans as a
percentage of assets were 54.8% at December 31, 1992, compared to 54.3% at
September 30, 1997. Although the current national and local economic conditions
have significantly improved since the early 1990s, there can be no assurances
that conditions in the local economy, national economy, or real estate market in
general will not deteriorate and adversely affect the financial condition and
results of operations of the Bank.

ESTIMATED PRICE RANGE BELOW MARKET PRICE

     The aggregate purchase price of the Conversion Stock to be offered and the
amount of Exchange Shares to be issued in connection with the Conversion and
Reorganization have been determined on the basis of FinPro's independent
appraisal of the estimated pro forma market value of the Bank and the Mutual
Holding Company. The appraised amount was multiplied by the Mutual Holding
Company's percentage interest in the Bank to determine the aggregate amount of
Conversion Stock to be sold in the Offerings, and by the Public Stockholders'
percentage interest to determine the aggregate number of Exchange Shares to be
issued based upon the Purchase Price of $10.00 per share. The final Exchange
Ratio will be based upon the number of shares issued in the Offerings in order
to maintain the Public Stockholders' approximately 48.4% ownership interest in
the Bank. THE FINAL EXCHANGE RATIO WILL NOT BE BASED UPON THE TRADING PRICE OF
THE PUBLIC BANK SHARES. At the minimum, midpoint, maximum and maximum, as
adjusted, of the Estimated Price Range, one Public Bank Share will be exchanged
for 2.5436, 2.9925, 3.4414 and 3.9576 shares of Common Stock, respectively.
Based upon the $10.00 Purchase Price of a share of Common Stock

                                       18
<PAGE>
 
in the Offerings and the Exchange Ratio, the Exchange Shares to be received for
one share of Bank Common Stock have a calculated equivalent value of $25.44,
$29.93, $34.41 and $39.58 at the minimum, midpoint, maximum and maximum, as
adjusted, of the Estimated Price Range, which may be less than the market value
of one share of Bank Common Stock at the time of the Exchange. The closing price
per share of the Bank Common Stock as of ___________, 1998, was $_____. There
can be no assurance as to the actual market price of a share of Bank Common
Stock at the time of the Exchange. Further, there can be no assurance as to the
actual market value of a share of Common Stock of the Company after the
Conversion and Reorganization, or that such shares could be sold at or above the
$10.00 Purchase Price. See "Summary - Effects of the Reorganization on Public
Stockholders," and "The Conversion and Reorganization - Stock Pricing and Number
of Shares to be Issued in the Conversion and Reorganization."

EFFECT OF PURCHASE LIMITATIONS ON ABILITY OF PUBLIC STOCKHOLDERS TO PURCHASE
CONVERSION SHARES

     The OTS has required that the overall maximum purchase limitation contained
in the Plan of Conversion include Exchange Shares to be issued to Public
Stockholders for their Public Bank Shares. As a result, a Public Stockholder who
receives Exchange Shares in an amount equal to or exceeding 4.0% of the
Conversion Stock offered will not be able to subscribe for shares of Conversion
Stock in the Offerings. For example, a Public Stockholder who qualifies as an
Eligible Account Holder and receives 569,682 Exchange Shares at the maximum of
the Estimated Price Range, will not be able to participate as a first priority
purchaser in the Subscription Offering. See "The Conversion and Reorganization
-- Limitations on Conversion Stock Purchases."

STOCK-BASED BENEFITS TO MANAGEMENT AND DIRECTORS

     The Company intends to seek stockholder approval of a Stock-Based Incentive
Plan which it intends to adopt for the benefit of non-employee directors,
officers and employees of the Company and the Bank at a meeting of stockholders
following the Conversion and Reorganization, which under current OTS regulations
may be held no earlier than six months after completion of the Conversion and
Reorganization. Assuming the receipt of stockholder approval, the Company
expects to acquire or issue an amount equal to 4% of the Conversion Stock sold
in the Conversion, or 421,076 shares and 569,682 shares at the minimum and
maximum of the Estimated Price Range, respectively. These shares will be
acquired either through open market purchases or from authorized but unissued
Common Stock. The Company also intends to acquire or issue an amount equal to
10% of the Conversion Stock issued, or 1,052,691 shares and 1,424,207 shares at
the minimum and maximum of the Estimated Price Range, respectively, for stock
options. The exercise price will be equal to the fair market value of the
underlying Common Stock on the date of grant. Although no specific award
determinations have been made, the Company anticipates that it will provide
awards and options to its directors and employees to the extent permitted by
applicable regulations. Current OTS regulations provide that no individual may
receive more than 25% of the shares of any plan and non-employee directors may
not receive more than 5% individually, or 30% in the aggregate, of the shares or
options awarded under any plan. Stock awards will be granted at no cost to the
recipients. Officers and directors receiving options will not be required to pay
for the shares until the date of exercise. See "Management of the Bank - New
Benefits Resulting from the Conversion and Reorganization."

     The foregoing plans are in addition to the First Savings Bank, SLA 1992
Incentive Stock Option Plan and the 1992 Stock Option Plan for Outside
Directors, (collectively, the "1992 Stock Option Plans") which were adopted by
the Bank in connection with the 1992 MHC Reorganization, and to the First
Savings Bank, SLA 1996 Omnibus Incentive Plan ("1996 Incentive Plan") which was
implemented following the Bank's 1995 Secondary Offering, each of which were
subsequently approved by the stockholders of the Bank. These plans will continue
in existence after the Conversion and Reorganization as plans of the Company.
See "Management of the Bank - Benefits" and "The Conversion and Reorganization -
Effect on Existing

                                       19
<PAGE>
 
Compensation Plans." In addition, the Bank's existing ESOP, which was adopted in
connection with the 1992 MHC Reorganization, intends to purchase 8.0% of the
Conversion Stock to be issued in the Offerings (1,139,365 shares or $11.4
million of Conversion Stock at the maximum of the Estimated Price Range) with a
loan funded by the Company, if such loan is not made by a third party. See "Use
of Proceeds" and "Management of the Bank - Benefits - Employee Stock Ownership
Plan."

     Expenses Associated With Stock Benefit Plans. The purchase by the Bank's
ESOP of 8.0% of the Conversion Stock issued and the purchase by the Stock-Based
Incentive Plan of 4% of the Conversion Stock issued, assuming receipt of
stockholder approval, will cause the Bank to recognize additional significant
compensation and employee benefits expense. The Bank cannot predict the actual
amount of these new expenses because applicable accounting practices require
that the compensation expense be based on the fair market value of the shares of
Common Stock when the expenses are recognized. Expenses for the ESOP would be
recognized when shares are committed to be released to participants' accounts,
and expenses for the Stock-Based Incentive Plan would be recognized over the
vesting period of awards made to recipients. These expenses have been reflected
in the pro forma financial information under "Pro Forma Data" assuming the
$10.00 per share Purchase Price as the fair market value. Actual expenses,
however, will be based on the fair market value of the Common Stock at the time
of recognition, which may be higher or lower than $10.00. For further discussion
of these plans, see "Management of the Bank - Benefits -Employee Stock Ownership
Plan" and "- Stock-Based Incentive Plan."

     Possible Dilutive Effect of Stock-Based Incentive Plan. Following the
Conversion and Reorganization, the Stock-Based Incentive Plan, if approved by
the stockholders of the Company, will acquire an amount of shares equal to 4% of
the shares of Conversion Stock issued in the Conversion and Reorganization,
either through open market purchases or the issuance of authorized but unissued
shares of Common Stock from the Company. If the Stock-Based Incentive Plan is
funded by the issuance of authorized but unissued shares, the voting interests
of then-existing shareholders will be diluted by 2.0%. In addition, directors,
officers and employees will be granted options to purchase authorized but
unissued shares in an amount equal to 10% of the Conversion Stock issued in the
Conversion and Reorganization, if the Stock-Based Incentive Plan is approved by
the stockholders of the Company. If all of the options were to be exercised
using authorized but unissued Common Stock and the stock awards were funded with
authorized but unissued shares, the voting interests of then-existing
stockholders would be diluted by 6.6%.

     The Bank also has adopted and maintains the 1992 Stock Option Plans, which
reserved for issuance 292,820 shares of Bank Common Stock, after giving effect
to four 10% stock dividends and a two-for-one stock split. As of September 30,
1997, 79,584 options remained available for exercise. In addition, the Bank
maintains the 1996 Incentive Plan, which has reserved for issuance 72,600 shares
of Bank Common Stock, after giving effect to two 10% stock dividends. At
September 30, 1997, all of the option shares awarded under this plan remained
available for exercise. Upon consummation of the Conversion and Reorganization,
the 1992 Stock Option Plans and the 1996 Incentive Plan will become plans of the
Company and Common Stock will be issued in lieu of Bank Common Stock pursuant to
the terms of such plans, as adjusted to reflect the exchange of options in
connection with the Conversion and Reorganization. See "Management of the Bank
-- Benefit Plans."

     Voting Control of Officers and Directors. Directors and executive officers
of the Bank and the Company expect to hold approximately 12.6% or 9.3% of the
shares of Common Stock to be outstanding upon completion of the Conversion and
Reorganization, based upon the minimum and the maximum of the Estimated Price
Range, respectively. When combined with shares that may be attributable to
directors and officers through the existing and future stock benefit plans, and
the ESOP, management's potential voting control could, together with additional
stockholder support, defeat stockholder proposals requiring 80% approval of
stockholders. As a result, this potential voting control may preclude takeover
attempts that certain stockholders deem to be in their best interest and may
tend to perpetuate existing management. See

                                       20
<PAGE>
 
"Restrictions on Acquisition of the Company and the Bank - Restrictions in the
Company's Certificate of Incorporation and Bylaws."

EMPLOYMENT CONTRACTS, CHANGE IN CONTROL PROVISIONS AND EMPLOYEE SEVERANCE
COMPENSATION

     The Bank and the Mutual Holding Company currently maintain employment
agreements with Messrs. Mulkerin and Martin. In connection with the Conversion
and Reorganization, the Bank and the Company intend to enter into new employment
or severance agreements with certain executive officers of the Company and the
Bank, which agreements provide for severance payments if their respective
employment is terminated in connection with a change in control of the Bank or
the Company. In addition, the Bank intends to adopt a severance plan for
employees that would provide for severance payments for employees that are
terminated in connection with a change in control. These provisions may have the
effect of increasing the cost of acquiring the Company, thereby discouraging
future attempts to take over the Company or the Bank. See "Restrictions on
Acquisition of the Company and the Bank - Restrictions in the Company's
Certificate of Incorporation and Bylaws," "Management of the Bank - Employment
Agreements," "- Change-in-Control Agreements," "- Employee Severance
Compensation Plan."

CERTAIN ANTI-TAKEOVER PROVISIONS WHICH MAY DISCOURAGE TAKEOVER ATTEMPTS

     Provisions in the Company's and the Bank's Governing Instruments. Certain
provisions of the Company's Certificate of Incorporation and Bylaws,
particularly a provision limiting voting rights, and the Bank's Stock
Certificate of Incorporation and Bylaws, as well as certain federal regulations,
assist the Company in maintaining its status as an independent publicly owned
corporation. These provisions provide for, among other things, supermajority
voting on certain matters, staggered boards of directors, non-cumulative voting
for directors, limits on the calling of special meetings, limits on voting
shares in excess of 10% of the outstanding shares, and certain uniform price
provisions for certain business combinations. The Bank's Stock Certificate of
Incorporation also prohibits, for five years, the acquisition or offer to
acquire, directly or indirectly, the beneficial ownership of more than 10% of
the Bank's equity securities. Any person violating this restriction may not vote
the Bank's securities in excess of 10%. These provisions in the Bank's and the
Company's governing instruments may discourage potential proxy contests and
other potential takeover attempts, particularly those which have not been
negotiated with the Board of Directors, and thus, generally may serve to
perpetuate current management. For a more detailed discussion of these
provisions, see "Restrictions on Acquisition of the Company and the Bank."

POSSIBLE INCREASE IN ESTIMATED PRICE RANGE AND NUMBER OF SHARES ISSUED

     The number of shares to be sold in the Conversion and Reorganization may be
increased as a result of an increase in the Estimated Price Range of up to 15%
to reflect changes in market and financial conditions following the commencement
of the Subscription and Community Offerings. In the event that the Estimated
Price Range is so increased, it is expected that the Company will issue up to
16,378,421 shares of Conversion Stock at the Purchase Price for an aggregate
purchase price of up to $163.8 million. An increase in the number of shares
issued will decrease pro forma net earnings per share and stockholders' equity
per share and will increase the Company's pro forma consolidated stockholders'
equity and net earnings for those subscribers who are not already Public
Stockholders of the Bank. Such an increase will also increase the Purchase Price
as a percentage of pro forma stockholders' equity per share and net earnings per
share.

POSSIBLE ADVERSE INCOME TAX CONSEQUENCES OF THE DISTRIBUTION OF SUBSCRIPTION
RIGHTS

     The Bank has received an opinion of FinPro that subscription rights granted
to Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members have no value. However, this opinion

                                       21
<PAGE>
 
is not binding on the Internal Revenue Service ("IRS"). If the subscription
rights granted to Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members are deemed to have an ascertainable value, receipt of
such rights could result in taxable gains to those Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members who receive and/or
exercise the subscription rights in an amount equal to such value. Additionally,
the Bank could recognize a gain for tax purposes on such distribution. Whether
subscription rights are considered to have ascertainable value is an inherently
factual determination. See "The Conversion and Reorganization -- Effects of the
Conversion and Reorganization" and "- Tax Aspects."

                          FIRST SOURCE BANCORP, INC.

     The Company was organized in December 1997 at the direction of the Boards
of Directors of the Mutual Holding Company and the Bank for the purpose of
holding all of the capital stock of the Bank. The Company has applied to the OTS
to become a savings and loan holding company, and, as such, will be subject to
regulation by the OTS. See "The Conversion and Reorganization -- General." After
completion of the Conversion and Reorganization, the Company will conduct
business initially as a unitary savings and loan holding company. See
"Regulation - Holding Company Regulation." Upon consummation of the Conversion
and Reorganization, the Company's assets will consist of all of the outstanding
shares of the Bank's capital stock issued and exchanged to the Company in the
Conversion and Reorganization and that portion of the net proceeds of the
Offerings retained by the Company. The Company intends to use part of the net
proceeds it retains to loan funds to the ESOP to enable the ESOP to purchase 8%
of the aggregate of the Conversion Stock issued, and to refinance the MHC's
existing loan to the ESOP. Initially, the Company expects to deposit the
remaining proceeds with the Bank. See "Use of Proceeds." The Company and Bank
may, however, alternatively choose to fund the ESOP through a loan to the ESOP
trust by a third party financial institution.

     Initially, the Company will neither own nor lease any property, but will
instead use the premises, equipment and furniture of the Bank. At the present
time, the Company does not intend to employ any persons other than the officers
set forth under "Management of the Company," but will utilize the support staff
of the Bank from time to time. Additional employees will be hired as appropriate
to the extent the Company expands its business in the future. The initial
business activities of the Company will consist of investment in the Bank. The
Company may in the future expand its business activities or services which it
provides through existing or newly-formed subsidiaries or through acquisitions
of other financial services providers. The initial activities of the Company are
anticipated to be funded by the net proceeds retained by the Company and
earnings thereon or, alternatively, through dividends from the Bank.

     The Company's executive offices are currently located at 1000 Woodbridge
Center Drive, Woodbridge, New Jersey 07095. Its telephone number is (732) 726-
9700.

                         FIRST SAVINGS BANCSHARES, MHC

     The Mutual Holding Company was formed as a result of the 1992 MHC
Reorganization of the Bank, in a series of steps, from a New Jersey-chartered
savings association into a federally-chartered mutual holding company. The Bank
is a majority-owned subsidiary of the Mutual Holding Company. Pursuant to OTS
regulations governing mutual holding companies, the Mutual Holding Company must
at all times own more than 50% of the outstanding voting stock of the Bank. As
the majority owner of the Bank, the Mutual Holding Company elects directors who
oversee the affairs and operations of the Bank. Depositors and those current
borrowers of the Bank who had loans outstanding as of the consummation of the
Reorganization, vote and elect directors of the Mutual Holding Company. The
Mutual Holding Company currently does not engage in any business activity other
than to hold the majority of the Bank's common stock, to invest the

                                       22
<PAGE>
 
funds retained at the Mutual Holding Company, and to finance a loan to the
Bank's ESOP. At September 30, 1997, the Mutual Holding Company's assets
consisted of a 51.6% ownership interest in the Bank, $491,000 in cash and
certificates of deposit (which will become assets of the Bank upon consummation
of the Conversion and Reorganization), and a loan to the Bank's ESOP totalling
$571,000. The Mutual Holding Company had liabilities of $29,000 at September 30,
1997, and had net income for the nine months ended September 30, 1997 of
$10,000. As part of the Conversion and Reorganization, the Mutual Holding
Company will convert from mutual form to a federal interim stock savings
institution and simultaneously merge with and into the Bank, with the Bank being
the surviving entity.

                            FIRST SAVINGS BANK, SLA

     First Savings is a New Jersey-chartered capital stock savings and loan
association headquartered in Woodbridge, New Jersey. First Savings has operated
in its present market area since 1901. Until 1992, the Bank operated in the
mutual form of organization. On July 10, 1992, the Bank, acting on a Plan of
Reorganization approved by its members, reorganized to become a federally-
chartered mutual holding company. In connection with the 1992 MHC
Reorganization, all of the assets and substantially all of the liabilities of
the mutual savings association were transferred to a newly formed state-
chartered stock savings association that assumed the name of First Savings Bank,
SLA. Concurrently, the newly formed stock savings association sold approximately
37.6% of its Common Stock at $10.00 per share in an initial minority stock
offering. The remaining 62.4% of the Bank Common Stock was issued to the Mutual
Holding Company in exchange for all assets, except $1.0 million in cash, and all
of the liabilities of the former state-chartered mutual association. On July 11,
1995, the Bank consummated its 1995 Secondary Offering, whereby the Bank sold
additional shares of Common Stock, which resulted in the Minority Ownership
Interest in the Bank increasing to 47.5% at that time.

     The Bank's executive offices are currently located at 1000 Woodbridge
Center Drive, Woodbridge, New Jersey 07095. Its telephone number is (732) 726-
9700.

                                       23
<PAGE>
 
                         REGULATORY CAPITAL COMPLIANCE

     At September 30, 1997, the Bank exceeded all regulatory capital
requirements. See "Regulation - Federal Regulation of Savings Institutions-
Capital Requirements." Set forth below is a summary of the Bank's compliance
with regulatory capital standards as of September 30, 1997, on a historical and
pro forma basis assuming that the indicated number of shares were sold as of
such date and receipt by the Bank of 50% of the net proceeds. For purposes of
the table below, the amount expected to be borrowed by the ESOP and the cost of
the shares expected to be acquired by the Stock-Based Incentive Plan are
deducted from pro forma regulatory capital.

<TABLE>
<CAPTION>
                                                                                     FIRST SAVINGS BANK, SLA
                                                               PRO FORMA AT SEPTEMBER 30, 1997 BASED UPON SALE AT $10.00 PER SHARE
                                                  ----------------------------------------------------------------------------------
                                                                                                                             
                                                     10,526,917 SHARES       12,384,495 SHARES        14,242,072 SHARES      
                                                       (MINIMUM OF              (MIDPOINT OF             (MAXIMUM OF         
                               HISTORICAL AT            ESTIMATED                ESTIMATED                ESTIMATED          
                            SEPTEMBER 30, 1997         PRICE RANGE)             PRICE RANGE)             PRICE RANGE)        
                           --------------------   ----------------------   ----------------------   ----------------------   
                                     PERCENT                   PERCENT                  PERCENT                  PERCENT     
                                       OF                        OF                        OF                       OF       
                           AMOUNT    ASSETS (2)   AMOUNT      ASSETS (2)   AMOUNT      ASSETS (2)   AMOUNT      ASSETS (2)   
                           ------    ----------   ------      ----------   ------      ----------   ------      ----------   
                                                                           (DOLLARS IN THOUSANDS)
<S>                        <C>       <C>           <C>        <C>          <C>         <C>          <C>         <C> 
GAAP Capital (3).........  $99,213     9.50%      $145,230      13.32%     $153,306     13.95%      $161,381     14.58%   
                           =======    =====       ========      =====      ========     =====       ========     =====    
Tangible Capital:                                                                                                         
   Capital Level.........  $89,992     8.68%      $136,212      12.59%     $144,288     13.24%      $152,363     13.88%   
   Requirement...........   15,552     1.50         16,107       1.50        16,228      1.50         16,349      1.50    
                           -------    -----       --------      -----      --------     -----       --------     -----    
   Excess................  $74,440     7.18%      $119,989      11.09%     $128,059     11.74%      $136,014     12.38%   
                           =======    =====       ========      =====      ========     =====       ========     =====    
Core Capital:                                                                                                             
   Capital Level.........  $89,992     8.68%      $136,212      12.59%     $144,288     13.24%      $152,363     13.88%   
   Requirement (4).......   31,104     3.00         32,214       3.00        32,451      3.00         32,699      3.00    
                           -------    -----       --------      -----      --------     -----       --------     -----    
   Excess................  $58,888     5.68%      $103,998       9.59%     $111,831     10.24%      $119,664     10.88%   
                           =======    =====       ========      =====      ========     =====       ========     =====    
Risk-Based Capital (5):                                                                                                   
   Capital Level (5).....  $95,319    22.38%      $141,336      31.49%     $149,412     31.13%      $157,487     32.27%   
   Requirement...........   34,070     8.00         35,911       8.00        38,397      8.00         39,043      8.00    
                           -------    -----       --------      -----      --------     -----       --------     -----    
   Excess................  $61,249    14.38%      $105,426      23.49%     $111,014     23.13%      $118,444     24.27%   
                           =======    =====       ========      =====      ========     =====       ========     =====    

<CAPTION>
                             ---------------------
                               16,378,421 SHARES
                                  (15% ABOVE
                                   MAXIMUM
                                 OF ESTIMATED
                               PRICE RANGE) (1)
                             ---------------------
                                        PERCENT
                                          OF
                              AMOUNT   ASSETS (2)
                             -------  ------------
                         
GAAP Capital (3).........   $170,668     15.28%
                            ========     =====   
Tangible Capital:                                
   Capital Level.........   $161,650     14.60%  
   Requirement...........     16,489      1.50   
                            --------     -----   
   Excess................   $145,161     13.10%  
                            ========     =====   
Core Capital:                                    
   Capital Level.........   $161,650     14.60%  
   Requirement (4).......     33,978      3.00   
                            --------     -----   
   Excess................   $128,673     11.60%  
                            ========     =====   
Risk-Based Capital (5):                          
   Capital Level (5).....   $166,774     33.53%  
   Requirement...........     39,786      8.00   
                            --------     -----   
   Excess................   $126,988     25.53%  
                            ========     =====    
</TABLE> 

______________________
(1)  As adjusted to give effect to an increase in the number of shares which
     could occur due to an increase in the Estimated Price Range of up to 15% as
     a result of regulatory considerations or changes in market or general
     financial and economic conditions following the commencement of the
     Subscription and Community Offerings.
(2)  Tangible capital levels are shown as a percentage of total adjusted assets.
     Core capital levels are shown as a percentage of total adjusted assets.
     Risk-based capital levels are shown as a percentage of risk-weighted
     assets.
(3)  Excludes the $193,000 unrealized gain on securities available for sale, net
     of taxes.
(4)  The current OTS core capital requirement for savings associations is 3% of
     total adjusted assets. The OTS has proposed core capital requirements which
     would require a core capital ratio of 3% of total adjusted assets for
     thrifts that receive the highest supervisory rating for safety and
     soundness and a 4% to 5% core capital ratio requirement for all other
     thrifts. See "Regulation - Federal Regulation of Savings Institutions -
     Capital Requirements."
(5)  Assumes net proceeds are invested in assets that carry a 50% 
     risk-weighting.

                                       24
<PAGE>
 
                                USE OF PROCEEDS

          Although the actual net proceeds from the sale of the Conversion Stock
cannot be determined until the Conversion and Reorganization is completed, it is
presently anticipated that the net proceeds from the sale of the Conversion
Stock will be between $103.6 million and $140.3 million (or $161.5 million if
the Estimated Price Range is increased by 15%). See "Pro Forma Data" and "The
Conversion and Reorganization -- Stock Pricing and Exchange Ratio" as to the
assumptions used to arrive at such amounts. The Company will be unable to
utilize any of the proceeds of the Offerings until the consummation of the
Conversion and Reorganization.

          The Company will contribute to the Bank 50% of the net proceeds of the
Offerings. Such portion of net proceeds will be added to the Bank's general
funds which the Bank currently intends to utilize for general corporate
purposes, including investment in one- to four-family residential mortgage
loans, commercial real estate loans and other loans, investment in federal
funds, investment grade marketable securities and mortgage-backed securities, to
repay borrowings and to fund the Stock-Based Incentive Plan. The Bank may also
use such funds to expand operations through the establishment or acquisition of
branch offices, and the acquisition of other financial institutions or other
financial services companies, including those located within the Bank's market
area. To the extent the Stock Programs are not funded with authorized but
unissued common stock of the Company, the Company or Bank may use net proceeds
from the Conversion and Reorganization to fund the purchase of stock to be
awarded under such Stock-Based Incentive Plan. See "Risk Factors - Stock-Based
Benefits to Management and Directors" and "Management of the Bank - Benefits -
Stock-Based Incentive Plan."

          The Company intends to use a portion of the net proceeds to loan
additional funds to the ESOP to enable the ESOP to purchase 8% of the Conversion
Stock issued in the Conversion and to refinance the MHC's existing loan to the
ESOP. Based upon the issuance of 10,526,917 shares or 14,242,072 shares at the
minimum and maximum, respectively, of the Estimated Price Range, the amount of
the loan to the ESOP would be $8.4 million or $11.4 million, respectively (or
$13.1 million if the Estimated Price Range is increased by 15%) to be repaid
over a 15 year period at a market rate of interest. See "Management of the 
Bank -Benefit Plans -Employee Stock Ownership Plan and Trust."

          The net proceeds retained by the Company may also be used to support
the future expansion of operations through branch acquisitions, the
establishment of branch offices and the acquisition of smaller savings
associations and commercial banks or their assets, including those located
within the Bank's market area or diversification into other banking related
businesses. The Company has no current arrangements, understandings or
agreements regarding any such transactions. Upon completion of the Conversion
and Reorganization, the Company will be a unitary savings and loan holding
company, which under existing laws would generally not be restricted as to the
types of business activities in which it may engage, provided that the Bank
continues to be a qualified thrift lender ("QTL"). See "Regulation - Holding
Company Regulation" for a description of certain regulations currently
applicable to the Company.

          Upon completion of the Conversion and Reorganization, the Board of
Directors of the Company will have the authority to adopt stock repurchase
plans, subject to statutory and regulatory requirements. Unless approved by the
OTS, the Company, pursuant to OTS regulations, will be prohibited from
repurchasing any shares of the Common Stock for three years except (i) for an
offer to all stockholders on a pro rata basis, or (ii) for the repurchase of
qualifying shares of a director. Notwithstanding the foregoing and except as
provided below, beginning one year following completion of the Conversion and
Reorganization, the Company may repurchase its Common Stock so long as: (i) the
repurchases within the following two years are part of an open-market program
not involving greater than 5% of its outstanding capital stock during a 

                                       25
<PAGE>
 
twelve-month period; (ii) the repurchases do not cause the Bank to become
"undercapitalized" within the meaning of the OTS prompt corrective action
regulation; and (iii) the Company provides to the Regional Director of the OTS
no later than ten days prior to the commencement of a repurchase program written
notice containing a full description of the program to be undertaken and such
program is not disapproved by the Regional Director. See "Regulation - Prompt
Corrective Regulatory Action."

          Based upon facts and circumstances following the Conversion and
Reorganization and subject to applicable regulatory requirements, the Board of
Directors may determine to repurchase stock in the future. Such facts and
circumstances may include but not be limited to: (i) market and economic factors
such as the price at which the stock is trading in the market, the volume of
trading, the attractiveness of other investment alternatives in terms of the
rate of return and risk involved in the investment, the ability to increase the
book value and/or earnings per share of the remaining outstanding shares, and
the opportunity to improve the Company's return on equity; (ii) the avoidance of
dilution to stockholders by not having to issue additional shares to cover the
exercise of stock options or to fund employee stock benefit plans; and (iii) any
other circumstances in which repurchases would be in the best interests of the
Company and its shareholders. In the event the Company determines to repurchase
stock, such repurchases may be made at market prices which may be in excess of
the Purchase Price in the Offerings. To the extent that the Company repurchases
stock at market prices in excess of the per share book value, such repurchases
may have a dilutive effect upon existing stockholders.

          Any stock repurchases will be subject to the determination of the
Board of Directors that both the Company and the Bank will be capitalized in
excess of applicable regulatory requirements after any such repurchases and that
such capital will be adequate, taking into account, among other things, the
level of nonperforming and other risk assets, the Company's and the Bank's
current and projected results of operations and asset/liability structure, the
economic environment, tax and other considerations. See "The Conversion and
Reorganization -- Certain Restrictions on Purchase or Transfer of Shares After
Conversion."

                                       26
<PAGE>
 
                                DIVIDEND POLICY

          Since the 1992 MHC Reorganization, the Bank has paid, in the
aggregate, annual cash dividends on the Bank Common Stock ranging from $0.27 per
share for 1993 to $0.33 per share for 1996, as adjusted for stock dividends and
a 2-for-1 stock split. The current quarterly cash dividend is $0.12 per share.
The Bank intends to continue to pay regular quarterly dividends through either
the date of consummation of the Conversion and Reorganization (on a pro rata
basis) or the end of the fiscal quarter during which the consummation of the
Conversion and Reorganization occurs. The table below sets forth the cash and
stock dividends paid by the Bank since January 1, 1995.

<TABLE>
<CAPTION>
                                                             ACTUAL
                                                              CASH                              STOCK
                                                            DIVIDEND      DIVIDEND PAID,       DIVIDEND
                                          PAYABLE DATE      PAID(1)       AS ADJUSTED(2)         PAID
                                          ------------    -----------     --------------     ------------
<S>                                       <C>             <C>             <C>                <C>
YEAR ENDING DECEMBER 31, 1997:

Fourth Quarter.........................   November 28         $.12             $.12               --%
                                           October 30           --               --               10
Third Quarter..........................    August 29           .12              .11               --
Second Quarter.........................     May 30             .12              .11               --
First Quarter..........................   February 28          .10              .09               --

YEAR ENDING DECEMBER 31, 1996:

Fourth Quarter.........................   December 16         $ --             $ --               10%
                                          November 29          .10              .08               --
Third Quarter..........................    August 31           .10              .08               --
Second Quarter.........................     May 31             .10              .08               --
First Quarter..........................   February 29          .10              .08               --

YEAR ENDING DECEMBER 31, 1995:

Fourth Quarter.........................   November 30         $.09              .07               10%
Third Quarter..........................    August 31           .09              .07               --
Second Quarter.........................      May 31            .09              .07               --
First Quarter..........................   February 28          .09              .07               --
</TABLE>

________________________
(1)    The Mutual Holding Company has waived receipt of all cash dividends paid
       by the Bank.  The aggregate amount of all cash dividends waived by the
       Mutual Holding Company as of September 30, 1997 is $6.7 million.
(2)    As adjusted for 10% stock dividends paid on July 1, 1993, April 1, 1994,
       December 16, 1996 and October 30, 1997, respectively, and a two-for-one
       stock split effected on December 1, 1994.


          Upon consummation of the Conversion and Reorganization, the Company
expects to pay an initial quarterly dividend of $.03 per share. Declarations of
dividends by the Company's Board of Directors, however, will depend upon a
number of factors, including the amount of the net proceeds from the Offerings
retained by the Company, investment opportunities available to the Company or
the Bank, capital requirements, regulatory limitations, the Company's and the
Bank's financial condition and results of operations, tax considerations and
general economic conditions. Consequently, there can be no assurance that
dividends will in fact be paid on the Common Stock or that, if paid, such
dividends will not be reduced or eliminated in future periods. See "Market for
the Common Stock."
 

                                       27
<PAGE>
 
          The Bank will not be permitted to pay dividends to the Company on its
capital stock if its stockholders' equity would be reduced below the amount
required for the liquidation account. See "The Conversion and Reorganization --
Liquidation Rights." For information concerning federal and state law and
regulations which apply to the Bank in determining the amount of proceeds which
may be retained by the Company and regarding a savings institution's ability to
make capital distributions including payment of dividends to its holding
company, see "Federal and State Taxation - Federal Taxation - Distributions" and
"Regulation - Federal Regulation of Savings Institutions -- Limitation on
Capital Distributions."

          Unlike the Bank, the Company is not subject to OTS regulatory
restrictions on the payment of dividends to its stockholders, although the
source of such dividends will be dependent on the net proceeds retained by the
Company and earnings thereon and may be dependent, in part, upon dividends from
the Bank. The Company is subject, however, to the requirements of Delaware law,
which generally limit dividends to an amount equal to the excess of the net
assets of the Company (the amount by which total assets exceed total
liabilities) over its statutory capital (generally defined as the aggregate par
value of the outstanding shares of the Company's capital stock having a par
value plus the amount of the consideration paid for shares of the Company's
capital stock without par value) or, if there is no such excess, to its net
profits for the current and/or immediately preceding fiscal year.

          Additionally, in connection with the Conversion and Reorganization,
the Company and Bank have committed to the OTS that during the one-year period
following the consummation of the Conversion and Reorganization, the Company
will not take any action to declare an extraordinary dividend to stockholders
which would be treated by recipient stockholders as a tax-free return of capital
for federal income tax purposes without prior approval of the OTS.

                          MARKET FOR THE COMMON STOCK

          Although the Bank Common Stock is traded on the Nasdaq National
Market, there is no established market for the Common Stock of the Company at
this time. The Company has received conditional approval to have its Common
Stock quoted on the Nasdaq National Market under the symbol "FSLA." One of the
requirements for quotation of the Common Stock on the Nasdaq National Market is
that there be at least three market makers for the Common Stock. The Company
will seek to encourage and assist at least three market makers to make a market
in its Common Stock. Currently, there are three market makers for the Bank's
Common Stock. Making a market involves maintaining bid and ask quotations and
being able, as principal, to effect transactions in reasonable quantities at
those quoted prices, subject to various securities laws and other regulatory
requirements. Although under no obligation to do so, Sandler O'Neill has
informed the Company that it intends, upon the completion of the Conversion and
Reorganization, to make a market in the Common Stock by maintaining bid and ask
quotations and trading in the Common Stock so long as the volume of trading
activity and certain other market making considerations justify it doing so. As
of the date hereof, no other broker-dealers have agreed to act as market makers.
While the Company anticipates that prior to the completion of the Conversion
there will be at least two other broker-dealers to act as market maker for the
Common Stock, there can be no assurance there will be three or more market
makers for the Common Stock.

          Additionally, the development of a liquid public market depends on the
existence of willing buyers and sellers, the presence of which is not within the
control of the Company, the Bank or any market maker. Accordingly, there can be
no assurance that an active and liquid trading market for the Common Stock will
develop or that, if developed, it will continue.

                                       28
<PAGE>
 
          The following table sets forth the high and low trading prices of the
Bank's Common Stock during the periods indicated as adjusted for a 10% stock
dividend paid on October 30, 1997.

<TABLE>
<CAPTION>
                                             HIGH               LOW
                                           --------           -------
     <S>                                   <C>                <C>
     YEAR ENDING DECEMBER 31, 1997:
     ------------------------------

     Fourth Quarter................         $  N/A             $  N/A
     Third Quarter.................          32.50              26.88
     Second Quarter................          29.25              21.00
     First Quarter.................          23.50              18.25

     YEAR ENDED DECEMBER 31, 1996:
     -----------------------------

     Fourth Quarter................         $19.50             $16.50
     Third Quarter.................          17.00              15.50
     Second Quarter................          16.25              14.50
     First Quarter.................          16.50              15.00

     YEAR ENDED DECEMBER 31, 1995:
     -----------------------------

     Fourth Quarter................         $17.50             $13.25
     Third Quarter.................          14.25              13.25
     Second Quarter................          15.25              12.50
     First Quarter.................          14.50              12.50
</TABLE>

                                       29
<PAGE>
 
                                CAPITALIZATION

     The following table presents the unaudited historical consolidated
capitalization of the Bank at September 30, 1997, and the pro forma consolidated
capitalization of the Company after giving effect to the Conversion and
Reorganization, based upon the sale of the number of shares indicated in the
table and the other assumptions set forth under "Pro Forma Data."

<TABLE>
<CAPTION>
                                                                     COMPANY PRO FORMA BASED UPON SALE AT $10.00 PER SHARE
                                                              ----------------------------------------------------------------------

                                                                                                                      16,378,421
                                                                                                                        SHARES
                                               BANK            10,526,917         12,384,495        14,242,072        (15% ABOVE
                                             HISTORICAL           SHARES             SHARES           SHARES            MAXIMUM
                                                 AT              (MINIMUM          (MIDPOINT        (MAXIMUM OF       OF ESTIMATED
                                            SEPTEMBER 30,      OF ESTIMATED       OF ESTIMATED       ESTIMATED           PRICE 
                                                1997           PRICE RANGE)       PRICE RANGE)      PRICE RANGE)       RANGE) (1)
                                           --------------     --------------     --------------    --------------    ---------------

                                                                                 (IN THOUSANDS)
<S>                                        <C>                <C>                <C>               <C>               <C>
Deposit accounts (2).....................     $809,449            $809,449           $809,449          $809,449          $809,449
Borrowed funds...........................      123,894             123,894            123,894           123,894           123,894
Debt in connection with acquisition
  of shares of Common Stock by
  ESOP (3)...............................          571                 571                571               571               571
                                              --------            --------           --------          --------          --------
Total deposit accounts and
  borrowed funds.........................     $933,914            $933,914           $933,914          $933,914          $933,914
                                              ========            ========           ========          ========          ========
Stockholders' equity:
  Preferred Stock, $.01 par value,
    10,000,000 shares authorized;
    none to be issued....................     $     --            $     --           $     --          $     --          $     --
  Common Stock, $.01 par
    value, 85,000,000 shares
    authorized; shares to be
    issued as reflected (4)..............           73                 204                240               276               317
  Additional paid-in capital (5)(6)......       27,856             132,393            150,737           169,080           190,176
  Retained earnings......................       71,870              71,870             71,870            71,870            71,870
Net unrealized gain on securities
  available for sale.....................          193                 193                193               193               193
Less:
  Unearned Common Stock previously
    acquired by the ESOP (3).............         (571)               (571)              (571)             (571)             (571)
  Unearned Common Stock held
    by the 1996 Incentive Plan...........         (208)               (208)              (208)             (208)             (208)
  Common Stock to be acquired
    by the ESOP (7)......................           --              (8,422)            (9,908)          (11,394)          (13,103)
  Common Stock to be acquired by
    the Stock-Based Incentive Plan (8)...           --              (4,211)            (4,954)           (5,697)           (6,551)
                                              --------            --------           --------          --------          --------
Total stockholders' equity...............     $ 99,213            $191,248           $207,399          $223,549          $242,123
                                              ========            ========           ========          ========          ========
</TABLE>

                                                        (footnotes on next page)

                                       30
<PAGE>
 
______________________
(1)  As adjusted to give effect to an increase in the number of shares which
     could occur due to an increase in the Estimated Price Range of up to 15% as
     a result of regulatory considerations or changes in market or general
     financial and economic conditions following the commencement of the
     Subscription and Community Offerings.
(2)  Does not reflect withdrawals from deposit accounts for the purchase of
     Common Stock in the Conversion. Such withdrawals would reduce pro forma
     deposits by the amount of such withdrawals.
(3)  Assumes that the existing loan to the ESOP remains outstanding.
(4)  Assumes (i) that the 3,881,539 Public Bank Shares outstanding at October
     31, 1997 are converted into 9,873,082, 11,615,505, 13,357,928 and
     15,361,578 Exchange Shares at the minimum, midpoint, maximum and 15% above
     the maximum of the Valuation Price Range, respectively, and (ii) that no
     fractional shares of Exchange Shares will be issued by the Company. No
     effect has been given to the issuance of additional shares of Common Stock
     pursuant to existing and proposed stock option plans. See "Pro Forma Data,"
     "Management of the Bank -- Benefits."
(5)  No effect has been given to the issuance of additional shares of Common
     Stock pursuant to the Company's Stock-Based Incentive Plan intended to be
     adopted by the Company and presented for approval of stockholders at a
     meeting of stockholders following the Conversion and Reorganization. If
     approved by the stockholders of the Company, an amount equal to 10% of the
     shares of Conversion Stock issued in the Conversion and Reorganization will
     be reserved for issuance upon the exercise of options to be granted under
     the Stock-Based Incentive Plan. See "Risk Factors -Possible Dilutive Effect
     of Stock-Based Incentive Plan," Footnote 3 to the tables under "Pro Forma
     Data" at or for the nine months ended September 30, 1997 and at or for the
     year ended December 31, 1996, respectively, and "Management of the Bank --
     Benefits -- Stock-Based Incentive Plan."
(6)  The additional paid-capital includes $1.1 million of assets from the Mutual
     Holding Company. The pro forma additional paid- in capital and retained
     earnings reflect a restriction of the original retained earnings of the
     Bank prior to the 1992 MHC Reorganization. The retained earnings of the
     Bank will be substantially restricted after the Conversion and
     Reorganization by virtue of the liquidation account to be established in
     connection with the Conversion and Reorganization. See "The Conversion and
     Reorganization -- Liquidation Rights" and "Regulation - Federal Regulation
     of Savings Institutions -- Limitations on Capital Distributions."
(7)  Assumes that 8% of the aggregate of the Conversion Stock issued in the
     Conversion and Reorganization will be purchased by the ESOP and that the
     funds used to acquire such shares will be borrowed from the Company. The
     Common Stock acquired by the ESOP is reflected as a reduction of
     stockholders' equity. See "Management of the Bank - Benefits - Employee
     Stock Ownership Plan and Trust."
(8)  Assumes that, subsequent to the Conversion and Reorganization, an amount
     equal to 4% of the shares of Conversion Stock issued in the Conversion and
     Reorganization is purchased by the Stock-Based Incentive Plan through open
     market purchases. The Common Stock purchased by the Stock-Based Incentive
     Plan is reflected as a reduction of stockholder's equity. Implementation of
     the Stock-Based Incentive Plan is subject to the approval of the Company's
     stockholders at a meeting following the Conversion and Reorganization. See
     "Risk Factors - Possible Dilutive Effect of Stock-Based Incentive Plan,"
     Footnote 2 to the tables under "Pro Forma Data" at or for the nine months
     ended September 30, 1997 and at or for the year ended December 31, 1996,
     respectively, and "Management of the Bank - Benefits -- Stock-Based
     Incentive Plan."

                                       31
<PAGE>
 
                                PRO FORMA DATA

     The actual net proceeds from the sale of the Conversion Stock cannot be
determined until the Conversion and Reorganization is completed. However, net
proceeds are currently estimated to be between $103.6 million and $140.3 million
(or $161.5 million in the event the Estimated Price Range is increased by 15.0%)
based upon the following assumptions: (i) 100% of the shares of Conversion Stock
will be sold in the Subscription Offering to Eligible Account Holders; (ii)
directors, officers and employees of the Bank and members of their immediate
families (collectively, "Insiders") will purchase an aggregate of $600,000 of
Common Stock; (iii) Sandler O'Neill will receive a fee equal to 1.15% of the
aggregate Purchase Price of shares sold in the Subscription Offering and in the
Community Offering, excluding shares purchased by Insiders and the ESOP; and
(iv) Conversion and Reorganization expenses, excluding the marketing fees paid
to Sandler O'Neill, will be approximately $600,000. Actual Conversion and
Reorganization expenses may vary from those estimated.

     Pro forma consolidated net income of the Company for the nine months ended
September 30, 1997, and for the year ended December 31, 1996 have been
calculated as if the Conversion Stock had been sold (and the Exchange Shares
issued) at the beginning of the respective periods and the net proceeds had been
invested at an average yield of 5.42%, the one-year Treasury note rate at
September 30, 1997. The Treasury yield was used on the reinvestment of proceeds
because it reflects a more achievable rate of return than the arithmetic average
of the average yield of the Bank's interest-earning assets and cost of deposits.
The tables below do not reflect the effect of withdrawals from deposit accounts
for the purchase of Conversion Stock or the effect of any possible use of the
net proceeds. The pro forma after-tax yield for the Company and the Bank is
assumed to be 3.41% for both the nine months ended September 30, 1997 and the
year ended December 31, 1996 based on an effective tax rate of 37%.

     The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma consolidated stockholders' equity represents
the difference between the stated amount of assets and liabilities of the
Company. The pro forma stockholders' equity is not intended to represent the
fair market value of the Common Stock and may be greater than amounts that would
be available for distribution to stockholders in the event of liquidation.

     The following tables summarize historical data of the Bank and pro forma
data of the Company at or for the nine months ended September 30, 1997 and the
year ended December 31, 1996 based on the assumptions set forth above and in the
tables and should not be used as a basis for projections of market value of the
Common Stock following the Conversion and Reorganization. The tables below give
effect to the Stock-Based Incentive Plan, which is expected to be adopted by the
Company following the Conversion and Reorganization and presented to
stockholders for approval at a meeting of stockholders. See Footnotes 2 and 3 to
the tables and "Management of the Bank - Benefits - Stock-Based Incentive Plan."
No effect has been given in the tables to the possible issuance of additional
shares reserved for future issuance pursuant to the options to be adopted by the
Board of Directors of the Company and presented to stockholders for approval at
a meeting of stockholders, nor does book value give any effect to the
liquidation account to be established for the benefit of Eligible Account
Holders and Supplemental Eligible Account Holders or, in the event of
liquidation of the Bank, to the tax effect of the bad debt reserve and other
factors. See Footnote 3 to the tables below, "The Conversion and Reorganization
-- Liquidation Rights" and "Management of the Bank -Benefits - Stock-Based
Incentive Plan."

                                       32
<PAGE>
 
<TABLE>
<CAPTION>
                                                                 AT OR FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
                                                       ----------------------------------------------------------------------
                                                          10,526,917      12,384,495        14,242,072         16,378,421
                                                         SHARES SOLD     SHARES SOLD       SHARES SOLD        SHARES SOLD
                                                          AT $10.00       AT $10.00         AT $10.00        AT $10.00 PER
                                                          PER SHARE       PER SHARE         PER SHARE          SHARE (15%
                                                          (MINIMUM        (MIDPOINT          (MAXIMUM        ABOVE MAXIMUM
                                                        OF ESTIMATED     OF ESTIMATED      OF ESTIMATED       OF ESTIMATED
                                                        PRICE RANGE)     PRICE RANGE)      PRICE RANGE)      PRICE RANGE)(7)
                                                       --------------   --------------    --------------    -----------------
                                                                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                    <C>              <C>               <C>               <C>
Gross Proceeds.......................................     $105,269          $123,845         $142,421            $163,784
Less:  Offering expenses and commission..............        1,707             1,903            2,100               2,326
                                                          --------          --------         --------            --------
Estimated net proceeds...............................      103,562           121,942          140,321             161,458
Less:  Common Stock purchased by the ESOP............       (8,422)           (9,908)         (11,394)            (13,103)
       Common Stock purchased by Stock-Based
       Incentive Plan                                       (4,211)           (4,954)          (5,697)             (6,551)
                                                          --------          --------         --------            --------
  Estimated net proceeds, as adjusted................     $ 90,929          $107,080         $123,230            $141,804
                                                          ========          ========         ========            ========
Consolidated net earnings:
  Historical.........................................     $  6,760          $  6,760         $  6,760            $  6,760
  Pro forma earnings on net proceeds.................        2,326             2,739            3,152               3,627
  Less:   Pro forma ESOP adjustment(1)...............         (265)             (312)            (359)               (413)
          Pro forma Stock-Based Incentive
             Plan(2).................................         (398)             (468)            (538)               (619)
                                                          --------          --------         --------            --------
       Pro forma net earnings........................     $  8,423          $  8,719         $  9,015            $  9,355
                                                          ========          ========         ========            ========
Per share net earnings (3):
  Historical.........................................     $   0.35          $   0.30         $   0.26            $   0.22
  Pro forma earnings on net proceeds.................         0.12              0.12             0.12                0.12
  Less:   Pro forma ESOP adjustment(1)...............        (0.01)            (0.01)           (0.01)              (0.01)
          Pro forma Stock-Based Incentive
             Plan(2).................................        (0.02)            (0.02)           (0.02)              (0.02)
                                                          --------          --------         --------            --------
       Pro forma net earnings per share..............     $   0.44          $   0.39         $   0.35            $   0.31
                                                          ========          ========         ========            ========
Stockholders' equity:
  Historical.........................................     $ 99,213          $ 99,213         $ 99,213            $ 99,213
  Estimated net proceeds.............................      103,562           121,942          140,321             161,458
  Plus: Assets consolidated from MHC.................        1,106             1,106            1,106               1,106
  Less:   Common stock acquired by ESOP(1)...........       (8,422)           (9,908)         (11,394)            (13,103)
          Common Stock acquired by Stock-
             Based Incentive Plan(2).................       (4,211)           (4,954)          (5,697)             (6,551)
                                                          --------          --------         --------            --------
       Pro forma stockholders' equity(2)(4)(5).......     $191,248          $207,399         $223,549            $242,123
                                                          ========          ========         ========            ========
Stockholders' equity per share (6):
  Historical.........................................     $   4.86          $   4.13         $   3.59            $   3.13
  Estimated net proceeds.............................         5.08              5.08             5.08                5.09
  Plus: Assets consolidated from MHC.................         0.05              0.05             0.04                0.03
  Less:   Common stock acquired by ESOP(1)...........        (0.41)            (0.41)           (0.41)              (0.41)
          Common Stock acquired by Stock-
             Based Incentive Plan(2).................        (0.21)            (0.21)           (0.21)              (0.21)
                                                          --------          --------         --------            --------
       Pro forma stockholders' equity per
          share(2)(4)(5).............................     $   9.37          $   8.64         $   8.09            $   7.63
                                                          ========          ========         ========            ========
Offering price as a percentage of pro forma
  stockholders' equity per share.....................       106.72%           115.74%          123.61%             131.06%
Offering price to pro forma net earnings per share...         22.7x             25.6x            28.6x               32.3x
</TABLE>

                                                   (footnotes on following page)

                                       33
<PAGE>
 
__________________
(1)  It is assumed that 8% of the shares of Common Stock issued in the
     Conversion and Reorganization will be purchased by the ESOP. For purposes
     of this table, the funds used to acquire such shares are assumed to have
     been borrowed by the ESOP from the Company. The amount to be borrowed is
     reflected as a reduction of stockholders' equity. The Bank intends to make
     annual contributions to the ESOP in an amount at least equal to the
     principal and interest requirement of the debt. The Bank's total annual
     payment of the ESOP debt is based upon 15 equal annual installments of
     principal, with an assumed interest rate at 7.00%. The pro forma net
     earnings assume: (i) that the Bank's contribution to the ESOP is equivalent
     to the debt service requirement for the nine months ended September 30,
     1997, and was made at the end of the period; (ii) that 42,107, 49,537,
     56,968 and 65,513 shares at the minimum, midpoint, maximum and 15% above
     the maximum of the range, respectively, were committed to be released
     during the nine months ended September 30, 1997 at an average fair value of
     $10.00 per share in accordance with Statement of Position ("SOP") 93-6; and
     (iii) only the ESOP shares committed to be released were considered
     outstanding for purposes of the net earnings per share calculations. See
     "Management of the Bank -- Benefits -- Employee Stock Ownership Plan and
     Trust."
(2)  Gives effect to the Stock-Based Incentive Plan expected to be adopted by
     the Company following the Conversion and presented for approval at a
     meeting of stockholders. The Stock-Based Incentive Plan intend to acquire
     an amount of Common Stock equal to 4% of the shares of Common Stock sold in
     the Conversion or 421,076, 495,379, 569,682 and 655,136 shares of Common
     Stock at the minimum, midpoint, maximum and 15% above the maximum of the
     Estimated Price Range, respectively, either through open market purchases,
     if permissible, or from authorized but unissued shares of Common stock or
     treasury stock of the Company, if any. Funds used by the Stock-Based
     Incentive Plan to purchase the shares will be contributed to the Stock-
     Based Incentive Plan by the Bank. In calculating the pro forma effect of
     the Stock-Based Incentive Plan, it is assumed that the shares were acquired
     by the Stock-Based Incentive Plan at the beginning of the period presented
     in open market purchases at the Purchase Price and that 15% of the amount
     contributed was an amortized expense during such period. The issuance of
     authorized but unissued shares of the Company's Common Stock to the Stock-
     Based Incentive Plan instead of open market purchases would dilute the
     voting interests of existing stockholders by approximately 2.2% and pro
     forma net earnings per share would be $.43, $.38, $.34, and $.31,
     at the minimum, midpoint, maximum and 15% above the maximum of the range,
     respectively, and pro forma shareholders' equity per share would be $9.19,
     $8.47, $7.94 and $7.47 at the minimum, midpoint, maximum, and 15% above
     the maximum of the range, respectively. There can be no assurance that
     stockholder approval of the Stock-Based Incentive Plan will be obtained, or
     that the actual purchase price of the shares will be equal to the Purchase
     Price. See "Management of the Bank -- Benefits -- Stock-Based Incentive
     Plan."
(3)  Historical and pro forma net earnings per share have been divided by the
     total number of shares to be outstanding upon consummation of the
     Conversion and Reorganization, as adjusted to give effect to the purchase
     of shares by the ESOP during the period, or 19,392,930, 22,815,270,
     26,237,578 and 30,173,225 shares at the minimum, midpoint, maximum, and
     maximum, as adjusted, of the Estimated Price Range, respectively.
(4)  No effect has been given to the issuance of additional shares of Common
     Stock pursuant to the options provided for in the Stock-Based Incentive
     Plan expected to be adopted by the Company following the Conversion and
     Reorganization or to the exercise of existing stock options. The Company
     expects to present the Stock-Based Incentive Plan for approval at a meeting
     of stockholders. An amount equal to 10% of the Common Stock issued in the
     Conversion or 1,052,691, 1,238,449, 1,424,207 and 1,637,842 shares at the
     minimum, midpoint, maximum and 15% above the maximum of the Estimated Price
     Range, respectively, will be reserved for future issuance upon the exercise
     of options to be granted under the Stock-Based Incentive Plan. The issuance
     of Common Stock pursuant to the exercise of options under the Stock-Based
     Incentive Plan will result in the dilution of existing stockholders'
     interests. Assuming all options were exercised at the end of the period at
     an exercise price of $10.00 per share, the pro forma net earnings per share
     would be $0.41, $0.36, $0.33, and $0.29, respectively, and the pro forma
     stockholders' equity per share would be $9.41, $8.71, $8.19, and $7.74,
     respectively. See "Management of the Bank -- Benefits -- Stock-Based
     Incentive Plan."
(5)  The retained earnings of the Bank will continue to be substantially
     restricted after the Conversion and Reorganization. See "Dividend Policy,"
     "The Conversion -- Liquidation Rights" and "Regulation --Federal Savings
     Institution Regulation -- Limitation on Capital Distributions."
(6)  Historical and pro forma shareholders' equity per share have been divided
     by the total number of shares to be outstanding upon consummation of the
     Conversion and Reorganization, or 20,400,000, 24,000,000, 27,600,000 and
     30,174,000 shares at the minimum, midpoint, maximum, and maximum, as
     adjusted, of the Estimated Price Range, respectively.
(7)  As adjusted to give effect to an increase in the number of shares which
     could occur due to an increase in the Estimated Price Range of up to 15% as
     a result of regulatory considerations or changes in market or general
     financial and economic conditions following the commencement of the
     Subscription and Community Offerings.

                                       34
<PAGE>
 
<TABLE>
<CAPTION>
                                                                      AT OR FOR THE YEAR ENDED DECEMBER 31,1996
                                                       ----------------------------------------------------------------------
                                                          10,526,917      12,384,495        14,242,072         16,378,421
                                                         SHARES SOLD     SHARES SOLD       SHARES SOLD        SHARES SOLD
                                                          AT $10.00       AT $10.00         AT $10.00        AT $10.00 PER
                                                          PER SHARE       PER SHARE         PER SHARE          SHARE (15%
                                                          (MINIMUM        (MIDPOINT          (MAXIMUM        ABOVE MAXIMUM
                                                        OF ESTIMATED     OF ESTIMATED      OF ESTIMATED       OF ESTIMATED
                                                        PRICE RANGE)     PRICE RANGE)      PRICE RANGE)      PRICE RANGE)(6)
                                                       --------------   --------------    --------------    -----------------
                                                                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                    <C>              <C>               <C>               <C>
Gross Proceeds.......................................     $105,269          $123,845         $142,421            $163,784
Less:  Offering expenses and commissions.............        1,707             1,903            2,100               2,326
                                                          --------          --------         --------            --------
Estimated net proceeds...............................      103,562           121,942          140,321             161,458
Less:  Common Stock purchased by the ESOP............       (8,422)           (9,908)         (11,394)            (13,103)
       Common Stock purchased by Stock-Based
            Incentive Plan...........................       (4,211)           (4,954)          (5,697)             (6,551)
                                                          --------          --------         --------            --------
  Estimated net proceeds, as adjusted................     $ 90,929          $107,080         $123,230            $141,804
                                                          ========          ========         ========            ========
Consolidated net earnings:
  Historical.........................................     $  4,710          $  4,710         $  4,710            $  4,710
  Pro forma earnings on net proceeds, as adjusted....        3,101             3,651            4,202               4,836
  Less:     Pro forma ESOP adjustment(1).............         (354)             (416)            (479)               (550)
            Pro forma Stock-Based Incentive Plan
                adjustment(2)........................         (531)             (624)            (718)               (825)
                                                          --------          --------         --------            --------
       Pro forma net earnings........................     $  6,926          $  7,321         $  7,715            $  8,171
                                                          ========          ========         ========            ========
Per share net earnings (3)
  Historical.........................................     $   0.24          $   0.21         $   0.18            $   0.16
  Pro forma earnings on net proceeds, as adjusted....         0.16              0.16             0.16                0.16
  Less:     Pro forma ESOP adjustment(1).............        (0.02)            (0.02)           (0.02)              (0.02)
            Pro forma Stock-Based Incentive Plan
                adjustment(2)........................        (0.03)            (0.03)           (0.03)              (0.03)
                                                          --------          --------         --------            --------
       Pro forma net earnings per share..............     $   0.35          $   0.32         $   0.29            $   0.27
                                                          ========          ========         ========            ========
Stockholders' equity:
  Historical.........................................     $ 92,863          $ 92,863         $ 92,863            $ 92,863
  Estimated net proceeds.............................      103,562           121,942          140,321             161,458
  Plus: Assets consolidated from MHC.................        1,106             1,106            1,106               1,106
  Less:     Common Stock acquired by ESOP(1).........       (8,422)           (9,908)         (11,394)            (13,103)
            Common Stock acquired by
                Stock-Based Incentive Plan(2)........       (4,211)           (4,954)          (5,697)             (6,551)
                                                          --------          --------         --------            --------
       Pro forma stockholders' equity(2)(4)(5).......     $184,898          $201,049         $217,199            $235,773
                                                          ========          ========         ========            ========
Stockholders' equity per share (6):
  Historical.........................................     $   4.55          $   3.87         $   3.36            $   2.93
  Estimated net proceeds.............................         5.08              5.08             5.08                5.09
  Plus: Assets consolidated from MHC.................         0.05              0.05             0.04                0.03
  Less:     Common Stock acquired by ESOP(1).........        (0.41)            (0.41)           (0.41)              (0.41)
            Common Stock acquired by
                Stock-Based Incentive Plan(2)........        (0.21)            (0.21)           (0.21)              (0.21)
                                                          --------          --------         --------            --------
       Pro forma stockholders' equity
            per share(2)(4)(5).......................     $   9.06          $   8.38         $   7.86            $   7.43
                                                          ========          ========         ========            ========
Offering price as a percentage of pro forma      
  stockholders' equity per share.....................       110.38%           119.19%          127.23%             134.59%
Offering price to pro forma net earnings (loss)              
  per share..........................................         28.6x             31.3x            34.5x               37.0x
</TABLE>

                                                   (footnotes on following page)

                                       35
<PAGE>
 
__________________
(1)  It is assumed that 8% of the shares of Conversion Stock issued in the
     Conversion and Reorganization, will be purchased by the ESOP. For purposes
     of this table, the funds used to acquire such shares are assumed to have
     been borrowed by the ESOP from the Company. The amount to be borrowed is
     reflected as a reduction of stockholders' equity. The Bank intends to make
     annual contributions to the ESOP in an amount at least equal to the
     principal and interest requirement of the debt. The Bank's total annual
     payment of the ESOP debt is based upon 15 equal annual installments of
     principal, with an assumed interest rate at 7.00%. The pro forma net
     earnings assumes: (i) that the Bank's contribution to the ESOP is
     equivalent to the debt service requirement for the year ended December 31,
     1996, and was made at the end of the period; (ii) that 56,143, 66,050,
     75,957 and 87,351 shares at the minimum, midpoint, maximum and 15% above
     the maximum of the range, respectively, were committed to be released
     during the year ended December 31, 1996, at an average fair value of $10.00
     per share in accordance with the SOP 93-6; and (iii) only the ESOP shares
     committed to be released were considered outstanding for purposes of the
     net earnings per share calculations. See "Management of the Bank- Benefit
     Plans - Employee Stock Ownership Plan and Trust."
(2)  Gives effect to the Stock-Based Incentive Plan expected to be adopted by
     the Company following the Conversion and Reorganization and presented for
     approval at a meeting of stockholders. If the Stock-Based Incentive Plan is
     approved by stockholders, the Stock-Based Incentive Plan intends to acquire
     an amount of Conversion Stock equal to 4% of the shares of Common Stock
     issued in the Conversion and Reorganization, or 421,076, 495,379, 569,682
     and 655,136 shares of Common Stock at the minimum, midpoint, maximum and
     15% above the maximum of the Estimated Price Range, respectively, either
     through open market purchases, if permissible, or from authorized but
     unissued shares of Common Stock or treasury stock of the Company, if any.
     Funds used by the Stock-Based Incentive Plan to purchase the shares will be
     contributed to the Stock-Based Incentive Plan by the Bank. In calculating
     the pro forma effect of the Stock-Based Incentive Plan, it is assumed that
     the required stockholder approval has been received, that the shares were
     acquired by the Stock-Based Incentive Plan at the beginning of the period
     presented in open market purchases at the Purchase Price and that 20% of
     the amount contributed was an amortized expense during such period. The
     issuance of authorized but unissued shares of the Company's Common Stock to
     the Stock-Based Incentive Plan instead of open market purchases would
     dilute the voting interests of existing stockholders by approximately 2.17%
     and pro forma net earnings per share would be $0.36, $0.32, $0.29 and $0.27
     at the minimum, midpoint, maximum and 15% above the maximum of the range,
     respectively, and pro forma stockholders' equity per share would be $8.88,
     $8.21, $7.71 and $7.28 at the minimum, midpoint, maximum and 15% above the
     maximum of the range, respectively. There can be no assurance that
     stockholder approval of the Stock-Based Incentive Plan will be obtained, or
     that the actual purchase price of the shares will be equal to the Purchase
     Price. See "Management of the Bank -Benefits - Stock-Based Incentive Plan."
(3)  Historical and pro forma net earnings per share have been divided by the
     total number of shares to be outstanding upon consummation of the
     Conversion and Reorganization, as adjusted to give effect to the purchase
     of shares by the ESOP during the period, or 19,406,967, 22,831,784,
     22,256,568 and 30,195,063 shares of Common Stock at the minimum, midpoint,
     maximum, and maximum, as adjusted, of the Estimated Price Range,
     respectively.
(4)  No effect has been given to the issuance of additional shares of Common
     Stock pursuant to the options provided for under the Stock-Based Incentive
     Plan expected to be adopted by the Company following the Conversion and
     Reorganization or to the exercise of existing stock options. The Company
     expects to present the Stock-Based Incentive Plan for approval at a meeting
     of stockholders. If the Stock-Based Incentive Plan are approved by
     stockholders, an amount equal to 10% of the Conversion Stock issued in the
     Conversion, or 1,052,691, 1,238,449, 1,424,207 and 1,637,842 shares at the
     minimum, midpoint, maximum and 15% above the maximum of the Estimated Price
     Range, respectively, will be reserved for future issuance upon the exercise
     of options to be granted under the Stock-Based Incentive Plan. The issuance
     of Common Stock pursuant to the exercise of options under the Stock-Based
     Incentive Plan will result in the dilution of existing stockholders'
     interests by approximately 5.31%. Assuming stockholder approval of the
     Stock-Based Incentive Plan and all options were exercised at the end of the
     period at an exercise price of $10.00 per share, the pro forma net earnings
     per share would be $0.34, $0.30, $0.28 and $0.26, respectively, and the pro
     forma stockholders' equity per share would be $9.11, $8.46, $7.97 and
     $7.55, respectively. See "Management of the Bank - Benefits -- Stock-Based
     Incentive Plan."
(5)  The retained earnings of the Bank will continue to be substantially
     restricted after the Conversion. See "Dividend Policy," "The Conversion and
     Reorganization -- Liquidation Rights" and "Regulation -Federal Regulation
     of Savings Institutions - Limitation on Capital Distributions."
(6)  Historical and pro forma stockholders' equity per share have been divided
     by the total number of shares to be outstanding upon consummation of the
     Conversion and Reorganization, or 20,400,000, 24,000,000, 27,600,000 and
     30,174,000 shares at the minimum, midpoint, maximum, and maximum, as
     adjusted, of the Estimated Price Range, respectively.
(7)  As adjusted to give effect to an increase in the number of shares which
     could occur due to an increase in the Estimated Price Range of up to 15% as
     a result of regulatory considerations or changes in market or general
     financial and economic conditions following the commencement of the
     Subscription and Community Offerings.

                                       36
<PAGE>
 
                   FIRST SAVINGS BANK, SLA AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME

     The following Consolidated Statements of Income of the Bank and
Subsidiaries for each of the years in the three-year period ended December 31,
1996 have been audited by KPMG Peat Marwick LLP independent certified public
accountants, whose report thereon is included elsewhere in this Prospectus. With
respect to the information for the nine months ended September 30, 1997 and
1996, which is unaudited, in the opinion of management, all adjustments
necessary for a fair presentation of such interim periods have been included and
are of a normal recurring nature. Results for the nine months ended September
30, 1997 are not necessarily indicative of the results that may be expected for
the fiscal year ended December 31, 1997. These Consolidated Statements of Income
should be read in conjunction with the Consolidated Financial Statements and
notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
                                                        FOR THE NINE MONTHS         
                                                        ENDED SEPTEMBER 30,          FOR THE YEAR ENDED DECEMBER 31,
                                                    -------------------------     ----------------------------------
                                                        1997           1996          1996         1995         1994
                                                    ----------   ------------     ----------  ----------- ----------
                                                             (UNAUDITED)
                                                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
Interest income:
<S>                                                 <C>          <C>              <C>         <C>         <C>     
  Loans..........................................   $  32,216     $  28,489       $  38,596   $  35,245   $  32,095
  Mortgage-backed securities.....................      12,598        14,680          19,147      22,140      15,115
  Investment securities and other................       2,993         2,952           4,094       4,671       2,179
  Investment and mortgage-backed securities       
     and loans available for sale................       6,829         4,378           6,202       2,517       3,520 
                                                    ---------     ---------       ---------   ---------   --------- 
          Total interest income..................      54,636        50,499          68,039      64,573      52,909
                                                    ---------     ---------       ---------   ---------   ---------
Interest expense:
  Deposits:
          NOW and money market demand............       4,142         3,809           5,122       5,090       4,348
          Savings................................       2,462         2,665           3,514       3,568       3,609
          Certificates of deposit................      18,863        19,040          25,256      24,997      15,738
                                                    ---------     ---------       ---------   ---------   ---------
                                                       25,467        25,514          33,892      33,655      23,695
  Borrowed funds.................................       5,124         2,130           3,372       2,036       1,440
                                                    ---------     ---------       ---------   ---------   ---------
          Total interest expense.................      30,591        27,644          37,264      35,691      25,135
                                                    ---------     ---------       ---------   ---------   ---------
  Net interest income before provision for      
     loan losses.................................      24,045        22,855          30,775      28,882      27,774 
  Provision for loan losses......................         900           375             550         310         300
                                                    ---------     ---------       ---------   ---------   ---------
  Net interest income after provision for              23,145        22,480          30,225      28,572      27,474
     loan losses.................................   ---------     ---------       ---------   ---------   ---------

Other operating income:
  Fees and service charges.......................       1,241         1,140           1,557       1,604       1,587
  Net gain on sales of loans and securities......         593           139             236         751          40
  Other, net.....................................         352           103             202        (184)        107
                                                    ---------     ---------       ---------   ---------   ---------
          Total other operating income...........       2,186         1,382           1,995       2,171       1,734
                                                    ---------     ---------       ---------   ---------   ---------
Operating expenses:
  Compensation and employee benefits.............       7,342         7,956          10,283       8,531       8,189
  Occupancy......................................       1,491         1,517           2,048       2,056       1,875
  Equipment......................................       1,103           762           1,033       1,186       1,288
  Advertising....................................         439           313             445         563         426
  Federal deposit insurance premium..............         285         1,394           1,860       1,701       1,569
  Special SAIF assessment........................          --         5,220           5,220          --          --
- Amortization of intangibles....................       1,932         1,138           1,349       1,066         223
  General and administrative.....................       1,989         1,822           2,463       2,727       2,451
                                                    ---------     ---------       ---------   ---------   ---------
          Total operating expenses...............      14,581        20,122          24,701      17,830      16,021
                                                    ---------     ---------       ---------   ---------   ---------
Income before income tax expense.................      10,750         3,740           7,519      12,913      13,187
Income tax expense...............................       3,990         1,376           2,809       4,611       4,912
                                                    ---------     ---------       ---------   ---------   ---------
Net income.......................................   $   6,760     $   2,364       $   4,710   $   8,302   $   8,275
                                                    =========     =========       =========   =========   =========
Net income per share.............................   $    0.84     $    0.29       $    0.59   $    1.04   $    1.03
                                                    =========     =========       =========   =========   =========
Weighted average shares outstanding including
  common stock equivalents.......................   8,025,954     8,023,369       7,986,590   7,974,548   7,997,935
                                                    ---------     ---------       ---------   ---------   ---------
</TABLE>

                                       37
<PAGE>
 
                     MANAGEMENT'S DISCUSSION AND ANALYSIS
               OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

     The earnings of the Bank depend primarily on its level of net interest and
dividend income, which is the difference between interest earned on the Bank's
interest-earning assets, consisting primarily of mortgage and consumer loans,
mortgage-backed securities, U.S. Government and agency obligations, and the
interest paid on interest-bearing liabilities, which consist of savings deposits
and borrowings from the FHLB and primary brokers/dealers. Net interest income is
a function of the Bank's interest rate spread, which is the difference between
the average yield on interest-earning assets and the average rate paid on
interest-bearing liabilities, as well as a function of the average balance of
interest-earning assets as compared to interest-bearing liabilities. The Bank's
earnings are also affected by its level of noninterest income, including
primarily loan fees and service charges, gains (losses) on sales of securities
available for sale, sales of real estate acquired in settlement of loans, income
from real estate operations and by its level of noninterest expense, including
primarily compensation and employee benefits, occupancy, equipment, SAIF deposit
premiums, and other operating expenses. Earnings of the Bank are also affected
significantly by general economic and competitive conditions, particularly
changes in market interest rates, government policies and actions of regulatory
authorities, which events are beyond the control of the Bank.

BUSINESS STRATEGY

     The Bank's business strategy is to preserve asset quality, to maintain a
strong capital position by continuing to emphasize one- to four-family lending
and to seek controlled growth. The Bank's strategy emphasizes customer service
and convenience, and the Bank attributes the loyalty of its customer base to its
commitment to maintaining customer satisfaction. The Bank attempts to set itself
apart from its competitors by providing the type of personalized service not
generally available from larger banks while offering a greater variety of
products and services than is typically available from smaller, local depository
institutions.

     The Bank's principal business has historically been, and, to a large
degree, continues to be, attracting retail deposits from the general public and
investing those deposits, together with funds generated from operations and
borrowings, primarily in one- to four-family residential mortgage loans, real
estate construction loans, commercial real estate loans, home equity loans and
lines of credit and multi-family residential mortgage loans. The Bank maintains
a significant portfolio of mortgage-backed securities and also invests in U. S.
Government, federal agency and corporate debt securities and other marketable
securities. The Bank's revenues are derived principally from interest on its
mortgage loan and mortgage-backed securities portfolios and interest and
dividends on its investment securities. The Bank's primary sources of funds are
deposits, proceeds from principal and interest payments on loans and mortgage-
backed securities; sales of loans, mortgage-backed securities and investments
available for sale; maturities of investment securities and short-term
investments; and, to an increasing extent, advances from the Federal Home Loan
Bank of New York ("FHLB-NY"), reverse repurchase agreements and other borrowed
funds.

     In an effort to enhance its long-term profitability and increase its market
share, however, the Bank began, in 1997, to expand its traditional thrift
lending and securities investment strategy. In this regard, the Bank has begun
to diversify and expand upon the products and services it offers by focusing on
small and medium-sized retail businesses as both lending and deposit customers
by increasing its emphasis on the origination of commercial real estate,
construction and commercial loans, as well as increasing the marketing of its
business checking accounts and other business-related services. To develop full-
service relationships with commercial customers, the Bank has introduced
merchant services, such as merchant credit card 

                                       38
<PAGE>
 
processing, overdraft sweep accounts and express teller services. The Bank
intends to hire additional lending personnel with expertise in commercial real
estate lending to facilitate growth in this area. It is also the Bank's
intention to increase lending volumes through the use of third-party
correspondent lending, without compromising credit quality, as the
correspondents selected will be using the Bank's underwriting guidelines and
approved appraisers.

     As part of the Bank's asset/liability management strategy, and as a means
of enhancing profitability, the Bank also invests in securities. More recently,
the Bank has begun to increase its borrowings as a means of funding asset
growth. The average balance of borrowings outstanding for the year ended
December 31, 1996 was $55.2 million, compared to $111.0 for the nine months
ended September 30, 1997. To the extent the Bank continues to increase its
utilization of borrowings, it may incur an increase in the average cost of
funds, and a corresponding decrease in its net interest margin.

     The Bank is in the process of redesigning its retail delivery system to
facilitate the transition from deposit gathering to active sales promotion and
tracking. The Bank has also invested in a Marketing Customer Information File
marketing system to provide better target marketing and develop product and
customer profitability levels. This strategy is intended to enable the Bank to
reach new and existing customers with products and services which match their
profile, and result in more effective use of the Bank's marketing initiatives.
The desired results of the revamping of the retail branch network is to attract
low-cost deposit accounts, primarily non-interest bearing checking, and also
maintain its current core customer by enhancing existing services to become more
efficient.

     The Bank has, and will continue to, actively pursue growth in contiguous
markets, as evidenced in its retail expansion via branch purchase transactions
with the Resolution Trust Corporation ("RTC"). The Bank has opened a new branch
in its corporate headquarters, and will actively seek opportunities as they
present themselves. The Bank and the Company may use a portion of the net
Conversion and Reorganization proceeds to open additional branch offices or
acquire other financial institutions. However, neither the Company nor the Bank
have any pending agreements or understandings regarding acquisitions of any
specific financial institutions or branch offices.

     The Bank emphasizes its attention to quality service, but also monitors its
operating expenses to maintain its profitability. As business lines and products
are added, the Bank develops break-even levels and budgetary constraints to make
sure the service or product offered is enhancing returns and meeting growth
targets. The Bank regularly reviews its retail operations to verify that they
maintain lending and retail deposit growth initiatives and retention targets. As
a result of this review, the Bank entered into an agreement with a commercial
bank to sell its Eatontown branch, which at September 30, 1997, had total
deposits of $28.2 million. The Bank determined that this branch, acquired from
the RTC in 1991 in a cluster of three branches of another financial institution,
had not performed to the Bank's targeted retail lending and cost of funds
levels. This transaction is scheduled to close in February 1998.

YEAR 2000 COMPUTER ISSUES

     First Savings Bank has adopted a Year 2000 Compliant Plan. This lan was
approved by the Board of Directors and has been submitted to the OTS. First
Savings has also established a Year 2000 Compliant Committee, which includes
members of senior management from all operating areas. The objectives of the
plan and the committee are to ensure that the Bank will be prepared for the new
millennium. As recommended by the Federal Financial Institutions Examination
Council, the Year 2000 Compliant Plan encompasses the following phases:
Awareness, Assessment, Renovation, Validation and Implementation. These phases
will enable the Bank to identify risks, develop an action plan, perform adequate
testing and 

                                       39
<PAGE>
 
complete certification that its processing systems will be Year 2000 compliant.
Execution of the plan is currently on target and no material expenses have been
identified to date.

MANAGEMENT OF INTEREST RATE RISK

     The principal objective of the Bank's interest rate risk management is to
evaluate the interest rate risk inherent in certain balance sheet accounts,
determine the level of risk appropriate given the Bank's business strategy,
operating environment, capital and liquidity requirements and performance
objectives, and manage the risk consistent with the Board of Directors' approved
guidelines. Through such management, the Bank seeks to minimize the
vulnerability of its operations to changes in interest rates. The Bank's Board
of Directors reviews the Bank's interest rate risk position quarterly. The
Bank's Asset/Liability Committee is comprised of the Bank's senior management
under the direction of the Board of Directors, with senior management
responsible for reviewing with the Board of Directors its activities and
strategies, the effect of those strategies on the Bank's net interest margin,
the market value of the portfolio and the effect that changes in interest rates
will have on the Bank's portfolio and the Bank's exposure limits. In addition,
the Bank has established an Asset/Liability Strategy Committee ("ALSCO"), a
subcommittee of the Asset/Liability Committee, which is charged with
establishing and maintaining a monitoring system for all marketing initiatives
providing management reports, and formulating and recommending strategies to the
Asset/Liability Committee. The ALSCO meets at least twice monthly. See "Risk
Factors--Potential Impact of Changes in Interest Rates."

     The Bank utilizes the following strategies to manage interest rate risk:
(1) emphasizing the origination and retention of fixed-rate mortgage loans
having terms to maturity of not more than 20 years, adjustable-rate loans and
consumer loans consisting primarily of home equity loans and lines of credit;
(2) selling substantially all fixed-rate conforming mortgage loans with terms of
thirty years without recourse and on a servicing-retained basis; and (3)
investing primarily in adjustable-rate mortgage-backed securities, which may
generally bear lower yields as compared to longer term investments, but which
better position the Bank for increases in market interest rates and holding the
majority of same as available for sale. The Bank currently does not participate
in hedging programs, interest rate swaps or other activities involving the use
of off-balance sheet derivative financial instruments, but may do so in the
future to mitigate interest rate risk.

     Net Portfolio Value. The Bank's interest rate sensitivity is monitored by
management through the use of the OTS model which estimates the change in the
Bank's net portfolio value ("NPV") over a range of interest rate scenarios, and
the Federal Home Loan Bank of Atlanta Asset/Liability Model. The NPV is defined
as the current market value of assets, minus the current market value of
liabilities, plus or minus the current value of off-balance sheet items. The
market values are estimated through two cash flow-based valuation methodologies
and an option-based valuation model: (1) static discounted cash flow analysis,
(2) an option-based pricing analysis (modified discounted cash flow analysis to
value embedded options), and (3) the Black-Scholes model to value off-balance
sheet items. The change in NPV measures an institution's vulnerability to
changes in interest rates by estimating the change in the market value of an
institution's assets, liabilities, and off-balance sheet contracts in response
to an instantaneous change in the general level of interest rates.

     The OTS uses, as a critical point, a change of plus or minus 200 basis
points in order to set its "normal" institutional results and peer comparisons.
The greater the change, positive or negative, in NPV, the more interest rate
risk is assumed to exist within the institution. The following table lists the
Bank's percentage change in NPV assuming an immediate change of plus or minus of
up to 400 basis points from the level of interest rates at September 30, 1997,
as calculated by the OTS. As the table shows, increases in

                                       40
<PAGE>
 
interest rates would result in decreases in the Bank's NPV, while decreases in
interest rates would result in increases in the Bank's NPV.

<TABLE>
<CAPTION>
CHANGE IN                                                                NPV AS % OF PORTFOLIO
INTEREST RATES                      NET PORTFOLIO VALUE                     VALUE OF ASSETS
                              ---------------------------------       ---------------------------- 
IN BASIS POINTS                                                          NPV                      
(RATE SHOCK)                  AMOUNT      $ CHANGE     % CHANGE          RATIO           CHANGE(1) 
---------------               --------  -----------    --------       ----------     -------------
                                (DOLLARS IN THOUSANDS)
<S>                           <C>       <C>            <C>            <C>            <C>  
      400                     $ 72,140    $(55,218)     (43.0)%          7.30%            (461)
      300                       89,115     (38,243)     (30.0)           8.81             (310)
      200                      104,705     (22,653)     (18.0)          10.14             (178)
      100                      117,921      (9,437)      (7.0)          11.20              (71)
     Static                    127,358          --         --           11.92               --
     (100)                     131,681       4,323        3.0           12.19               27
     (200)                     132,680       5,322        4.0           12.19               27
     (300)                     135,050       7,692        6.0           12.28               37
     (400)                     140,536      13,178       10.0           12.63               71
</TABLE>

_____________
(1)  Expressed in basis points.

     Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurements. Modeling changes in NPV require the making of
certain assumptions which may or may not reflect the manner in which actual
yields and costs respond to changes in market interest rates. In this regard,
the NPV model presented assumes that the composition of the Bank's interest
sensitive assets and liabilities existing at the beginning of a period remains
constant over the period being measured and also assumes that a particular
change in interest rates is reflected uniformly across the yield curve
regardless of the duration to maturity or repricing of specific assets and
liabilities. Accordingly, although the NPV measurements and net interest income
models provide an indication of the Bank's interest rate risk exposure at a
particular point in time, such measurements are not intended to and do not
provide a precise forecast of the effect of changes in market interest rates on
the Bank's net interest income and will differ from actual results.

ANALYSIS OF NET INTEREST INCOME

     Net interest income represents the difference between income on interest-
earning assets and expense on interest-bearing liabilities. Net interest income
also depends on the relative amounts of interest-earning assets and interest-
bearing liabilities and the interest rate earned or paid on them.

                                       41
<PAGE>
 
     AVERAGE BALANCE SHEET. The following table sets forth certain information
relating to the Bank's average balance sheet and reflects the average yield on
assets and average cost of liabilities for the periods indicated and the average
yields earned and rates paid. Such yields and costs are derived by dividing
annualized income or expense by the average balance of assets or liabilities,
respectively, for the periods presented. Average balances are derived from 
month-end balances.

<TABLE>
<CAPTION>
                                        AT SEPTEMBER 30,                 FOR THE NINE MONTHS ENDED SEPTEMBER 30,
                                                               ---------------------------------------------------------------------
                                             1997                        1997                                1996
                                        ---------------------- ---------------------------------------------------------------------
                                                                                       AVERAGE                            AVERAGE
                                                       YIELD/     AVERAGE              YIELD/     AVERAGE                  YIELD/
                                           BALANCE     COST       BALANCE    INTEREST   COST      BALANCE     INTEREST      COST
                                        -----------  --------- ----------  ----------  --------  ---------  -----------  -----------
                                                                         (DOLLARS IN THOUSANDS)
ASSETS:
<S>                                     <C>          <C>       <C>         <C>         <C>       <C>        <C>          <C> 
  Interest-earning assets:
     Loans receivable, net(1)........... $  567,197    7.84%   $  540,782     $32,216   7.94%     $480,638      $28,489    7.90%
     Mortgage-backed securities.........    228,158    7.33       243,273      12,598   6.90       289,080       14,680    6.77
     Investment securities..............     40,959    7.23        41,236       2,258   7.30        35,665        2,002    7.48
     Investment and mortgage-backed      
       securities and loans available    
        for sale........................    140,395    6.77       144,510       6,829   6.30        95,717        4,378    6.10
      Other interest-earning             
       investments(2)...................     25,970    6.09        17,163         735   5.71        24,642          950    5.14
                                         ----------            ----------     -------             --------      -------
       Total interest-earning assets....  1,002,679    7.50       986,964      54,636   7.38       925,742       50,499    7.27
                                                                              -------                           -------
      Non-interest earning assets.......     41,834                46,474                           39,524
                                         ----------            ----------                         --------
      Total assets...................... $1,044,513            $1,033,438                         $965,266
                                         ==========            ==========                         ========
                                         
LIABILITIES AND STOCKHOLDERS' EQUITY:    
     Interest-bearing liabilities:       
      NOW and money market accounts.....    195,003    2.93       191,758       4,142   2.88       177,228        3,809    2.87
      Passbook and statement savings....    123,384    2.54       129,334       2,462   2.54       141,031        2,665    2.52
      Certificate accounts..............    464,652    5.54       463,939      18,863   5.42       470,523       19,040    5.40
      Borrowed funds....................    124,465    5.98       110,954       5,124   6.16        46,978        2,130    6.05
                                         ----------            ----------     -------             --------      -------
     Total interest-bearing liabilities.    907,504    4.63       895,985      30,591   4.55       835,760       27,644    4.41
                                                                              -------                           -------
     Non-interest-bearing deposits......     26,410                21,109                           19,667
     Other liabilities..................     11,386                20,147                           18,677
                                         ----------            ----------                         --------
      Total liabilities.................    945,300               937,241                          874,104
     Stockholders' equity...............     99,213                96,197                           91,162
                                         ----------            ----------                         --------
      Total liabilities and stockholders 
       equity........................... $1,044,513            $1,033,438                         $965,266
                                         ==========            ==========                         ========
      Net interest income/interest       
       rate spread(3)...................               2.87%                  $24,045   2.83%                   $22,855    2.86%
                                                       ====                   =======   ====                    =======    ==== 
     Net interest-earning assets/        
      net interest                       
       rate  margin(4)..................                       $   90,979               3.25%     $ 89,982                 3.29%
                                                               ==========               ====      ========                 ====
     Ratio of interest-earning assets to 
       interest-bearing liabilities.....                           1.10x                            1.11x
                                                                   =====                            =====
</TABLE> 

___________________
(1)  Loans receivable, net includes non-accrual loans.
(2)  Includes federal funds sold and FHLB-NY stock.
(3)  Interest rate spread represents the difference between the average rate on
     interest-earning assets and the average cost of interest-bearing
     liabilities.
(4)  Net interest margin represents net interest income divided by average
     interest-earning assets.

                                       42
<PAGE>
 
<TABLE>
<CAPTION>
                                                                   FOR THE YEARS ENDED DECEMBER 31,                      
                                           ------------------------------------------------------------------------------
                                                          1996                                     1995                  
                                           -----------------------------------   ----------------------------------------   
                                                                      AVERAGE                                 AVERAGE    
                                            AVERAGE                    YIELD/       AVERAGE                    YIELD/    
                                            BALANCE      INTEREST       COST        BALANCE      INTEREST       COST     
                                           --------      --------     -------      --------      --------     -------    
                                                                           (DOLLARS IN THOUSANDS)                        
<S>                                        <C>           <C>          <C>          <C>           <C>          <C>        
ASSETS:                                                                                                                  
  Interest-earning assets:                                                                                               
    Loans receivable, net(1)...........     $487,619      $38,596        7.92%      $457,802      $35,245        7.70%   
    Mortgage-backed securities.........      282,021       19,147        6.79        332,167       22,140        6.67    
    Investment securities..............       36,810        2,741        7.45         44,334        3,171        7.15    
    Investment and mortgage-backed                                                                                       
      securities and loans available                                                                                     
      for sale.........................      101,244        6,202        6.13         42,425        2,517        5.93    
    Other interest-earning                                                                                               
      investments(2)...................       23,525        1,353        5.75         21,069        1,500        7.12    
                                            --------      -------                   --------      -------                
       Total interest-earning assets...      931,219       68,039        7.31        897,797       64,573        7.19    
                                                          -------                                 -------                
    Non-interest earning assets........       34,360                                  16,030                             
                                            --------                                --------                             
    Total assets.......................     $965,579                                $913,827                             
                                            ========                                ========                             
                                                                                                                         
LIABILITIES AND STOCKHOLDERS' EQUITY: 
  Interest-bearing liabilities:                                                                                          
    NOW and money market accounts......      178,176        5,122        2.87        179,978        5,090        2.83    
    Passbook and statement savings.....      139,045        3,514        2.53        140,122        3,568        2.55    
    Certificate accounts...............      468,894       25,256        5.39        453,655       24,997        5.51    
    Borrowed funds.....................       55,241        3,372        6.10         33,575        2,036        6.06    
                                            --------      -------                   --------      -------                
  Total interest-bearing.liabilities...      841,356       37,264        4.43        807,330       35,691        4.42    
                                                          -------                                 -------                
  Non-interest-bearing deposits........       19,491                                  16,610                             
  Other liabilities....................       12,799                                   8,029                             
                                            --------                                --------                             
    Total liabilities..................      873,646                                 831,969                             
  Stockholders' equity.................       91,933                                  81,858                             
                                            --------                                --------                             
    Total liabilities and                                                                                                
     stockholders' equity..............     $965,579                                $913,827                             
                                            ========                                ========                             
  Net interest income/interest                                                                                           
   rate spread(3).....................                    $30,775        2.88%                    $28,882        2.77%   
                                                          =======        ====                     =======        ====    
  Net interest-earning assets/net                                                                                        
   interest margin(4)..................     $ 89,863                     3.30%      $ 90,517                     3.22%   
                                            ========                     ====       ========                     ====    
  Ratio of interest-earning                                                                                              
   assets to interest-bearing                                                                                            
    liabilities........................         1.11x                                   1.11x                            
                                            ========                                ========                              
<CAPTION> 
                                                 FOR THE YEARS ENDED DECEMBER 31,     
                                           -----------------------------------------
                                                              1994                    
                                           -----------------------------------------        
                                                                           AVERAGE          
                                             AVERAGE                        YIELD/          
                                             BALANCE         INTEREST        COST           
                                           -----------      ----------     ---------
                                                       (DOLLARS IN THOUSANDS)          
<S>                                        <C>              <C>            <C>               
ASSETS:                                                 
  Interest-earning assets:                                 
    Loans receivable, net(1)...........     $413,314          $32,095        7.77%                    
    Mortgage-backed securities.........      267,274           15,115        5.66                     
    Investment securities..............       24,954            1,410        5.65                     
    Investment and mortgage-backed                                                                    
      securities and loans                                                                            
       available for sale..............       56,270            3,520        6.26                     
    Other interest-earning.............                           769        5.94                     
      investments(2)...................       12,948          -------                                 
       Total interest-earning assets...     --------           52,909        6.83                     
                                             774,760          -------                                 
    Non-interest earning assets........                                                               
                                              22,407                                                  
    Total assets.......................     --------                                                  
                                            $797,167                                                  
                                            ========                                                  
LIABILITIES AND STOCKHOLDERS' EQUITY:                                                                                              
  Interest-bearing liabilities:                                                                       
    NOW and money market accounts......                         4,348        2.59                     
    Passbook and statement savings.....      168,168            3,609        2.51                     
    Certificate accounts...............      143,738           15,738        4.35                     
    Borrowed funds.....................      361,589            1,440        4.82                     
                                              29,896          -------                                 
  Total interest-bearing                    --------                                                  
   liabilities.........................      703,391           25,135        3.57                     
                                                              -------                                 
  Non-interest-bearing deposits               14,002                                                  
  Other liabilities....................        8,638                                                  
                                            --------                                                  
    Total liabilities                        726,031                                                  
  Stockholders' equity.................       71,136                                                  
                                            --------                                                  
    Total liabilities and                                                                             
     stockholders' equity..............     $797,167                                                  
                                            ========                                                  
                                                                                                      
  Net interest income/interest                                                                        
   rate spread(3).....................                        $27,774        3.26%                    
                                                              =======        ====                     
  Net interest-earning assets/net           $ 71,369                                                  
   interest margin(4)..................     ========                         3.58%                    
                                                                             ====                      
  Ratio of interest-earning                                                                        
   assets to interest-bearing                   1.10x                                              
    liabilities........................     ========                                                
</TABLE>                                                
                                                        
____________________________
     (1)  Loans receivable, net includes non-accrual loans.
     (2)  Includes federal funds sold and FHLB-NY stock.
     (3)  Interest rate spread represents the difference between the average
          rate on interest-earning assets and the average cost of interest-
          bearing liabilities.
     (4)  Net interest margin represents net interest income divided by average
          interest-earning assets.

                                       43
























































<PAGE>
 
RATE/VOLUME ANALYSIS

     Net interest income can also be analyzed in terms of the impact of changing
interest rates on interest-earning assets and interest-bearing liabilities and
changing volume or amount of these assets and liabilities. The following table
represents the extent to which changes in interest rates and changes in the
volume of interest-earning assets and interest-bearing liabilities have affected
the Bank's interest income and interest expense during the periods indicated.
Information is provided in each category with respect to (i) changes
attributable to changes in volume (change in volume multiplied by prior rate),
(ii) changes attributable to changes in rate (change in rate multiplied by prior
volume), and (iii) the net change. Changes attributable to the combined impact
of volume and rate have been allocated proportionately to the changes due to
volume and the changes due to rate.

<TABLE>
<CAPTION>                                                                                                                     
                                            NINE MONTHS ENDED                   YEAR ENDED             
                                           SEPTEMBER 30, 1997                DECEMBER 31, 1996          
                                               COMPARED TO                     COMPARED TO             
                                            NINE MONTHS ENDED                   YEAR ENDED             
                                           SEPTEMBER 30, 1996                DECEMBER 31, 1995           
                                     ----------------------------     -----------------------------------
                                            INCREASE                           INCREASE                                     
                                           (DECREASE)                         (DECREASE)                                    
                                             DUE TO                             DUE TO                                       
                                     --------------------             ----------------------
                                      VOLUME       RATE       NET        VOLUME       RATE         NET      
                                     --------   ---------   -------   ----------   ---------   ----------  
                                                                           (IN THOUSANDS)                        
<S>                                  <C>        <C>         <C>       <C>          <C>         <C>         
INTEREST-EARNING ASSETS:                                                                                   
Loans receivable,  net............... $ 3,582      $145     $ 3,727     $ 2,329      $1,022      $ 3,351   
Mortgage-backed securities...........  (2,527)      445      (2,082)     (3,387)        394       (2,993)  
Investment securities................     333       (77)        256        (558)        128         (430)  
Investment and mortgage-backed                                                                             
  securities and loans available                                                                           
  for sale...........................   2,303       148       2,451       3,597          88        3,685    
Other interest earning                                                                                     
  investments........................    (363)      148        (215)        162        (309)        (147)  
                                      -------      ----     -------     -------      ------      -------   
       Total.........................   3,328       809       4,137       2,143       1,323        3,466   
                                      -------      ----     -------     -------      ------      -------   
INTEREST-BEARING LIABILITIES:                                                                              
Deposits:                                                                                                  
NOW and money market accounts........     319        14         333         (46)         78           32   
Passbook and statement savings.......    (237)       34        (203)        (27)        (27)         (54)  
Certificates of deposit..............    (289)      112        (177)        819        (560)         259   
Borrowed funds.......................   2,955        39       2,994       1,322          14        1,336   
                                      -------      ----     -------     -------      ------      -------   
       Total.........................   2,748       199       2,947       2,068        (495)       1,573   
                                      -------      ----     -------     -------      ------      -------   
Net change in net interest income.... $   580      $610     $ 1,190     $    75      $1,818      $ 1,893   
                                      =======      ====     =======     =======      ======      =======   
<CAPTION> 
                                                         YEAR ENDED                
                                                     DECEMBER 31, 1995    
                                                        COMPARED TO          
                                                        YEAR ENDED          
                                                     DECEMBER 31, 1994   
                                              -----------------------------------
                                                      INCREASE                 
                                                      (DECREASE)               
                                                        DUE TO                   
                                              ----------------------           
                                                VOLUME        RATE        NET     
                                              ---------     --------   ---------- 
<S>                                           <C>           <C>        <C>                   
INTEREST-EARNING ASSETS:                                                                          
Loans receivable,  net................          $3,441       $  (291)    $ 3,150
Mortgage-backed securities............           4,049         2,976       7,025
Investment securities.................           1,312           449       1,761
Investment and mortgage-backed
  securities and loans available
  for sale............................            (826)         (177)     (1,003)
Other interest earning
  investments.........................             555           176         731
                                                ------       -------     -------
       Total..........................           8,531         3,133      11,664
                                                ------       -------     -------
INTEREST-BEARING LIABILITIES:
Deposits:
NOW and money market accounts.........             320           442         742
Passbook and statement savings........             (95)           54         (41)
Certificates of deposit...............           4,521         4,738       9,259
Borrowed funds........................             193           403         596
                                                ------       -------
       Total..........................           4,939         5,617      10,556
                                                ------       -------     -------
Net change in net interest income.....          $3,592       $(2,484)    $ 1,108
                                                ======       =======     =======
</TABLE>

COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1997 AND DECEMBER 31, 1996

     ASSETS. Total assets increased by $57.4 million, or 5.8%, to $1.0 billion
at September 30, 1997, from $987.1 million at December 31, 1996. Cash and cash
equivalents increased $14.8 million, or 163.2%, to $23.8 million as of September
30, 1997, from $9.0 million at December 31, 1996. The increase was due primarily
to a temporary increase in the balance of federal funds sold. These funds were
subsequently invested in longer term, higher yielding assets. Investment
securities, including those available for sale, increased $5.2 million, or 9.7%,
to $59.0 million as of September 30, 1997, from $53.8 million at December 31,
1996. Mortgage-backed securities, including those available for sale, decreased
$22.7 million, or 6.1%, to $350.5 million at September 30, 1997, from $373.2
million at December 31, 1996. The primary source of the asset growth was
increased lending. Net loans receivable, inclusive of those available for sale,
grew by $57.3 million, or 11.2 %, to $567.2 million at September 30, 1997, from
$509.9 million at December 31, 1996. The increase in loans was due to
management's strategic decision to maintain a higher percentage of 

                                       44
<PAGE>
 
loans as a balance sheet component. Management emphasized the origination of
residential one- to four-family five-year adjustable rate mortgages and
construction loans. Loan originations totaled $105.2 million for the nine months
ended September 30, 1997 as compared to $97.3 million for the same period in
1996. Repayment of principal on loans totaled $51.0 million for the nine months
ended September 30, 1997 as compared to $59.7 million for the same period in
1996. Over the 1997 period, principal repayments and sales of mortgage backed
securities were primarily used to fund loan growth. Premises and equipment, net
increased $2.9 million to $13.3 million at September 30, 1997, from $10.4
million at December 31, 1996. The increase was primarily due to costs
capitalized in conjunction with the completion of the Bank's new corporate
headquarters in Woodbridge, New Jersey. Excess of costs over fair value of net
assets acquired decreased $1.9 million to $9.0 million at September 30, 1997,
from $11.0 million at December 31, 1996. Normal amortization accounted for
$635,000 of this decrease. In addition, an impairment writedown of the core
deposit intangible totaling $1.3 million was recognized as of September 30,
1997, on deposits acquired from the RTC in 1995.

     LIABILITIES. Deposits increased $14.9 million, or 1.9%, to $809.4 million
at September 30, 1997, from $794.6 million at December 31, 1996. Borrowed funds
increased $35.9 million, or 40.8%, to $123.9 million at September 30, 1997, from
$88.0 million at December 31, 1996. The increased deposits and borrowed funds
were used primarily to fund the asset growth detailed above as well as for
normal operations. Advances by borrowers for taxes and insurance increased
$782,000, or 17.0%, to $5.4 million at September 30, 1997, from $4.6 million at
December 31, 1996, primarily due to the timing of these payments as well as an
increase in the residential loan portfolio.

     STOCKHOLDERS' EQUITY. The Bank's stockholders' equity increased $6.4
million for the nine months ended September 30, 1997, due primarily to earnings
of $6.8 million, partially offset by dividends of $1.2 million declared and paid
during the first nine months of 1997. Stockholder's equity was also positively
affected by an increase in the market value of securities available for sale
which resulted in an increase in the value of such investments of $196,000, net
of applicable income tax effect. Stock options exercised during the first nine
months of 1997 totaled $430,000.

     The OTS requires that the Bank meet minimum tangible, core, and risk-based
capital requirements. At September 30, 1997, the Bank exceeded all regulatory
capital requirements.

COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1996 AND DECEMBER 31, 1995

     ASSETS. The Bank's assets at December 31, 1996, totaled $987.1 million, an
increase of $42.1 million, or 4.5% from December 31, 1995. Cash and cash
equivalents decreased $17.5 million, or 65.9%, to $9.0 million at December 31,
1996 from $26.5 million at December 31, 1995. The decrease was due primarily to
federal funds being utilized to fund loan production. Investment securities,
including those available for sale, increased $12.7 million, or 31.0%, to $53.8
million at December 31, 1996, from $41.1 million at December 31, 1995. The
increase was due primarily to purchases of investment securities of $52.7
million, partially offset by sales, calls, and maturities of investment
securities of $39.8 million. FHLB-NY stock increased $1.2 million, or 18.4%, to
$7.4 million December 31, 1996, due to an additional purchase of stock as
required by FHLB-NY. Loans receivable, net increased $51.9 million, or 11.3%, to
$509.6 million at December 31, 1996 from $457.8 million at December 31, 1995.
The Bank originated $124.1 million in loans during 1996, compared to $95.7
million for 1995. The Bank also purchased $10.1 million of first mortgage loans
secured by 1-4 family properties in New Jersey from third-party correspondents
during 1996, compared with $5.2 million during 1995. The Bank will continue to
originate residential and commercial mortgage loans through its retail outlets,
in-house originators, brokers and third-party correspondents. The Bank will also
continue to warehouse and sell its 30-year fixed-rate conforming 

                                       45
<PAGE>
 
mortgage loans. The Bank provided $550,000 for possible loan losses during 1996,
compared to $310,000 for 1995. Although non-performing loans decreased to $4.8
million at December 31, 1996, from $6.0 million at December 31, 1995, the Bank's
loan portfolio growth warranted an increase in the provision. Real estate owned
("REO") decreased $1.6 million to $1.5 million at December 31, 1996, from $3.1
million at December 31, 1996. The Bank acquired $2.5 million in properties,
provided $105,000 for possible losses on REO, while selling $4.2 million during
1996. The Bank continues to liquidate REO properties as expeditiously as
possible. MBS, including those available for sale, totaled $373.2 million at
December 31, 1996, compared to $377.5 million at December 31, 1995. The
available for sale portfolio increased $31.5 million, while the held to maturity
portfolio decreased $35.8 million, as the Bank continued to more actively manage
its MBS portfolio. Premises and equipment, net increased $1.0 million, or 10.8%,
to $10.4 million at December 31, 1996, as the Bank was renovating its new
corporate headquarters. Excess of cost over fair value of net assets acquired
decreased $1.3 million, or 11.0%, to $11.0 million at December 31, 1996, from
$12.3 million at December 31, 1995, as the Bank recognized an impairment
writedown totaling $334,000 on deposits acquired from the RTC in 1991, along
with normal amortization of core deposit premiums.

     LIABILITIES. Deposits decreased $11.7 million, or 1.5%, to $794.6 million
at December 31, 1996, from $806.3 million at December 31, 1995. The decrease was
primarily due to a reduction in the dependence on higher rate certificates of
deposits, accompanied by the outflow of funds into other investment vehicles,
specifically mutual funds and the equity markets. Borrowed funds, which consist
of FHLB-NY advances and repurchase agreements, increased $49.2 million, or
127.1%, to $88.0 million at December 31, 1996, from $39.0 million at December
31, 1995. The Bank repaid $37.2 million in borrowings, while proceeds on new
borrowings totaled $86.4 million during 1996. Due to the decline in deposits,
funding for continued loan production was attained through borrowings. ESOP debt
decreased $100,000 to $646,000 at December 31, 1996, as a result of principal
payments during 1996. Advances by borrowers for taxes and insurance increased
$787,000, or 20.6%, to $4.6 million at December 31, 1996, as a direct
correlation with the growth of the loan portfolio. Other liabilities increased
$765,000, or 13.5%, to $6.4 million at December 31, 1996, from $5.7 million at
December 31, 1995, primarily as a result of an increase in accrued liabilities.

     STOCKHOLDERS' EQUITY. Stockholders' equity increased $3.2 million, or 3.5%,
to $92.9 million at December 31, 1996, from $89.7 million at December 31, 1995.
The increase was primarily attributable to earnings for the year ended December
31, 1996, of $4.7 million, offset by cash dividends of $1.2 million, the
acquisition of shares for the Recognition and Retention Plan ("RRP") totaling
$310,000, and a net change in unrealized loss on securities available for sale
of $168,000. Proceeds from stock options exercised during 1996 totaled $32,000.

     The OTS requires that the Bank meet minimum tangible, core, and risk-based
capital requirements. At December 31, 1996, the Bank exceeded all regulatory
capital requirements.

COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
SEPTEMBER 30, 1996

     RESULTS OF OPERATIONS. Net income for the nine months ended September 30,
1997 was $6.8 million, or $.84 per share, compared with $2.4 million, or $.29
per share, for the corresponding 1996 period. The earnings for 1997 were
affected by an impairment writedown of the core deposit intangible recognized as
of September 30, 1997. An after tax charge of $867,000 was incurred due to this
writedown. Net income for the nine months ended September 30, 1997, excluding
this charge, was $7.6 million, or $.95 per share. The 1996 period was affected
by non-recurring charges incurred due to the special assessment to recapitalize
the SAIF and also due to benefits payable as a result of the passing of the
Bank's long-time President. 

                                       46
<PAGE>
 
Earnings for the 1996 period would have been $6.6 million, or $.82 per share,
without these non-recurring charges.

     INTEREST INCOME. Interest income increased by $4.1 million, or 8.2%, to
$54.6 million for the nine months ended September 30, 1997, compared to $50.5
million for the same period in 1996. Interest on loans increased $3.7 million,
or 13.1%, to $32.2 million for the nine months ended September 30, 1997, from
$28.5 million for the same period in 1996. The increase was due primarily to an
increase in the average size of the loan portfolio to $540.8 million for the
nine month period ended September 30, 1997, from $480.6 million for the same
period in 1996. Interest on mortgage-backed securities held to maturity
decreased $2.1 million, or 14.2%, to $12.6 million for the nine months ended
September 30, 1997, compared to $14.7 million for the same period in 1996. The
decrease was due to the decreased average balance of the mortgage-backed
securities held to maturity portfolio for the nine months of 1997 to $243.3
million, from $289.1 million for the same period in 1996, partially offset by an
increase in the yield on the portfolio to 6.90% for 1997 from 6.77% for 1996.
The decrease in mortgage-backed securities held to maturity balances was due
primarily to principal repayments on existing mortgage-backed securities held to
maturity being utilized to fund loan production. The majority of mortgage-backed
securities purchased over the period were classified as available for sale.
Interest and dividends on investment securities increased $41,000, or 1.4% for
the nine months ended September 30, 1997. Interest on investments and mortgage-
backed securities available for sale increased $2.5 million, or 56.0%, to $6.8
million for the nine months ended September 30, 1997, as compared to $4.4
million for the same period in 1996. The increase was due to an increase in the
average balance of the available for sale portfolio to $144.5 million for the
nine months ended September 30, 1997, from $95.7 million for the same period of
1996 along with an increase in the yield on the portfolio to 6.30% for 1997 from
6.10% in 1996.

     INTEREST EXPENSE. Interest expense increased $2.9 million, or 10.7%, to
$30.6 million for the nine months ended September 30, 1997, compared to $27.6
million for the same period in 1996. Interest expense on deposits decreased
$47,000, or 0.2%, to $25.5 million for the nine month period ended September 30,
1997. Interest expense on borrowed funds increased $3.0 million, or 140.6%, to
$5.1 million for the nine months ended September 30, 1997, compared to $2.1
million for the same period in 1996. The increase was due primarily to the
growth in the average balance of borrowings, which was $111.0 million for the
nine months ended September 30, 1997, as compared to $47.0 million for the
comparable 1996 period. This increase was attributable to management's strategy
to fund the purchase of investment and mortgage-backed securities through the
use of borrowed funds, where accretive to earnings. The interest expense on
borrowings was also affected by an increase in the average cost of borrowings to
6.16% for the nine months ended September 30, 1997, from 6.05% for the
comparable 1996 period.

     NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest income
before provision for loan losses increased $1.2 million, or 5.2%, to $24.0
million for the nine months ended September 30, 1997, compared to $22.9 million
for the same period in 1996. The increase was due to the changes in interest
income and interest expense described above.

     PROVISION FOR LOAN LOSSES. The provision for loan losses increased
$525,000, or 140.0%, to $900,000 for the nine months ended September 30, 1997,
compared to $375,000 for the same period in 1996. The increase in the provision
is primarily due to the increase in the loan portfolio. Net loans increased
$68.6 million between September 30, 1997 and September 30, 1996. The provision
was based upon management's review and evaluation of the loan portfolio, level
of delinquencies, general market and economic conditions, and asset
classification review. In management's opinion, the allowance for loan losses,
totaling $6.0 million, is adequate to cover losses inherent in the portfolio.
Although management considers the allowance for loan

                                       47
<PAGE>
 
losses to be adequate, additional problems could develop and lead to
additional loan loss provisions and asset write-downs.

     OTHER OPERATING INCOME. Other operating income increased $804,000, or
58.2%, to $2.2 million for the nine months ended September 30, 1997, compared to
$1.4 million for the same period in 1996. Fees and service charges increased
$101,000, or 8.9%, to $1.2 million for the nine months ended September 30, 1997,
from $1.1 million for the same period in 1996. This increase was due to a higher
number of demand deposit accounts along with higher service fees. The overall
increase in other operating income was due primarily to an increase of $454,000
in gains on sales of loans and securities available for sale, to $593,000 for
the nine months ended September 30, 1997, from $139,000 for the comparable 1996
period. The increase was due primarily to net gains of $545,000 recognized in
the third quarter of 1997 and such gains were principally attributable to sales
of mortgage-backed securities available for sale. The "Other, net" category of
Other operating income increased $249,000, or 241.7%, to $352,000 for the nine
months ended September 30, 1997, from $103,000 for the same period in 1996. The
changes in that category are primarily due to reduced expense of $131,000
associated with REO operations and increased income of $121,000 realized by the
Bank's wholly owned subsidiary, FSB Financial Corp. FSB Financial Corp. markets
annuities and other financial products to customers of the Bank and receives
commissions on sales.

     OPERATING EXPENSES. Operating expenses decreased $5.5 million, or 27.5%, to
$14.6 million for the nine months ended September 30, 1997, from $20.1 million
for the same period in 1996. The decrease was primarily due to the SAIF
assessment and employee benefit costs. Compensation and employee benefits
decreased $614,000, or 7.7%, to $7.3 million for the nine months ended September
30, 1997, compared to $8.0 million for the same period in 1996. The 1996 period
included a non-recurring charge for benefits payable as a result of the passing
of the Bank's long-time Chairman and President. Equipment expense increased
$341,000, or 44.8%, to $1.1 million for the nine months ended September 30,
1997, from $762,000 million for the same period in 1996. The increase was due to
the write off of certain equipment determined to be obsolete and increased
depreciation expense incurred due to an upgrade of the Bank's computer
equipment. The Bank incurred reduced FDIC insurance premiums in 1997. On
September 30, 1996, the President signed into law the Deposit Insurance Funds
Act of 1996 (the "Funds Act") which, among other things, imposed a one-time
special assessment on SAIF member institutions, including the Bank, to
recapitalize the SAIF. The Bank's special assessment of $5.2 million was
reflected as an expense in the 1996 period. As a result of the Funds Act, the
FDIC substantially lowered the SAIF insurance assessments on SAIF member
institutions. The Bank's assessment rate has now been reduced to 6.4 basis
points from 23 basis points and the corresponding FDIC expense decreased $1.1
million, or 80%, to $285,000 for the nine months ended September 30, 1997, from
$1.4 million for the comparable 1996 period. Amortization of intangibles
increased $794,000, or 69.8%, to $1.9 million for the nine months ended
September 30, 1997, from $1.1 million for the same period in 1996. An impairment
writedown of the core deposit intangible totaling $1.3 million was recognized as
of September 30, 1997, regarding deposits acquired from the RTC in 1995.

     INCOME TAX EXPENSE. Income tax expense totaled $4.0 million for the nine
months ended September 30, 1997, compared to $1.4 million for the comparable
1996 period, which represented an increase of $2.6 million, or 190.0%. The
increase was due primarily to an increase in taxable income. Taxable income was
affected in the 1996 period by several non-recurring charges.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

     RESULTS OF OPERATIONS. Net income for the year ended December 31, 1996,
totaled $4.7 million, a 43.4% decrease from the $8.3 million earned in 1995. The
decrease was primarily attributable to non- 

                                       48
<PAGE>
 
recurring charges for the special assessment to recapitalize the SAIF and the
expenses resulting from the sudden passing of the Bank's long-time President.

     INTEREST INCOME. Interest income for the year ended December 31, 1996,
totaled $68.0 million, an increase of $3.5 million, or 5.4%, from $64.6 million
for the year ended December 31, 1995. The increase was due primarily to an
increase in the average balance of interest-earning assets to $931.2 million for
1996, from $897.8 million for 1995. Interest income on loans increased $3.4
million, or 9.5%, to $38.6 million for the year ended December 31, 1996,
compared to $35.2 million for 1995. The increase was due primarily to the
increase in the average balance of the loan portfolio to $487.6 million for the
year ended December 31, 1996, from $457.8 million for 1995. Interest on 
mortgage-backed securities held to maturity decreased $3.0 million, or 13.5%, to
$19.1 million for the year ended December 31, 1996, from $22.1 million for 1995.
The decrease is primarily due to a reduction in the average size of the 
mortgage-backed securities held to maturity portfolio to $282.0 million for the
year ended December 31, 1996, from $332.2 million for 1995, as the cash flows
from mortgage-backed securities held to maturity were used to provide funding
for loan production and the purchase of investment securities and mortgage-
backed securities available for sale. Interest on investment securities
decreased $577,000, or 12.4%, to $4.1 million for the year ended December 31,
1996, from $4.7 million for 1995. The decrease was primarily due to a reduction
in the average size of the investment securities portfolio to $36.8 million for
the year ended December 31, 1996, from $44.3 million in 1995, offset slightly by
an increase in the average yield on the investment portfolio to 7.45% for 1996,
from 7.15% for 1995. Interest on investment securities and mortgage-backed
securities available for sale increased $3.7 million, or 146.4%, to $6.2 million
for the year ended December 31, 1996, from $2.5 million for 1995. The increase
was primarily due to the increased average size of the available for sale
portfolio to $101.2 million for 1996, from $42.4 million for 1995, accompanied
by an increase in the average yield to 6.13% for 1996, from 5.93% for 1995. The
increased average size was due to the reclassification from held to maturity to
available for sale of $77.5 million in investment and mortgage-backed securities
in December 1995, (see Note 1, "Summary of Significant Accounting Policies" in
the consolidated financial statements) accompanied by the Bank's positioning
more securities in the available for sale category to manage the portfolio more
effectively.

     INTEREST EXPENSE. Total interest expense increased $1.6 million, or 4.4%,
to $37.3 million for the year ended December 31, 1996, compared to $35.7 million
for 1995. Interest expense on deposits increased $237,000, or 0.7%, to $33.9
million for the year ended December 31, 1996. Interest expense on borrowed funds
increased $1.3 million, or 65.6%, to $3.4 million for the year ended December
31, 1996, from $2.0 million for 1995. The increase was due primarily to an
increase in the average balance of FHLB-NY advances and other borrowings to
$55.2 million for 1996, from $33.6 million for 1995, accompanied by a slight
increase in the average rate paid on borrowings to 6.10% for 1996, from 6.06%
for 1995. The Bank continued to utilize borrowings for funding of loan
production and investment securities purchases.

     NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest income
increased $1.9 million, or 6.6%, totaling $30.8 million for the year ended
December 31, 1996, compared to $28.9 million for 1995. The average interest rate
spread for the year ended December 31, 1996, was 2.88%, compared to 2.77% for
1995. The average yield on interest-earning assets increased 12 basis points,
while average interest expense increased only 1 basis point from 1995 to 1996.

     PROVISION FOR LOAN LOSSES. The Bank provided $550,000 for possible loan
losses in 1996, as compared to $310,000 in 1995. The provision was based upon
management's review and evaluation of the loan portfolio, level of
delinquencies, general market and economic conditions, and asset classification
review. The related allowance for loan losses totaled $5.3 million, and was
112.8% of nonaccrual loans at December 31, 1996. This compares to a $5.2 million
allowance for loan losses at December 31, 1995, which

                                       49
<PAGE>
 
was 89.9% of nonaccrual loans. Substantially all of the nonaccrual loans are
secured by first mortgage liens on single-family residential properties. Non-
performing loans decreased $1.2 million, or 20.3%, to $4.8 million at December
31, 1996, compared to $6.0 million at December 31, 1995.

     OTHER OPERATING INCOME. Other operating income, consisting primarily of
deposit product fees, loan servicing fees, gains and losses on loans and
securities sold, and real estate owned operating income and expenses, totaled
$2.0 million for the year ended December 31, 1996, compared to $2.2 million for
1995, which represented a decrease of $176,000, or 8.1%. Net gains on sales of
loans and securities available for sale totaled $236,000 for the year ended
December 31, 1996, from $751,000 for 1995. Although volume of sales increased
during 1996, the Bank continued to minimize its exposure to rising rates by
limiting the duration of the available for sale portfolio, in order to provide a
consistent funding source for continued loan production. Other income,
consisting primarily of income from the Bank's operating subsidiaries, FSB
Financial Corp. and 1000 Woodbridge Center Drive, Inc., gains and losses on
sales of REO, rental income, and REO expenses, totaled $202,000 for the year
ended December 31, 1996, compared to a net expense of $184,000 for the year
ended December 31, 1995, representing an increase of $386,000, or 209.8%. The
increase was due to decreased REO expenses and provisions for possible losses on
REO, increased income from operating subsidiaries, and increased profits on the
sale of REO.

     OPERATING EXPENSE. Operating expenses increased $6.9 million, or 38.5%, to
$24.7 million for the year ended December 31, 1996, from $17.8 million in 1995.
There were several non-recurring expenses during 1996. Compensation and employee
benefit expense increased $1.8 million, or 20.5%, to $10.3 million for the year
ended December 31, 1996, from $8.5 million for 1995. The increase was primarily
due to a non-recurring charge for benefits payable as a result of the passing of
the Bank's President, accompanied by increased salary and benefit costs.
Occupancy expense decreased $8,000 to $2.0 million for the year ended December
31, 1996. The decrease was due primarily to the closing of a branch of the Bank
in November 1996. Equipment expense decreased $153,000, or 12.9%, to $1.0
million for the year ended December 31, 1996. Advertising expense decreased
$118,000, or 21.0%, to $445,000 for the year ended December 31, 1996, from
$563,000 for 1995. The decrease was due primarily to reduced generic marketing
as loan production was attained without additional marketing efforts. Federal
deposit insurance premiums increased $159,000, or 9.3%, to $1.9 million for the
year ended December 31, 1996, from $1.7 million for 1995. The increase was due
primarily to an increase in the average level of insurance-assessable deposits
to $813.3 million for 1996, from $796.1 million for 1995. The Funds Act, which
was signed into law on September 30, 1996, imposed a one-time special assessment
of $5.2 million on the Bank to recapitalize the SAIF (see Note 15, "Special SAIF
Assessment" in the consolidated financial statements). Amortization of
intangibles increased $283,000, or 26.5%, to $1.3 million for the year ended
December 31, 1996, from $1.1 million for 1995. The increase was due primarily an
impairment writedown of the core deposit intangible totaling $334,000 regarding
deposits acquired from the RTC in 1991. General and administrative expenses
decreased $264,000, or 9.7%, to $2.5 million for the year ended December 31,
1996, from $2.7 million for 1995. The decrease was due primarily to lower
outside service bureau expenses.

     INCOME TAX EXPENSE. Income tax expense totaled $2.8 million for the year
ended December 31, 1996, compared to $4.6 million for 1995, which represented a
decrease of $1.8 million, or 39.1%. The decrease was due primarily to a
reduction in taxable income due to the special SAIF assessment and one-time
charges resulting from the passing of the Bank's President in 1996.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994

     RESULTS OF OPERATIONS. Net income for the year ended December 31, 1995,
totaled $8.3 million, unchanged from the $8.3 million earned in 1994. The Bank's
earnings were primarily achieved by an 

                                       50
<PAGE>
 
increase in net interest income and other operating income, offset by higher
operating expenses due primarily to the expenses relating to the acquisition of
branches from the RTC, partially reduced by lower income tax expense.

     INTEREST INCOME. Interest income for the year ended December 31, 1995,
totaled $64.6 million, an increase of $11.7 million, or 22.1%, from $52.9
million for 1994. The increase was primarily due to an increase in the average
balance of interest-earning assets to $897.8 million for 1995, from $774.8
million for 1994, combined with an increase in the average yield on interest-
earning assets to 7.19% for the year ended December 31, 1995, from 6.83% for
1994. Interest income on loans increased $3.1 million, or 9.7%, to $35.2 million
for the year ended December 31, 1995, compared to $32.1 million for 1994. The
increase was due primarily to an increase in the average balance of the loan
portfolio to $457.8 million in 1995, from $413.3 million in 1994. Interest on
mortgage-backed securities held to maturity increased $7.0 million, or 46.4%, to
$22.1 million for the year ended December 31, 1995, compared to $15.1 million
for 1994. The increase is due primarily to an increase in the average size of
the mortgage-backed securities held to maturity portfolio to $332.2 million in
1995, from $267.3 million for 1994, as the proceeds of the branch acquisitions
were used to purchase mortgage-backed securities held to maturity, accompanied
by the increase in the average yield earned on mortgage-backed securities held
to maturity to 6.67% during 1995 from 5.66% during 1994 as a result of upward
adjustments on adjustable-rate mortgage-backed securities. Interest on
investment securities increased $2.5 million, or 113.6%, to $4.7 million for the
year ended December 31, 1995, as compared to $2.2 million for 1994. The increase
was due primarily to the increase in the average balance of the investment
securities portfolio with cash flow provided from the branch acquisition during
1995, accompanied by an increase in the average yield to 7.15% for 1995 from
5.65% for 1994, as a result of purchases of investment securities in the first
half of 1995 when rates were higher. Interest on investments, mortgage-backed
securities and loans available for sale totaled $2.5 million for the year ended
December 31, 1995, as compared to $3.5 million for 1994, which represents a
decrease of $1.0 million, or 28.6%. The decrease was due primarily to the
average yield on the available for sale portfolio decreasing to 5.93% for the
year ended December 31, 1995, from 6.26% for 1994, and a corresponding decrease
in the average balance of the available for sale portfolio during 1995. On
December 15, 1995, the Bank reassessed its classifications of all of its
securities in accordance with the SFAS 115 (see Note 1, "Summary of Significant
Accounting Policies" in the consolidated financial statements). The Bank
classified an additional $77.5 million in investment and mortgage-backed
securities from held to maturity to available for sale.

     INTEREST EXPENSE. Total interest expense increased $10.6 million, or 42.2%,
to $35.7 million for the year ended December 31, 1995, as compared to $25.1
million for 1994. The increase in interest expense on deposits to $33.7 million
for the year ended December 31, 1995, from $23.7 million for 1994, was mainly
attributable to an increase in the average deposit balance outstanding to $773.8
million for 1995, from $673.5 million for 1994, accompanied by higher interest
rates paid on deposits, causing average interest cost to increase to 4.35% for
1995, from 3.52% for 1994. General market interest rates began a trend upward in
1994 and continued increasing through June, 1995. Interest rates trended
downward, which enabled the Bank to reprice certificates of deposits
accordingly. Interest expense on borrowed funds increased $596,000, or 41.4%,
during 1995, and was due to increased borrowings accompanied by higher interest
rates paid on borrowings. The average cost of borrowed funds increased to 6.06%
for 1995, from 4.82% for 1994.

     NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest income
increased slightly during 1995, totaling $28.9 million for the year ended
December 31, 1995, as compared to $27.8 for 1994, a $1.1 million, or 4.0%
increase. The average interest rate spread for the year ended December 31, 1995,
was 2.77%, compared to 3.26% for 1994. The spread compression was due to the
upward repricing of certificates of deposit during 1995 outpacing the repricing
of adjustable rate assets, which are subject to 

                                       51
<PAGE>
 
interest rate caps and margins. The average yield on interest-earning assets
increased 36 basis points, but the average interest expense increased 85 basis
points from 1994 to 1995.

     PROVISION FOR LOAN LOSSES. The Bank provided $310,000 for possible loan
losses in 1995, as compared to $300,000 in 1994. The provision was based upon
management's review and evaluation of the loan portfolio, level of
delinquencies, general market and economic conditions, and asset classification
review. The related allowance for loan losses totaled $5.2 million, and was
89.9% of nonaccrual loans at December 31, 1995. This compares to a $5.7 million
allowance for loan losses at December 31, 1994, which was 65.3% of nonaccrual
loans. Substantially all of the nonaccrual loans are secured by first mortgage
liens on single-family residential properties. Non-performing loans decreased
$3.0 million, or 50.0%, to $6.0 million at December 31, 1995, compared to $9.0
million at December 31, 1994.

     OTHER OPERATING INCOME. Other operating income, totaled $2.2 million for
the year ended December 31, 1995, as compared to $1.7 million for 1994, which
represented an increase of $500,000, or 29.4%. The increase was due primarily to
net gains on sales of loans and securities sold to $751,000 for the year ended
December 31, 1995, increased from $40,000 for 1994, as some of the securities
purchased with the proceeds from both the branch acquisitions and the Secondary
Offering were placed in the available for sale portfolio and subsequently sold.
Also included in the net gains on sales of securities available for sale was the
sale of securities which were transferred in accordance with the reassessment of
the securities portfolio as allowed by the SFAS 115 (see Note 1, "Summary of
Significant Accounting Policies" in the consolidated financial statements).
Other income totaled a net expense of $184,000 for the year ended December 31,
1995, as compared to income of $107,000 for 1994. This decrease was due
primarily to increased REO expenses and provisions for possible losses on REO.

     OPERATING EXPENSES. Operating expenses increased $1.8 million, or 11.3%, to
$17.8 million for the year ended December 31, 1995, as compared to $16.0 million
for 1994. The increase was due primarily to increased costs due to the branch
acquisitions during 1995. Compensation and employee benefits increased $342,000,
or 4.2%, to $8.5 million for the year ended December 31, 1995, as compared to
$8.2 million for 1994. Occupancy expenses increased $181,000, or 9.5%, to $2.1
million for the year ended December 31, 1995, compared to $1.9 million for 1994,
due to new branch location costs. Advertising expense increased $137,000, or
32.2% to $563,000 for 1995, compared to $426,000 for 1994, due to increased
advertising to maintain loan volume. Federal deposit insurance premiums
increased $132,000, or 8.3%, to $1.7 million for 1995, compared to $1.6 million
for 1994, due primarily to the increase in the deposit base as a result of the
acquisition from the RTC. Amortization of intangibles totaled $1.1 million for
the year ended December 31, 1995, as compared to $223,000 for 1994, as a result
of the $12.6 million premium paid on the deposits acquired from the RTC during
1995. General and administrative expenses increased $276,000, or 11.0%, to $2.7
million for the year ended December 31, 1995. The increase was due primarily to
certain one-time costs related to the conversion of the deposit data from the
acquired branches to the Bank's data processing system, and increased expenses
in operating subsidiaries.

     INCOME TAX EXPENSE. Income tax expense totaled $4.6 million for the year
ended December 31, 1995, compared to $4.9 million for 1994, which represented a
decrease of $300,000, or 6.1%. The decrease was due primarily to a reduction in
taxable income because of allowable deductions for increases in specific loan
and REO reserves and charge-offs.

LIQUIDITY AND CAPITAL RESOURCES

     The Bank's liquidity is a measure of its ability to generate sufficient
cash flows to meet all of its current and future financial obligations and
commitments. The Bank's primary sources of funds are deposits,

                                       52
<PAGE>
 
proceeds from principal and interest payments on loans and mortgage-backed
securities; sales of loans, mortgage-backed securities and investments available
for sale; maturities of investment securities and short-term investments; and,
to an increasing extent, advances from the FHLB-NY, reverse repurchase
agreements and other borrowed funds. While maturities and scheduled amortization
of loans and mortgage-backed securities are a predictable source of funds,
deposit cash flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition.

     The primary investing activity of the Bank is the origination of one- to
four-family mortgage loans. During the nine months ended September 30, 1997 and
1996, and years ended December 31, 1996, 1995, and 1994, the originated mortgage
loans in the amounts of $104.6 million, $100.9 million, $127.1 million, $98.5
million and $81.8 million, respectively. The Bank originated other loans
totaling $3.4 million, $2.3 million, $3.8 million, $3.8 million and $2.3 million
for the nine months ended September 30, 1997 and 1996, and years ended December
31, 1996, 1995, and 1994, respectively. The Bank also purchased loans and
mortgage-backed and investment securities to reduce excess liquidity not
otherwise used for lending activities. Purchases of mortgage loans totaled $4.7
million and $4.6 million for the nine months ended September 30, 1997 and 1996,
respectively, and $10.1 million and $5.2 million for the years ended December
31, 1996 and 1995, respectively. There were no mortgage loans purchased in 1994.
Purchases of mortgage-backed securities, including those available for sale,
totaled $160.7 million, $141.4 million, $191.3 million, $215.3 million and
$146.6 million for the nine months ended September 30, 1997 and 1996, and years
ended December 31, 1996, 1995, and 1994, respectively. Purchases of investment
securities, including those available for sale, totaled $27.0 million, $44.8
million, $52.7 million, $48.0 million and $37.7 million for the nine months
ended September 30, 1997 and 1996, and years ended December 31, 1996, 1995, and
1994, respectively. Other investing activities include investment in FHLB-NY
stock and federal funds. The investing activities were funded primarily from
principal repayments on loans and mortgage-backed securities of $117.3 million,
$139.2 million, $178.6 million, $119.8 million and $149.4 million for the nine
months ended September 30, 1997 and 1996, and years ended December 31, 1996,
1995, and 1994, respectively. Additionally, proceeds from sales of loans,
mortgage-backed securities and investment securities totaling $128.0 million,
$90.2 million, $124.2 million, $114.8 million and $89.1 million for the nine
months ended September 30, 1997 and 1996, and years ended December 31, 1996,
1995, and 1994, and, to a lesser extent, called or maturing investment
securities totaling $14.0 million, $13.0 million, $19.0 million, $19.0 million
and $11.0 million for the nine months ended September 30, 1997 and 1996, and
years ended December 31, 1996, 1995, and 1994, respectively, provided additional
liquidity.

     The Bank has several other sources of liquidity, including FHLB-NY
advances, which, at September 30, 1997, totaled $33.0 million, of which $15.0
million were due within the following twelve months. If necessary, the Bank has
additional borrowing capacity with the FHLB-NY, including an available overnight
line of credit of up to $48.9 million. The Bank also has other borrowings that
provided additional liquidity, totaling $90.9 million at September 30, 1997,
$25.9 million of which is due in 1998. Other sources of liquidity are investment
and mortgage-backed securities available for sale, totaling $140.4 million at
September 30, 1997.

     The Bank, in the normal course of conducting business, extends credit to
meet the financing needs of its customers through commitments and letters of
credit. At September 30, 1997, the Bank had commitments to originate and
purchase mortgage loans of $25.8 million and to purchase mortgage-backed and
investment securities of $16.9 million. At that date, there were also
commitments under unfunded credit lines totaling $43.0 million and standby
letters of credit totaling $2.1 million. Certificates of deposit that are
scheduled to mature in one year or less totaled $348.3 million at September 30,
1997. Based on historical experience, management estimates that a significant
portion of such deposits will remain with the Bank. The Bank anticipates that it
will have sufficient funds available to meet its current commitments.

                                       53
<PAGE>
 
     The Bank is required to maintain an average daily balance of liquid assets
as defined by OTS regulations. This ratio is based upon a percentage of deposits
and short-term borrowings. The required minimum ratio has been reduced to 4.00%,
from 5.00% at September 30, 1997. The Bank's liquidity ratio at September 30,
1997, was 8.17%. The Bank's most liquid assets are cash and cash equivalents,
which include investments in highly liquid, short-term investments. The level of
these assets is dependent upon the Bank's operating, financing, and investing
activities during any given period. As of September 30, 1997, cash and
investments qualifying for liquidity purposes totaled $80.0 million.

IMPACT OF INFLATION AND CHANGING PRICES

     The financial statements of the Bank and notes thereto, presented elsewhere
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 the change in the
relative purchasing power of money over time and due to inflation. The impact of
inflation is reflected in the increased cost of the Bank's operations. Unlike
most industrial companies, nearly all of the assets and liabilities of the Bank
are monetary. As a result, interest rates have a greater impact on the Bank's
performance than does the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the
prices of goods and services.

IMPACT OF NEW ACCOUNTING STANDARDS

     Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. In June 1996, the FASB issued SFAS 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("SFAS 125"). SFAS 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishment of
liabilities. These standards are based on a consistent application of a
financial components approach that focuses on control. Under this approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished. SFAS 125 is effective for transfers that occur after December
31, 1996 and will be applied prospectively except for certain provisions that
were deferred until January 1, 1998, by Statement 127 "Deferral of the Effective
Date of Certain Provisions of FASB No. 125" issued in December 1996. The
adoption of SFAS 125 did not have a material effect on the Bank's financial
position or results of operations.

     Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125. In December 1996, the FASB issued SFAS No. 127, "Deferral of the Effective
Date of Certain Provisions of FASB Statement No. 125" ("SFAS 127"), an amendment
of SFAS 125. SFAS 127 defers for one year the effective date of portions of SFAS
125 that address secured borrowings and collateral for all transactions.
Additionally, SFAS 127 defers for one year the effective date of transfers of
financial assets that are part of repurchase agreements, securities lending and
similar transactions. The adoption of SFAS 127 is not expected to have a
material effect on the Bank's financial position or results of operations.

     Earnings Per Share. In February 1997, the FASB issued Statement 128,
"Earnings Per Share" ("SFAS 128"). SFAS 128 supersedes APB Opinion No. 15,
"Earnings Per Share" and specifies the computation, presentation and disclosure
requirements for earnings per share ("EPS") for entities with publicly held
common stock or potential common stock. SFAS 128 replaces Primary EPS and Fully
Diluted EPS with Basic EPS and Diluted EPS, respectively. SFAS 128 requires dual
presentation of Basic and Diluted EPS on the face of the income statement for
entities with complex capital structures and a reconciliation of information
utilized to calculate Basic EPS to that used to calculate Fully Diluted EPS.

                                       54
<PAGE>
 
SFAS 128 is effective for financial statement periods ending after December 15,
1997. Earlier application is not permitted. After adoption, all prior EPS are
required to be restated to conform with SFAS 128. If the Bank had adopted SFAS
128, Basic EPS would have been $0.85 and $0.30 for the nine months ended
September 30, 1997 and 1996 and $0.60, $1.06 and $1.05 for the years ended
December 31, 1996, 1995 and 1994, respectively. Diluted EPS would have been the
same as earnings per share reported.

     Reporting Comprehensive Income. In June 1997, the FASB issued SFAS 130,
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 established standards
for reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. Under SFAS 130, comprehensive
income is divided into net income and other comprehensive income. Other
comprehensive income includes items previously recorded directly in equity, such
as unrealized gains or losses on securities available for sale. SFAS 130 is
effective for interim periods and annual periods beginning after December 15,
1997. Comparative financial statements for earlier periods are required to be
reclassified to reflect application of the provisions of SFAS 130. The Bank has
not determined the impact, if any, SFAS 130 will have on the Bank's financial
statement presentation.

     Disclosures About Segments of an Enterprise and Related Information. In
June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards
for the way public business enterprises are to report information about
operating segments in annual financial statements and requires those enterprises
to report selected financial information about operating segments in interim
financial reports to shareholders. SFAS 131 is effective for financial
statements for periods beginning after December 15, 1997. The Bank has not yet
determined the impact, if any, SFAS 131 will have on the Bank's financial
statement presentation.

                             BUSINESS OF THE BANK

GENERAL

     The Bank's principal business has been, and continues to be, attracting
retail deposits from the general public and investing those deposits, together
with funds generated from operations and borrowings, primarily in one- to four-
family residential mortgage loans, real estate construction loans, commercial
real estate loans, home equity loans and lines of credit and multi-family
residential mortgage loans. The Bank maintains a significant portfolio of
mortgage-backed securities and also invests in U.S. Government, federal agency
and corporate debt securities and other marketable securities. The Bank's
revenues are derived principally from interest on its mortgage loan and 
mortgage-backed securities portfolios, and interest and dividends on its
investment securities. The Bank's total loan portfolio amounted to $573.0
million at September 30, 1997. One- to four-family residential loans accounted
for 81.8% of total loans, while home equity loans and lines of credit were 7.3%
of total loans. Real estate construction, commercial real estate and multi-
family residential mortgage loans represented in the aggregate 9.8% of total
loans. The Bank also offers a variety of consumer loans. In addition, the Bank
had investments in mortgage-backed securities totalling $350.5 million, or 33.6%
of total assets at September 30, 1997.

MARKET AREA AND COMPETITION

     The Bank has 17 branch offices in central New Jersey, 13 of which are
located in Middlesex County, three in Monmouth county and one in Union County.
The Bank's deposit gathering base is concentrated in the communities surrounding
its offices. The majority of the Bank's loan originations are derived from north
and central New Jersey, which is a part of the New York City metropolitan area
and which has historically benefitted from having a large number of corporate
headquarters and a concentration of financial services- 

                                       55
<PAGE>
 
related industries. The area also has a well-educated employment base and a
large number of industrial, service and high-technology businesses. In the late
1980's and early 1990's, however, due in part to the effects of a prolonged
decline in the national and regional economy, layoffs in the financial services
industry and corporate relocations, the New York/New Jersey metropolitan area
experienced reduced levels of employment. These events, in conjunction with a
surplus of available commercial and residential properties, resulted in an
overall decline during this period in the underlying values of properties
located in New Jersey. However, New Jersey's real estate market has stabilized
in recent years. Whether such stabilization will continue is dependent, in large
part, upon the general economic health of the United States and other factors
beyond the Bank's control and, therefore, cannot be estimated.

     The Bank faces significant competition both in making loans and in
attracting deposits. The State of New Jersey has a high density of financial
institutions, many of which are branches of significantly larger institutions
which have greater financial resources than the Bank, all of which are
competitors of the Bank to varying degrees. The Bank's competition for loans
comes principally from commercial banks, savings banks, savings and loan
associations, credit unions, mortgage banking companies and insurance companies.
Its most direct competition for deposits has historically come from commercial
banks, savings banks savings and loan associations and credit unions. The Bank
faces additional competition for deposits from short-term money market funds,
other corporate and government securities funds and from other financial
institutions such as brokerage firms and insurance companies.

LENDING ACTIVITIES

     Loan and Mortgage-Backed Securities Portfolio Compositions. The Bank's loan
portfolio consists primarily of conventional first mortgage loans secured by 
one-to four-family residences and, to a lesser extent, multi-family residences
and commercial real estate. At September 30, 1997, the Bank's loan portfolio
totalled $573.0 million, of which $468.8 million, or 81.8% were one- to four-
family residential mortgage loans. At that date, the Bank's loan portfolio also
included $41.9 million of home equity loans and lines of credit generally
secured by second liens on one- to four-family residential property, $18.3
million of construction loans, $31.6 million of commercial real estate loans,
and $6.2 million of multi-family residential mortgage loans, which represented
7.3%, 3.2%, 5.5% and 1.1%, respectively, of total loans receivable. Of the
mortgage loan portfolio outstanding at that date, 36.0% were fixed-rate loans
and 64.0% were ARM loans. Other loans held by the Bank, which consist of loans
on deposit accounts, commercial business, personal, automobile and credit card
loans, totalled $6.2 million, or 1.1% of total loans outstanding at September
30, 1997. The Bank does not anticipate maintaining a credit card portfolio in
the foreseeable future.

     The majority of the loans originated by the Bank are held for investment.
However, the Bank sells 30 year, fixed-rate, conforming loans to the Federal
Home Loan Mortgage Corporation ("Freddie Mac") and institutional investors from
time to time, and retains servicing rights. All loans are sold without recourse.
At September 30, 1997, the Bank's servicing portfolio was $94.5 million.

     The Bank also invests in mortgage-backed securities and other mortgage-
backed products such as collateralized mortgage obligations ("CMOs"). At
September 30, 1997, mortgage-backed securities aggregated $350.5 million, or
33.6% of total assets, of which 59.4% were secured by ARM loans. The majority of
the Bank's mortgage-backed securities are insured or guaranteed by Freddie Mac,
the Government National Mortgage Association ("GNMA"), or Fannie Mae ("FNMA").
CMOs totalled $61.7 million, or 17.7% of the Bank's total mortgage-backed
securities portfolio at September 30, 1997, the majority of which were backed or
guaranteed by federal agencies. At September 30, 1997, the Bank had $228.2
million in mortgage-backed securities held for investment, $4.1 million of which
had contractual 

                                       56
<PAGE>
 
maturities of less than one year. The actual maturity of a mortgage-backed
security varies, depending on when the underlying mortgages are repaid or
prepaid. Prepayments of the underlying mortgages may shorten the life of the
investment, thereby affecting its yield to maturity and the related market value
of the mortgage-backed security. The actual prepayments of the underlying
mortgages depend on many factors, including the type of mortgages, the coupon
rates, the age of the mortgages, the geographical location of the underlying
real estate collateralizing the mortgages, levels of market interest rates, and
general economic conditions. As part of the Bank's asset/liability management
strategy and for increased liquidity, the Bank holds a portion of its mortgage-
backed securities portfolio available for sale. At September 30, 1997, mortgage-
backed securities available for sale had an amortized cost of $122.0 million and
a market value of approximately $122.4 million.

                                       57
<PAGE>
 
     The following table sets forth the composition of the Bank's loan and
mortgage-backed securities portfolio in dollar amounts and as a percentage of
the portfolio at the dates indicated.

<TABLE>
<CAPTION>
                                                                                              AT DECEMBER 31,
                                                                       ------------------------------------------------------------
                                            AT SEPTEMBER 30, 
                                                 1997                         1996                    1995                 1994
                                          -----------------------      ---------------------    --------------------  --------------

                                                          PERCENT                   PERCENT                 PERCENT   
                                          AMOUNT          OF TOTAL      AMOUNT      OF TOTAL    AMOUNT      OF TOTAL  AMOUNT  
                                          ----------- ------------     ----------  ----------   ----------  --------- ---------
                                                                        (DOLLARS IN THOUSANDS)
<S>                                       <C>         <C>               <C>        <C>       <C>            <C>       <C>    
Mortgage loans(1):
 One-to-four family.....................   $468,829        81.82%       $428,463     83.14%      $390,641    84.20%    $363,449
 Home equity loans......................     41,895         7.31          39,140      7.60         33,456     7.21       30,768
 Construction(2)........................     18,255         3.19          12,871      2.50          7,612     1.64        3,177
 Commercial real estate.................     31,569         5.51          21,209      4.11         17,322     3.73       13,370
 Multi-family...........................      6,225         1.09           7,876      1.53          9,675     2.09        7,779
 A.I.D.(3)..............................         --           --              --        --            165     0.04          178
                                           --------       ------        --------    ------       --------   ------     --------
       Total mortgage loans.............    566,773        98.92         509,559     98.88        458,871    98.91      418,721
Other loans.............................      6,208         1.08           5,772      1.12          5,055     1.09        4,027
                                           --------       ------        --------    ------       --------   ------     --------
       Total loans receivable...........    572,981       100.00%        515,331    100.00%       463,926   100.00%     422,748
                                                          ======                    ======                  ======
Less:
Net deferred loan fees..................       (198)                          95                      499                   953
  and premiums and discounts
Allowance for loan losses...............      5,982                        5,322                    5,247                 5,745
                                           --------                     --------                 --------              --------
  Total loans receivable, net...........   $567,197                     $509,914                 $458,180              $416,050
                                           ========                     ========                 ========              ========
Mortgage loans:
  ARM...................................   $362,631        63.98%       $309,600     60.76%      $275,109    59.95%    $242,499
  Fixed-rate............................    204,142        36.02         199,959     39.24        183,762    40.05      176,222
                                           --------       ------        --------    ------       --------   ------     --------
       Total mortgage loans.............   $566,773       100.00%       $509,559    100.00%      $458,871   100.00%    $418,721
                                           ========       ======        ========    ======       ========   ======     ========
Mortgage-backed securities(4):
 CMOs...................................   $ 61,670        17.73%       $ 40,095     10.81%      $ 65,399    17.41%    $ 81,009
 FHLMC..................................    199,984        57.50         248,525     67.00        259,994    69.22      198,377
 GNMA...................................     18,509         5.32          27,999      7.54         31,570     8.41       10,029
 FNMA...................................     67,623        19.45          54,339     14.65         18,644     4.96       18,573
                                           --------       ------        --------    ------       --------   ------     --------
Total mortgage-backed securities........    347,786       100.00%        370,958    100.00%       375,607   100.00%     307,988
                                            =======       =======                   =======                 =======
Net premiums and discounts..............      2,414                        2,094                   1,634                  1,153
Net unrealized gain (loss) on mortgage-
backed securities available for sale....        329                          128                     241                 (1,511)
                                           --------                     --------                --------                 --------
Net mortgage-backed securities..........   $350,529                     $373,180                $377,482                 $307,630
                                           ========                     ========                ========                 ========

<CAPTION>

                                          ------------------------------------------------------------------------------
                                                                               1993                      1992
                                                                    --------------------------  ------------------------
                                                     PERCENT                       PERCENT                   PERCENTAGE
                                                     OF TOTAL       AMOUNT         OF TOTAL     AMOUNT       OF TOTAL
                                                ----------------   -----------  -------------  ------------ ------------
<S>                                             <C>                <C>          <C>             <C>         <C>
Mortgage loans(1):
 One-to-four family.....................              85.98%        $366,914       86.56%       $370,280       87.30%
 Home equity loans......................               7.28           27,676        6.53          25,734        6.07
 Construction(2)........................               0.75            3,920        0.92           5,514        1.30
 Commercial real estate.................               3.16           12,559        2.96           8,585        2.02
 Multi-family...........................               1.84            7,335        1.73           7,436        1.75
 A.I.D.(3)..............................               0.04              191        0.05             202        0.05
                                                     ------         --------      ------        --------      ------
       Total mortgage loans.............              99.05          418,595       98.75         417,751      98.49
Other loans.............................               0.95            5,306        1.25           6,410       1.51
                                                     ------         --------      ------        --------     ------
       Total loans receivable...........             100.00%         423,901      100.00%        424,161     100.00%
                                                     ======                       ======                     ======

Less:
Net deferred loan fees
  and premiums and discounts............                               1,397                       2,375
Allowance for loan losses...............                               5,899                       5,751
                                                                    --------                    --------
  Total loans receivable, net...........                            $416,605                    $416,035
                                                                    ========                    ========
Mortgage loans:
  ARM...................................              57.91%        $240,424       57.44%       $256,248      61.34%
  Fixed-rate............................              42.09          178,171       42.56         161,503      38.66
                                                     ------         --------      ------        --------      ------
       Total mortgage loans.............             100.00%        $418,595      100.00%       $417,751      100.00%
                                                     ======         ========      ======        ========      ======
Mortgage-backed securities(4):
 CMOs...................................              26.30%        $ 74,523       27.64%       $ 51,397      19.89%
 FHLMC..................................              64.41          166,245       61.66         182,278      70.54
 GNMA...................................               3.26           13,578        5.04          18,664       7.22
 FNMA...................................               6.03           15,280        5.66           6,065       2.35
                                                     ------         --------      ------        --------     ------
Total mortgage-backed securities........             100.00%         269,626      100.00%        258,404     100.00%
                                                     ======                       ======                     ======
Net premiums and discounts..............                               2,238                       1,055
Net unrealized gain (loss) on mortgage-.                                 637                          --
backed securities available for sale....                            --------                    --------
Net mortgage-backed securities..........                            $272,501                    $259,459
                                                                    ========                    ========
</TABLE> 

_________________________________________
(1)  Includes $287,000, $424,000, $150,000, $1.6 million and $2.3 million in 
     mortgage loans available for sale for 1996, 1995, 1994, 1993 and 1992,  
     respectively.                                                           
(2)  Net of loans in process of $26.2 million, $12.3 million, $3.8 million, $3.9
     million, $6.3 million and $4.6 million at September 30, 1997, December 31,
     1996, 1995, 1994, 1993 and 1992, respectively.
(3)  Agency for International Development. Represented a participation interest
     in a $15.0 million aggregate loan to the Korea National Housing
     Corporation, a government-sponsored housing development project.
(4)  Includes $122.4 million, $120.8 million, $89.3 million, $24.4 million,
     $28.3 million and $3.5 million in mortgage-backed securities available for
     sale at September 30, 1997 and December 31, 1996, 1995, 1994, 1993 and
     1992, respectively.

                                       58
<PAGE>
 
     The following table sets forth the Bank's loan originations and principal
repayments for the periods indicated.

<TABLE>
<CAPTION>
                                                                      FOR THE NINE MONTHS                                        
                                                                      ENDED SEPTEMBER 30,         FOR THE YEARS ENDED DECEMBER 31,
                                                                   -------------------------  --------------------------------------
                                                                       1997       1996            1996         1995        1994     
                                                                   ------------ ------------  ------------- ------------ -----------
                                                                                               (IN THOUSANDS)                      
<S>                                                                 <C>          <C>             <C>          <C>          <C> 
Mortgage loans(1):
   At beginning of period......................................     $ 504,142     $453,125        $453,125    $412,023     $411,299
                                                                    ---------     --------        --------    --------     --------
       Mortgage loans originated:
       One- to four-family.....................................        76,212       78,523          99,956      75,505       64,976
       Home equity loans.......................................        11,253       12,649          15,290      10,679        9,549
       Construction............................................         5,383        4,938           5,258       5,262        5,355
       Commercial real estate..................................        11,550        1,066           4,943       5,043        1,334
       Multi-family............................................           167        3,743           1,650       1,976          547
                                                                     --------     --------        --------    --------     --------
         Total mortgage loans originated and purchased.........       104,565      100,919         127,097      98,465       81,761
   Mortgage loans purchased....................................         4,665        4,631          10,118       5,181           --
                                                                    ---------     --------        --------    --------     --------
       Total mortgage loans originated.........................       109,230      105,550         137,215     103,646       81,761

   Mortgage loans sold.........................................        (3,036)      (6,198)         (6,932)     (6,343)      (5,387)

   Principal repayments........................................       (48,095)     (57,321)        (77,060)    (52,193)     (73,883)

   (Increase) decrease in premiums/discounts...................           293          247             404         454          444
     and deferred loan fees
   Net (increase) decrease in allowance for loan losses........          (660)         156             (75)        498          154
   Mortgage loans transferred to real estate owned.............          (885)      (2,105)         (2,535)     (4,960)      (2,365)

                                                                    ---------     --------        --------    --------     --------
   At end of period............................................     $ 560,989     $493,454        $504,142    $453,125     $412,023
                                                                    =========     ========        ========    ========     ========
Other loans:
   At beginning of period......................................     $   5,772     $  5,055        $  5,055    $  4,027     $  5,306
   Other loans originated......................................         3,364        2,343           3,835       3,828        2,278
   Other loans sold............................................            --           --              --          --         (238)

   Principal repayments........................................        (2,928)      (2,380)         (3,118)     (2,800)      (3,319)

                                                                    ---------     --------        --------    --------     --------
   At end of period............................................     $   6,208     $  5,018        $  5,772    $  5,055     $  4,027
                                                                    =========     ========        ========    ========     ========
Mortgage-backed securities(2):
   At beginning of period......................................     $ 373,180     $377,482        $377,482    $307,630     $272,501
   Mortgage-backed securities purchased........................       160,663      141,397         191,327     215,292      146,629
   Mortgage-backed securities sold.............................      (116,430)     (73,011)        (96,147)    (81,792)     (35,905)
   Amortization of premium.....................................          (794)        (756)           (977)       (615)      (1,227)
   Net change in unrealized gain (loss) on.....................           202       (1,362)           (113)      1,752       (2,148)
    mortgage-backed securities available for sale
   Principal repayments........................................       (66,292)     (79,493)        (98,392)    (64,785)     (72,220)
                                                                    ---------     --------        --------    --------     --------
   At end of period............................................     $ 350,529     $364,257        $373,180    $377,482     $307,630
                                                                    =========     ========        ========    ========     ========
</TABLE>

__________________________________________
(1) Includes $149,000, $287,000, $424,000 and $150,000 in mortgage loans
    available for sale for the nine months ended September 30, 1996, and the
    years ended December 31, 1996, 1995 and 1994, respectively.
(2) Includes $122.4 million, $93.4 million, $120.7 million, $89.1 million and
    $25.9 million in mortgage-backed securities available for sale for the nine
    months ended September 30, 1997 and 1996, and for the years ended December
    31, 1996, 1995 and 1994, respectively.

                                       59
<PAGE>
 
     Loan Maturity. The following table sets forth the maturity or period of
repricing of the Bank's loan portfolio at September 30, 1997. Demand loans,
loans having no stated schedule of repayments and no stated maturity, and
overdrafts are reported as due within one year. Adjustable and floating rate
loans are included in the period in which interest rates are next scheduled to
adjust rather than in which they contractually mature, and fixed rate loans are
included in the period in which the final contractual repayment is due. The
table does not include the effect of future principal prepayments. Principal
prepayments and scheduled principal amortization on loans totalled $51.0
million, $80.2 million and $55.0 million for the nine months ended September 30,
1997 and the years ended December 31, 1996 and 1995, respectively.

<TABLE>
<CAPTION> 
                                                                         AT SEPTEMBER 30, 1997
                                   ------------------------------------------------------------------------------------------------
                                                     ONE YEAR        THREE         FIVE YEARS     TEN YEARS      TWENTY
                                    ONE YEAR         TO THREE       YEARS TO         TO TEN       TO TWENTY       YEARS
                                    OR LESS           YEARS        FIVE YEARS        YEARS          YEARS        OR MORE      TOTAL 
                                   -----------  ------------- ----------------- -------------- ------------ -------------- ---------
                                                                        (IN THOUSANDS)
<S>                                <C>          <C>            <C>              <C>             <C>          <C>           <C> 
Mortgage loans:
  One-to four-family............     $101,491         $89,064      $ 97,755       $ 98,545        $67,589      $14,385     $468,829
  Home equity loans.............       13,786           1,057         4,957          9,544         12,551           --       41,895
  Construction(1)...............       18,255              --            --              --            --           --       18,255
  Commercial real estate........        3,259          5,427         2,518           3,765         15,342        1,258       31,569
  Multi-family..................           --            352         4,689             536            648           --        6,225
                                     --------        -------      --------        --------        -------      -------     --------
    Total mortgage loans........      136,791         95,900       109,919         112,390         96,130       15,643      566,773
Other loans.....................        2,983          1,876           978              --            371           --        6,208
                                      -------       --------      --------        --------        -------     --------     --------
    Total loans.................     $139,774        $97,776      $110,897        $112,390        $96,501      $15,643     $572,981
                                     ========        =======      ========        ========        =======      =======     
  Net deferred loan fees and unearned discounts........................................................................         198
  Allowance for loan losses............................................................................................      (5,982)

                                                                                                                           --------
Loans receivable, net..................................................................................................    $567,197
                                                                                                                           ========
</TABLE>

____________________________________________
(1) Net of loans in process of $26.2 million.


     The following table sets forth at September 30, 1997 the dollar amount of
loans contractually due or repricing after September 30, 1998, and whether such
loans have fixed interest rates or adjustable interest rates.

<TABLE>
<CAPTION>
                                                               DUE OR REPRICING AFTER SEPTEMBER 30, 1998
                                                      ----------------------------------------------------------  
                                                         FIXED                 ADJUSTABLE                TOTAL
                                                      ----------             ------------             ----------
                                                                             (IN THOUSANDS)
<S>                                                   <C>                    <C>                      <C>
Mortgage loans:
  One- to four-family........................           $148,842                 $218,496               $367,338
  Multi-family...............................                162                    6,063                  6,225
  Home equity loans..........................             28,109                       --                 28,109
  Commercial real estate.....................             24,400                    3,910                 28,310
  Other loans................................              3,225                       --                  3,225
                                                        --------                 --------               --------
Total loans receivable.......................            204,738                  228,469                433,207
Mortgage-backed securities(1)................            125,405                  221,709                347,114
                                                        --------                 --------               --------
Total loans receivable and
 mortgage-backed securities..................           $330,143                 $450,178               $780,321
                                                        ========                 ========               ========
</TABLE>

___________________________________________
(1) Includes $122.0 million in mortgage-backed securities available for sale, at
    amortized cost.


     One- to Four-Family Mortgage Loans. The Bank offers fixed- and adjustable-
rate first mortgage loans secured by one- to four-family residences in New
Jersey. Typically, such residences are single family homes that serve as the
primary residence of the owner. Loan originations are generally obtained from
existing or past customers, members of the local community, and referrals from
attorneys, established builders, and realtors within the Bank's market area. In
addition, one- to four-family residential mortgage loans are also originated in
the Bank's market area through loan originators who are employees of the Bank

                                       60
<PAGE>
 
and are compensated on a commission basis. Originated mortgage loans in the
Bank's portfolio include due-on-sale clauses which provide the Bank with the
contractual right to deem the loan immediately due and payable in the event that
the borrower transfers ownership of the property without the Bank's consent.

     At September 30, 1997, 81.8% of total loans receivable consisted of one-to
four-family residential loans. The Bank currently offers ARM loans, with an
initial fixed rate for one, three, five, seven or ten year periods, which it
then converts into a one-year ARM. The Bank's ARM loans may carry an initial
interest rate which is less than the fully-indexed rate for the loan. The
initial discounted rate is determined by the Bank in accordance with market and
competitive factors. The majority of the Bank's ARM loans adjust by a maximum of
2.00% per year, with a lifetime cap on increases of up to 6.00%. ARM loans are
originated for a term of up to 30 years. In the past, the Bank offered three
year ARM loans that reset every three years at a margin over the three year U.S.
Treasury Index. Interest rates charged on fixed-rate loans are competitively
priced based on market conditions and the Bank's cost of funds. The Bank's 
fixed-rate mortgage loans currently are made for terms of 10 through 30 years.
In previous years, the Bank offered balloon mortgages of five and seven years.

     Generally, ARM loans pose credit risks different than risks inherent in
fixed-rate loans, primarily because as interest rates rise, the payments of the
borrower rise, thereby increasing the potential for delinquency and default. At
the same time, the marketability of the underlying property may be adversely
affected by higher interest rates. In order to minimize risks, borrowers of one-
year ARM loans are qualified at the starting interest rate plus 2.00% or the
fully-indexed rate, whichever is lower. The Bank does not originate ARM loans
which provide for negative amortization. At present, the Bank offers Limited
Documentation loans that do not require income verification but do require full
asset verification.

     The Bank generally originates one- to four-family residential mortgage
loans in amounts up to 95% of the appraised value or selling price of the
mortgaged property, whichever is lower. The Bank requires private mortgage
insurance for all loans originated with loan-to-value ratios exceeding 80%.
Generally, the minimum one- to four-family loan amount is $25,000, and the
maximum loan amount is $500,000. The Bank typically charges an origination fee
of up to 3.00% on one- to four-family residential loans.

     Home Equity Loans and Lines of Credit. The Bank originates home equity
loans secured by one- to four-family residences. These loans generally are
originated as fixed-rate loans with terms from five to 15 years. Home equity
loans are primarily made on owner-occupied, one- to four-family residences and
primarily to the Bank's first mortgage customers. These loans are generally
subject to a 80% loan-to-value limitation, including any other outstanding
mortgages or liens where the first mortgage lien is held by the Bank, and 75% on
all other loans. The Bank currently offers home equity loans for qualified
borrowers with a loan-to-value ratio of up to 90%. The Bank obtains private
mortgage insurance for some of these types of loans, depending on the
underwriting and first lien position. The Bank is currently offering "Helping
Hand" home equity loans for low income borrowers, with maximum terms of five
years, with loan-to-value ratios of up to 90% and a maximum loan amount of
$10,000. Generally, the Bank's minimum equity loan is $5,000 and the maximum
equity loan is $200,000. As of September 30, 1997, the Bank had $28.2 million in
fixed-rate home equity loans outstanding.

     The Bank also offers a variable rate home equity line of credit which
extends a credit line based on the applicant's income and equity in the home.
Generally, the credit line, when combined with the balance of the first mortgage
lien, may not exceed 80% of the appraised value of the property at the time of
the loan commitment where the first mortgage lien is held by the Bank, and 75%
on all other loans. Home equity lines of credit are secured by a mortgage on the
underlying real estate. The Bank presently charges no origination fees for these
loans. A borrower is required to make monthly payments of principal and
interest,

                                       61
<PAGE>
 
at a minimum of $100.00 plus interest, based upon a 15 or 20 year amortization
period. Generally, the interest rate charged is the prime rate of interest (as
published in The Wall Street Journal) plus up to 2.0%. The loans have a 6.0%
lifetime cap on the amount the interest rate may increase. During 1996, the Bank
introduced a credit line product which is based on a 10 year amortization and
the interest rate charged is the prime rate of interest. These loans also have a
6.0% lifetime cap. The Bank offers a teaser-rate on both home equity line of
credit products. The Bank's home equity lines of credit outstanding at September
30, 1997 totalled $13.7 million against total available credit lines of $14.3
million.

     Construction Lending. At September 30, 1997, construction loans totalled
$18.3 million, or 3.2%, of the Bank's total loans outstanding. Construction
loans, in the form of lines of credit, are primarily made to developers known by
the Bank. Available credit lines totalled $26.2 million at September 30, 1997.
The current policy of the Bank is to charge interest rates on its construction
loans which float at margins of up to 2.0% above the prime rate (as published in
The Wall Street Journal). The Bank's construction loans improve the interest
rate sensitivity of its earning assets. The Bank's construction loans typically
have original principal balances that are larger than its one- to four-family
mortgage loans, with the majority of the loans ranging from available lines of
credit of $125,000 to $6.2 million. At September 30, 1997, the Bank had 21
construction loans, six of which had a principal balance outstanding of $1.0
million or more, with the largest loan balance being $4.5 million. At September
30, 1997, all of the Bank's construction lending portfolio consisted of loans
secured by property located in the State of New Jersey, for the purpose of
constructing one- to four-family homes.

     The Bank will originate construction loans on unimproved land in amounts up
to 60% of the lower of the appraised value or the cost of the land. The Bank
also originates loans for site improvements and construction costs in amounts up
to 75% of actual costs or sales price where contracts for sale have been
executed. Generally, construction loans are offered for one year terms with up
to four six-month options to extend the original term. Typically, additional
loan origination fees are charged for each extension granted, although in some
cases these fees have been waived. The Bank requires an appraisal of the
property, credit reports, and financial statements on all principals and
guarantors, among other items, on all construction loans.

     Construction lending, by its nature, entails additional risks as compared
with one- to four-family mortgage lending, attributable primarily to the fact
that funds are advanced upon the security of the project under construction
prior to its completion. As a result, construction lending often involves the
disbursement of substantial funds with repayment dependent on the success of the
ultimate project and the ability of the borrower or guarantor to repay the loan.
Because of these factors, the analysis of prospective construction loan projects
requires an expertise that is different in significant respects from that which
is required for residential mortgage lending. The Bank addresses these risks
through its underwriting procedures. At September 30, 1997, none of the Bank's
construction loans were classified as substandard. See "-- Delinquencies and
Classified Assets - Non-performing Assets" for further discussion.

     Commercial Real Estate. At September 30, 1997, the Bank had 53 loans
secured by commercial real estate, totalling $31.6 million, or 5.5%, of the
Bank's total loan portfolio. Commercial real estate loans are generally
originated in amounts up to 70% of the appraised value of the mortgaged
property. The Bank's commercial real estate loans are permanent loans secured by
improved property such as office buildings, retail stores, including small
shopping centers, medical offices, small industrial facilities, warehouses and
other non-residential buildings. The largest commercial real estate loan at
September 30, 1997 was a participation loan originated in 1995 on a medical arts
building with a balance of $3.8 million at that date. All commercial real estate
loans in portfolio are secured by properties located within New Jersey.

                                       62
<PAGE>
 
     The Bank's commercial real estate loans are generally made for terms of up
to 15 years. These loans typically are based upon a payout over a period of 10
to 25 years. To originate commercial real estate loans, the Bank requires a
security interest in personal property, standby assignment of rents and leases
and some level of personal guarantees, if possible. The Bank has established its
loan-to-one borrower limitation, which was $13.5 million as of September 30,
1997, as its maximum commercial real estate loan amount.

     Loans secured by commercial real estate properties are generally larger and
involve a greater degree of risk than residential mortgage loans. Because
payments on loans secured by commercial real estate properties are often
dependent on successful operation or management of the properties, repayment of
such loans may be subject, to a greater extent, to adverse conditions in the
real estate market or the economy. The Bank seeks to minimize these risks by
limiting the number of such loans, lending only to established customers and
borrowers otherwise known or recommended to the Bank, generally restricting such
loans to New Jersey, and obtaining personal guarantees, if possible.

     Multi-Family Mortgage Loans. The Bank originates multi-family mortgage
loans in its primary lending area. As of September 30, 1997, $6.2 million, or
1.1%, of the Bank's total loan portfolio consisted of multi-family residential
loans. Substantially all of the Bank's multi-family loan portfolio is comprised
of loans on garden apartments and participations in senior citizen homes with
the Thrift Institutions Community Investment Corp ("TICIC"). The largest multi-
family loan at September 30, 1997 had an outstanding balance of $1.9 million.
The second largest multi-family loan at that date had an outstanding balance of
$1.4 million. Large multi-family loans, such as these two loans, are originated
on the basis of the Bank's underwriting standards for commercial real estate
loans. The Bank also participates with other savings institutions to provide
financing for projects within the state of New Jersey via the TICIC. The Bank
has four participation loans outstanding with the TICIC at September 30, 1997,
totaling $2.2 million, which are secured by four senior citizen complexes and
one garden apartment complex.

     Other Lending. The Bank also offers other loans, primarily loans secured by
savings accounts and commercial, business, personal and automobile loans. At
September 30, 1997, $6.2 million or 1.1% of the loan portfolio consisted of such
other loans.

     Loan Approval Authority and Underwriting. All loans secured by real estate
must have the approval or ratification of the members of the Loan Committee,
which consists of two directors and at least two senior officers engaged in the
lending area. The Loan Committee meets at least monthly to review and ratify
management's approval of loans made within the scope of its authority since the
last committee meeting, and to approve mortgage loans made in the excess of
$750,000, but not greater than $1.0 million. Real estate loans in excess of $1.0
million require prior Board approval. Prior Board approval is also required for
the origination of consumer and business loans in excess of $100,000 for
unsecured loans, and $500,000 for secured loans.

     One- to four-family residential mortgage loans are generally underwritten
according to Freddie Mac guidelines, except as to loan amount and certain
documentation. For all loans originated by the Bank, upon receipt of a completed
loan application from a prospective borrower, a credit report is then requested,
income, assets and certain other information are verified and, if necessary,
additional financial information is requested. An appraisal of the real estate
intended to secure the proposed loan is required, which is currently performed
by appraisers designated and approved by the Board of Directors. It is the
Bank's policy to obtain appropriate insurance protections, including title and
flood insurance, on all real estate first mortgage loans. Borrowers must also
obtain hazard insurance prior to closing. Borrowers generally are required to
advance funds for certain items such as real estate taxes, flood insurance and
private mortgage insurance, when applicable.

                                       63
<PAGE>
 
     LOAN SERVICING. The Bank generally retains the servicing rights on loans it
has sold. The Bank receives fees for these servicing activities, which include
collecting and remitting loan payments, inspecting the properties and making
certain insurance and tax payments on behalf of the borrowers. The Bank was
servicing $94.5 million and $101.2 million of mortgage loans for others at
September 30, 1997 and December 31, 1996, respectively. The Bank received
$218,000 and $325,000 in servicing fees for the nine months ended September 30,
1997 and the year ended December 31, 1996, respectively.

     LOAN PURCHASES AND SALES. The Bank is a Freddie Mac qualified servicer in
good standing, and may sell any of its conforming loans originated, subject to
Freddie Mac requirements, and retain the servicing rights. As a part its
asset/liability management, the Bank will sell loans, on occasion, in order to
reduce or minimize potential interest rate and credit risk. To account for such
sales, the Bank has established an available for sale category and carries loans
available for sale at the lower of cost or market. As of September 30, 1997, the
Bank did not have any mortgage loans classified as available for sale. Mortgage
loans sold totalled $3.0 million and $6.2 million for the nine months ended
September 30, 1997 and the year ended December 31, 1996, respectively. From time
to time, the Bank may also purchase mortgage loans in order to maintain stable
interest income, if and when management believes it is prudent to do so. The
Bank purchased $4.7 million and $10.1 million in mortgage loans from third-party
corespondents for the nine months ended September 30, 1997 and the year ended
December 31, 1996, respectively. The Bank underwrote the loans and verified
documentation prior to purchase and has representations and warranties on same
for a one year period, including repayment of remaining premiums if a loan
prepays within the first 12 months.

DELINQUENCIES AND CLASSIFIED ASSETS

     DELINQUENT LOANS. In the late 1980s and early 1990s, the Bank experienced
an increase in loans delinquent 90 days or more. The increase occurred primarily
with single family residential loans, which the Bank attributes, in large part,
to the decline in economic conditions in the Northeast, the weakness of the New
Jersey real estate market and the national recession. Since 1992, delinquent
loans have decreased, due to an improving economy and continued stabilization of
the New Jersey real estate market. The aggregate principal balances of one- to
four-family loans delinquent 90 days or more had declined to $3.9 million, at
September 30, 1997, from $4.6 million at September 30, 1996. At September 30,
1997, one-to four- family loans delinquent 90 days or more consisted of 42
loans. There can be no assurances, however, that such declines will continue, or
that increases will not occur.

                                       64
<PAGE>
 
     Delinquent Loans and Nonaccrual Loans.  The following table sets forth
information regarding loans and loans delinquent 90 days or more, and REO. At
September 30, 1997, REO totaled $1.4 million and consisted of 14 properties. It
is the policy of the Bank to cease accruing interest on loans 90 days or more
past due with loan-to-value ratios in excess of 55% and to charge off all
accrued interest. For the nine months ended September 30, 1997, the amount of
additional interest income that would have been recognized on nonaccrual loans
if such loans had continued to perform in accordance with their contractual
terms was $198,000.

<TABLE>
<CAPTION>
                                         AT SEPTEMBER 30,                                       AT DECEMBER 31,
                                     ------------------------    -----------------------------------------------------------------
                                        1997          1996          1996          1995          1994          1993          1992
                                     -----------  -----------    ------------  -----------  ------------  ------------  ----------
                                                                         (DOLLARS IN THOUSANDS)
<S>                                  <C>           <C>           <C>           <C>          <C>           <C>           <C>
Non-accrual mortgage loans..........    $3,547        $4,538        $4,716        $5,838       $ 8,636       $10,631       $14,564
Non-accrual other loans.............        14             6             4            --           160           453           150
                                        ------        ------        ------        ------       -------       -------       -------
     Total non-accrual loans........     3,561         4,544         4,720         5,838         8,796        11,084        14,714
                                        ------        ------        ------        ------       -------       -------       -------
Loans 90 days or more delinquent....       379            72            93           200           248           463         1,120
     and still accruing.............    ------        ------        ------        ------       -------       -------       -------

  Total non-performing loans........     3,940         4,616         4,813         6,038         9,044        11,547        15,834
                                        ------        ------        ------        ------       -------       -------       -------
  Total real estate owned, net of...     1,398         1,918         1,517         3,131         1,633         2,039         1,282
      related allowance for loss....    ------        ------        ------        ------       -------       -------       -------

Total non-performing assets.........    $5,338        $6,534        $6,330        $9,169       $10,677       $13,586       $17,116
                                        ======        ======        ======        ======       =======       =======       =======
Non-performing loans to
     total loans receivable, net....      0.69%         0.93%         0.94%         1.32%         2.17%         2.77%         3.81%

Total non-performing assets to
 total assets.......................      0.51%         0.67%         0.64%         0.97%         1.34%         1.73%         2.25%
</TABLE>

     Classification of Assets.  Federal regulations provide for the
classification of loans and other assets such as debt and equity securities
considered by the OTS to be of lesser quality as "substandard," "doubtful," or
"loss" assets. An asset is considered "substandard" if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. "Substandard" assets include those characterized by
the "distinct possibility" that the Bank will sustain "some loss" if the
deficiencies are not corrected. Assets classified as "doubtful" have all of the
weaknesses inherent in those classified "substandard," with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as "loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted. Assets
that do not expose the savings institution to risk sufficient to warrant
classification in one of the aforementioned categories, but which possess some
weaknesses, are required to be designated "special mention" by management. Loans
designated as special mention are generally loans that, while current in
required payment, have exhibited some potential weaknesses that, if not
corrected, could increase the level of risk in the future. Pursuant to the
Bank's internal guidelines, all loans 90 days past due are classified
substandard, doubtful, or loss.

                                       65
<PAGE>
 
     The following table sets forth the aggregate amount of the Bank's special
mention and classified assets at the dates indicated.

<TABLE>
<CAPTION>
                                     AT SEPTEMBER 30,           AT DECEMBER 31,        
                                 ----------------------  ------------------------------
                                      1997      1996       1996       1995       1994  
                                 ----------- ----------  --------- ---------- ---------
                                                     (IN THOUSANDS)                    
     <S>                         <C>         <C>         <C>       <C>        <C>      
     Special mention.............    $  811    $  242     $  290     $1,348     $   747
     Substandard assets..........     5,720     6,983      6,037      6,287      10,117
     Doubtful assets.............       121       181        167        253          78
                                     ------    ------     ------     ------     -------
        Total special mention and                                                      
           classified assets.....  
                                     $6,652    $7,406     $6,494     $7,888     $10,942
                                     ======    ======     ======     ======     ======= 
</TABLE>

     As of September 30, 1997, the Bank had no single special mention or
classified asset with a balance of greater than $240,000.

     Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
adequacy of the allowance, including an assessment of known and inherent risks
in its loan portfolio, review of individual loans for adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and consideration of current economic conditions. Such
evaluation, which includes a review of all loans on which full collectibility
may not be reasonably assured, considers the fair value of the underlying
collateral, economic conditions, historical loan loss experience, and other
factors that warrant recognition in providing for an adequate loan loss
allowance. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for loan
losses and valuation of real estate owned. Such agencies may require the Bank to
recognize additions to the allowance based on their judgments about information
available to them at the time of their examination.

     The Bank provided $900,000 and $375,000 in provision for loan losses for
the nine months ended September 30, 1997 and 1996, respectively. The Bank
provided $550,000 to the allowance for loan losses for 1996, compared with
$310,000 in 1995. The Bank determined, after performing its asset classification
review, that the allowance was adequate and within industry standards. At
September 30, 1997, the total allowance was $6.0 million, which amounted to 1.1%
of total loans receivable, net and 112.1% of nonperforming assets. Management
will continue to maintain an allowance for loan losses consistent with
regulatory expectations for non-performing assets, and will also adhere to the
Bank's policy of evaluating the risks inherent in its loan portfolio and the New
Jersey economy. The Bank will continue to monitor the level of its allowance for
loan losses in order to maintain it at a level which management considers
adequate to provide for potential loan losses.

     The following table sets forth activity in the Bank's allowance for loan
losses for the periods indicated.

<TABLE>
<CAPTION>
                                             AT OR FOR THE NINE
                                                MONTHS ENDED
                                               SEPTEMBER 30,                    AT OR FOR THE YEAR ENDED DECEMBER 31,
                                           --------------------- ------------------------------------------------------------------
                                             1997         1996         1996           1995          1994         1993         1992
                                           ---------  ---------- --------------- -------------- ------------ ------------ ---------
                                                                             (DOLLARS IN THOUSANDS)
<S>                                         <C>       <C>        <C>             <C>            <C>          <C>          <C>
Balance at beginning of period............  $5,322       $5,247        $5,247        $ 5,745       $5,899       $ 5,751      $3,865
Provision for loan losses.................     900          375           550            310          300         1,200       2,400
Charge-offs...............................    (240)        (534)         (585)        (1,044)        (490)       (1,087)       (520)

Recoveries................................      --            3           110            236           36            35           6
                                            ------       ------        ------        -------       ------       -------      ------
Balance at end of period..................  $5,982       $5,091        $5,322        $ 5,247       $5,745       $ 5,899      $5,751
                                            ======       ======        ======        =======       ======       =======      ======
</TABLE>

                                      66
<PAGE>
 
     The following tables set forth the Bank's percent of allowance for loan
losses to total allowance for loan losses and the percent of loans to total
loans in each of the categories listed at the dates indicated.
 
<TABLE>
<CAPTION>
                                                                                 AT SEPTEMBER 30,
                                                 ---------------------------------------------------------------------------------
                                                                 1997                                       1996
                                                 ---------------------------------------     -------------------------------------
                                                                                PERCENT                                   PERCENT
                                                                               OF LOANS                                  OF LOANS
                                                               PERCENT OF       IN EACH                   PERCENT OF      IN EACH
                                                               ALLOWANCE       CATEGORY                   ALLOWANCE      CATEGORY
                                                                TO TOTAL       TO TOTAL                    TO TOTAL      TO TOTAL
                                                   AMOUNT      ALLOWANCE         LOANS        AMOUNT      ALLOWANCE        LOANS
                                                  --------    -----------     ----------     --------    -----------    ----------
                                                                                    (DOLLARS IN THOUSANDS)
<S>                                               <C>         <C>             <C>            <C>         <C>            <C>
   One-to four-family...........................   $3,592          60.05%         81.82%      $3,465          68.06         83.35
   Home equity loans............................      442           7.39           7.31          310           6.09          7.73
   Construction.................................      791          13.22           3.19          597          11.73          2.49
   Commercial real estate.......................      540           9.03           5.51          322           6.32          4.25
   Multi-family.................................       64           1.07           1.09           89           1.75          1.18
       Total mortgage loans.....................    5,429          90.76          98.92        4,783          93.95         99.00
Consumer loans..................................      192           3.21           1.08          157           3.09          1.00
Other...........................................       64           1.07             --           16           0.31            --
Unallocated.....................................      297           4.96             --          135           2.65            --
                                                   ------         ------         ------       ------         ------        ------
       Total allowance for loan losses..........   $5,982         100.00%        100.00%      $5,091         100.00%       100.00%
                                                   ======         ======         ======       ======         ======        ======
<CAPTION>
                                                              DECEMBER 31,
                                                 ----------------------------------------
                                                                 1996
                                                 ---------------------------------------
                                                                                PERCENT
                                                                               OF LOANS
                                                               PERCENT OF       IN EACH
                                                               ALLOWANCE       CATEGORY
                                                                TO TOTAL       TO TOTAL
                                                   AMOUNT      ALLOWANCE         LOANS
                                                  --------    -----------     ----------
                                                          (DOLLARS IN THOUSANDS)
<S>                                               <C>         <C>             <C>
   One-to four-family...........................   $3,641          68.42%         83.14%
   Home equity loans............................      437           8.21           7.60
   Construction.................................      577          10.84           2.50
   Commercial real estate.......................      347           6.52           4.11
   Multi-family.................................       89           1.67           1.53
       Total mortgage loans.....................    5,091          95.66          98.88
Consumer loans..................................      174           3.27           1.12
Other...........................................       13           0.24             --
Unallocated.....................................       44           0.83             --
                                                   ------         ------         ------
       Total allowance for loan losses..........   $5,322         100.00%        100.00%
                                                   ======         ======         ======
</TABLE>

<TABLE>
<CAPTION>
                                                                            AT DECEMBER 31,
                            -------------------------------------------------------------------------------------------------------
                                          1995                             1994                               1993
                            ---------------------------------  --------------------------------  ----------------------------------
                                                     PERCENT                           PERCENT                             PERCENT
                                                    OF LOANS                          OF LOANS                            OF LOANS
                                       PERCENT OF    IN EACH             PERCENT OF    IN EACH              PERCENT OF     IN EACH
                                       ALLOWANCE    CATEGORY             ALLOWANCE    CATEGORY              ALLOWANCE     CATEGORY
                                        TO TOTAL    TO TOTAL              TO TOTAL    TO TOTAL               TO TOTAL     TO TOTAL
                             AMOUNT    ALLOWANCE      LOANS     AMOUNT   ALLOWANCE      LOANS     AMOUNT    ALLOWANCE       LOANS
                            --------  -----------  ----------  -------- -----------  ----------  --------  -----------   ----------
<S>                         <C>       <C>          <C>         <C>      <C>          <C>         <C>       <C>           <C>
One- to four-family........  $3,842       73.22%      84.20%   $4,408       76.73%      85.98%   $4,238        71.84%       86.56%
   Home equity loans.......     348        6.63        7.21       301        5.24        7.28       219         3.71         6.53
Construction...............     301        5.74        1.64       181        3.15        0.75       566         9.59         0.92
Commercial real estate.....     173        3.30        3.73       100        1.74        3.16        44         0.75         2.96
Multi-family...............      97        1.85        2.09        55        0.96        1.84        26         0.44         1.73
A.I.D......................      --          --        0.04        --          --        0.04        --           --         0.05
                             ------      ------      ------    ------      ------      ------    ------       ------       ------
  Total mortgage loans.....   4,761       90.74       98.91     5,045       87.82       99.05     5,093        86.33        98.75
Consumer loans.............     147        2.80        1.09       208        3.62        0.95       263         4.46         1.25
Other......................      49        0.93          --        14        0.24          --       145         2.46           --
Unallocated................     290        5.53          --       478        8.32          --       398         6.75           --
                             ------      ------      ------    ------      ------      ------    ------       ------       ------
    Total allowance for
       loan losses.........  $5,247      100.00%     100.00%   $5,745      100.00%     100.00%   $5,899       100.00%      100.00%
                             ======      ======      ======    ======      ======      ======    ======       ======       ======
<CAPTION>


                            ---------------------------------
                                          1992
                            ---------------------------------
                                                     PERCENT
                                                    OF LOANS
                                       PERCENT OF    IN EACH
                                       ALLOWANCE    CATEGORY
                                        TO TOTAL    TO TOTAL
                             AMOUNT    ALLOWANCE      LOANS
                            --------  -----------  ----------
<S>                         <C>       <C>          <C>
One- to four-family........  $4,148       72.13%      87.30%
   Home equity loans.......     201        3.50        6.07
Construction...............     661       11.49        1.30
Commercial real estate.....      30        0.52        2.02
Multi-family...............      26        0.45        1.75
A.I.D......................      --          --        0.05
                             ------       -----       -----
  Total mortgage loans.....   5,066       88.09       98.49
Consumer loans.............     217        3.77        1.51
Other......................     135        2.35          --
Unallocated................     333        5.79          --
                             ------       -----       -----
    Total allowance for
       loan losses.........  $5,751      100.00%     100.00%
                             ======      ======      ======
</TABLE>

                                       67
<PAGE>
 
INVESTMENT ACTIVITIES

     The Investment Policy of the Bank, which is established by the Board of
Directors and reviewed by the Investment Committee, is designed primarily to
provide and maintain liquidity, to generate a favorable return on investments
without incurring undue interest rate and credit risk and to complement the
Bank's lending activities. The Policy currently provides for investment,
available for sale and trading portfolios. In order to enhance the Bank's
liquidity and flexibility, total return, or minimize interest rate risk,
securities may be acquired for the available for sale portfolio. Investment
securities and mortgage-backed securities, other than those designated as
available for sale or trading, are comprised of debt securities that the Bank
has the positive intent and ability to hold to maturity. Investment securities
held to maturity are carried at cost, adjusted for amortization of premiums and
accretion of discounts using the level-yield method over the estimated lives of
the securities. At September 30, 1997, the Bank had investment securities held
to maturity in the aggregate amount of $41.0 million, with a market value of
$41.1 million.

     New Jersey state-chartered savings institutions have the authority to
invest in various types of liquid assets, including United States Treasury
obligations, securities of various federal agencies, certain certificates of
deposit of insured banks and savings institutions, certain bankers' acceptances,
repurchase agreements and loans on federal funds. Subject to various
restrictions, state-chartered savings institutions may also invest a portion of
their assets in commercial paper, corporate debt securities and asset-backed
securities.

     In November 1995, the Financial Accounting Standards Board ("FASB") issued
"Special Report -- A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities," which provided the Bank with
an opportunity to reassess the appropriateness of the classifications of all its
securities, and on December 15, 1995, the Bank reclassified $13.0 million in
amortized cost of investment securities from held to maturity to available for
sale. At September 30, 1997, investment securities available for sale had a net
unrealized loss of $27,000.

     INVESTMENTS AVAILABLE FOR SALE. The Bank maintains a portfolio of
investments available for sale to reduce interest rate and market value risk.
These investments, designated as available for sale at purchase, are marked to
market in accordance with SFAS No. 115. The Bank's Investment Policy designates
what type of securities may be contained in the available for sale portfolio.
This portfolio of available for sale investments is reviewed and priced at least
monthly. As of September 30, 1997, the market value of investment securities
available for sale was $18.0 million, with an amortized cost basis of $18.1
million, and was composed of U.S. Treasury and agencies securities, and
corporate debt obligations. The available for sale portfolio had a weighted
average contractual maturity of 4.75 years. A substantial portion of the
investment portfolio is comprised of callable agency notes, which have a variety
of call options available to the issuer at predetermined dates. The investment
portfolio's yield is enhanced by the addition of callable agency notes, due to
the issuer's flexibility in repricing their funding source, while creating
reinvestment risk to the Bank. At September 30, 1997, $52.0 million, or 88.2% of
the total investment portfolio, including securities available for sale, were
callable.

                                       68
<PAGE>
 
     INVESTMENT PORTFOLIO. The following table sets forth certain information
regarding the carrying and market values of the Bank's investment portfolio at
the dates indicated:

<TABLE> 
<CAPTION>
                                                  AT SEPTEMBER 30,                           AT DECEMBER 31,
                                                                    --------------------------------------------------------------
                                                        1997                1996                 1995                 1994
                                               -------------------- -------------------- -------------------- --------------------
                                                AMORTIZED   MARKET   AMORTIZED  MARKET    AMORTIZED   MARKET   AMORTIZED   MARKET
                                                  COST      VALUE      COST      VALUE      COST       VALUE     COST       VALUE
                                               ---------- --------- ---------- --------- ---------- --------- ---------- ---------
                                                                                  (IN THOUSANDS)
<S>                                            <C>        <C>       <C>        <C>       <C>        <C>       <C>        <C>
Investment securities held to maturity:
   U.S. Government and agency
    obligations..............................    $40,959  $41,108     $38,955  $38,980      $39,003  $39,617     $23,997  $22,774
                                                 =======  =======     =======  =======      =======  =======     =======  =======
Investment securities available for sale:
   U.S. Government and agency
    obligations..............................    $13,972  $13,943     $12,964  $12,836      $ 1,000  $   996     $13,884  $13,206
   Corporate obligations.....................      4,079    4,081       2,000    1,995        1,041    1,062          --       --
                                                 -------  -------     -------  -------      -------  -------     -------  -------
  Total investment securities
   available-for-sale........................    $18,051  $18,024     $14,964  $14,831      $ 2,041  $ 2,058     $13,884  $13,206
                                                 =======  =======     =======  =======      =======  =======     =======  =======

Other interest-earning investments:
  Federal funds sold.........................    $17,925  $17,925     $ 1,850  $ 1,850      $17,875  $17,875     $ 4,375  $ 4,375
  FHLB-NY stock..............................      8,045    8,045       7,428    7,428        6,276    6,276       5,691    5,691
                                                 -------  -------     -------  -------      -------  -------     -------  -------
  Total other interest-earning investments...    $25,970  $25,970     $ 9,278  $ 9,278      $24,151  $24,151     $10,066  $10,066
                                                 =======  =======     =======  =======      =======  =======     =======  =======
</TABLE>

                                       69
<PAGE>
 
     The table below sets forth certain information regarding the contractual
maturities, amortized costs, market values and weighted average yields for the
Bank's investment portfolio at September 30, 1997.

<TABLE>
<CAPTION>
                                                                                           AT SEPTEMBER 30, 1997
                                       -------------------------------------------------------------------------------
                                                                      MORE THAN ONE YEAR        MORE THAN FIVE YEARS
                                           ONE YEAR OR LESS             TO FIVE YEARS               TO TEN YEARS
                                       ------------------------    -----------------------     -----------------------
                                                      WEIGHTED                   WEIGHTED                    WEIGHTED
                                        AMORTIZED      AVERAGE      AMORTIZED     AVERAGE       AMORTIZED     AVERAGE
                                           COST         YIELD         COST         YIELD          COST         YIELD
                                       -----------    ---------    -----------   ---------     -----------   ---------
                                                                                         (DOLLARS IN THOUSANDS)
<S>                                    <C>            <C>          <C>           <C>           <C>           <C>
Investment securities held
  to maturity:
    U.S. Government and Agency
      obligations....................    $    --           --%       $14,991        6.81%        $19,972        7.31%
                                         -------       ------        -------      ------         -------      ------
    Total investment securities
      held to maturity...............    $    --           --%       $14,991        6.81%        $19,972        7.31%
                                         =======       ======        =======      ======         =======      ======

Investment securities
  available for sale:
    U.S. Government and Agency
      obligations....................    $    --           --%       $10,972        6.11%        $ 3,000        6.75%
    Corporate obligations............         --           --          2,000        5.95           2,079        6.15
                                         -------       ------        -------      ------         -------      ------
    Total investment securities
      available for sale.............    $    --           --%       $12,972        6.09%        $ 5,079        6.51%
                                         =======       ======        =======      ======         =======      ======

Other interest-earning investments:
    Federal funds sold...............    $17,925         5.79%       $    --          --%        $    --          --%
    FHLB-NY stock (1)................      8,045         6.75             --          --              --          --
                                         -------       ------        -------      ------         -------      ------
    Total other interest-earning
      investments....................    $25,970         6.09%       $    --          --%        $    --          --%
                                         =======       ======        =======      ======         =======      ======
<CAPTION>
                                       ----------------------------------------------------------------

                                          MORE THAN TEN YEARS                   TOTAL
                                       ------------------------    ------------------------------------
                                                      WEIGHTED                                WEIGHTED
                                        AMORTIZED      AVERAGE      AMORTIZED      MARKET      AVERAGE
                                           COST         YIELD         COST         VALUE        YIELD
                                       -----------    ---------    -----------   ----------   ---------
<S>                                    <C>            <C>          <C>           <C>          <C>
Investment securities held
  to maturity:
    U.S. Government and Agency
      obligations....................     $5,996         8.02%       $40,959       $41,108       7.23%
                                          ------       ------        -------       -------     ------
    Total investment securities
      held to maturity...............     $5,996         8.02%       $40,959       $41,108       7.23%
                                          ======       ======        =======       =======     ======

Investment securities
  available for sale:
    U.S. Government and Agency
      obligations....................     $   --           --%       $13,972       $13,943       6.25%
    Corporate obligations............         --           --          4,079         4,081       6.05
                                          ------       ------        -------       -------     ------
    Total investment securities
      available for sale.............     $   --           --%       $18,051       $18,024        620%
                                          ======       ======        =======       =======     ======

Other interest-earning investments:
    Federal funds sold...............     $   --           --%       $17,925       $17,925       5.79%
    FHLB-NY stock (1)................         --           --          8,045         8,045       6.75
                                          ------       ------        -------       -------     ------
    Total other interest-earning
      investments....................     $   --           --%       $25,970       $25,970       6.09%
                                          ======       ======        =======       =======     ======
</TABLE>

____________________
(1)  FHLB-NY stock does not have a stated maturity.

                                       70
<PAGE>
 
SOURCES OF FUNDS

     GENERAL. The Bank's primary source of funds are deposits; proceeds from
principal and interest payments on loans and mortgage-backed securities; sales
of loans, mortgage-backed securities and investments available for sale;
maturities of investment securities and short-term investment; and, to an
increasing extent, advances from the FHLB-NY, reverse repurchase agreements and
other borrowed funds.
                                   
     DEPOSITS. The Bank offers a variety of deposit accounts having a range of
interest rates and terms. The Bank's deposits principally consist of fixed-term
certificates, passbook savings, money market, Individual Retirement Accounts
("IRAs") and Negotiable Order of Withdrawal ("NOW") accounts. The flow of
deposits is significantly influenced by general economic conditions, changes in
money market and prevailing interest rates and competition. The Bank's deposits
are typically obtained from the areas in which its offices are located. The Bank
relies primarily on customer service and long-standing relationships to attract
and retain these deposits. At September 30, 1997, $121.9 million of the Bank's
deposit balance consisted of IRAs. Also at that date, $76.5 million, or 9.45%,
of the Bank's deposit balance consisted of deposit accounts with a balance
greater than $100,000. The Bank does not currently accept brokered deposits.

     The Bank seeks to maintain a high level of stable core deposits by
providing convenient and high quality service through its extended branch
network. To further this objective, the Bank acquired six branch offices from
the RTC in 1991 for a deposit premium of $509,000, which was written off in
1996. Of those six offices, the Bank continues to operate four of the offices,
and transferred the deposits of the other two offices into existing First
Savings branches. During October 1997, the Bank entered into an agreement to
sell its Eatontown branch, with the transfer of deposit liabilities and physical
branch location scheduled for late February 1998. The Bank acquired two
additional branches from the RTC in 1995 with deposits of approximately $112.8
million for a premium of $12.6 million. The Bank's strategy was to strengthen
its market area within Middlesex County, and to provide better service to those
communities within which these branches reside. During the years 1995 and 1994,
the Bank's deposit base grew $11.9 million and $2.7 million, respectively,
excluding the $112.8 million in deposits acquired in 1995. The percentage
increase for those periods was 1.7% and 0.4%, respectively. During 1996,
deposits decreased $11.7 million, or 1.5%, to $794.6 million. The decrease was
due to increased competition and premium interest rates being paid by other
institutions. For the nine months ended September 30, 1997, deposits increased
$14.9 million, or 1.9%, due to partial retention of interest credited.

                                       71
<PAGE>
 
     The following table presents the deposit activity of the Bank for the
periods indicated:

<TABLE>
<CAPTION>
                                                     FOR THE NINE MONTHS                   
                                                     ENDED SEPTEMBER 30,                 FOR THE YEAR ENDED DECEMBER 31,
                                                 ----------------------------    ---------------------------------------------------

                                                    1997              1996             1996              1995              1994
                                                 ---------          ---------    ----------------   --------------   ---------------

                                                                                  (IN THOUSANDS)
<S>                                             <C>                <C>           <C>                <C>              <C> 
Deposits....................................... $ 1,234,631        $ 1,197,644     $  1,672,325      $  1,374,946      $ 1,295,191
Withdrawals....................................  (1,245,329)        (1,229,251)      (1,718,034)       (1,396,632)      (1,316,030)
Deposits acquired in purchase(1)...............          --                 --               --           112,785               --
                                                -----------        -----------      -----------       -----------      -----------
Withdrawals less than (in excess of) deposits..     (10,698)           (31,607)         (45,709)           91,099          (20,839)
Interest credited..............................      25,552             25,710           33,966            33,626           23,491
                                                -----------        -----------      -----------       -----------      -----------
Total increase (decrease) in deposits.......... $    14,854        $    (5,897)     $   (11,743)      $   124,725      $     2,652
                                                ===========        ===========      ===========       ===========      ===========
</TABLE>
 
_______________________
(1)  Purchase of deposits from the Resolution Trust Corporation.

          The following table presents by various categories, the amount of
certificate accounts outstanding at September 30, 1997 and 1996, and the time to
maturity of the certificate accounts outstanding at September 30, 1997.

<TABLE>
<CAPTION>
                                    AT SEPTEMBER 30,                     MATURITY AT SEPTEMBER 30, 1997
                              ---------------------------    ------------------------------------------------------
                                                                WITHIN       ONE THROUGH
                                  1997           1996          ONE YEAR      THREE YEARS    THEREAFTER     TOTAL
                              ----------     ------------    ------------  --------------- ------------  ----------
                                                                     (IN THOUSANDS)
<S>                           <C>            <C>             <C>           <C>             <C>           <C> 
Certificate accounts:                                      
  3.99% or less..............   $  2,800       $  3,448         $  2,800        $     --       $    --    $  2,800
  4.00% to 4.49%.............         91         16,242               91              --            --          91
  4.50% to 4.99%.............     21,879        153,445           18,687           3,192            --      21,879
  5.00% to 5.49%.............    252,318        156,071          239,457           6,414         6,447     252,318
  5.50% to 5.99%.............    123,762         44,162           70,659          38,693        14,410     123,762
  6.00% to 6.49%.............     23,056         35,379            3,107           4,990        14,959      23,056
  6.50% to 6.99%.............     34,628         49,583           10,288          12,698        11,642      34,628
  7.00% to 7.49%.............      2,594          2,702            2,486              --           108       2,594
  7.50% to 7.99%.............      2,890          2,837              341           1,232         1,317       2,890
  8.00% and greater..........        634            656              388             246            --         634
                                --------       --------         --------         -------       -------    --------
    Total....................   $464,652       $464,525         $348,304         $67,465       $48,883    $464,652
                                ========       ========         ========         =======       =======    ========
</TABLE>

                                       72
<PAGE>
 
          At September 30, 1997, the Bank had $45.3 million in certificate
accounts in amounts of $100,000 or more maturing as follows:

<TABLE>
<CAPTION>
                            MATURITY PERIOD                   AMOUNT
               -------------------------------------  ------------------------
                                                       (DOLLARS IN THOUSANDS)
               <S>                                    <C>
               Three months or less.............             $ 8,328
               Over 3 through 6 months..........               6,673
               Over 6 through 12 months.........              20,239
               Over 12 months ..................              10,101
                                                             -------
                     Total......................             $45,341
                                                             =======
</TABLE>

                                       73
<PAGE>
 
          The following table sets forth the distribution of the Bank's average
accounts for the periods indicated and the weighted average nominal interest
rates on each category of deposits presented.


<TABLE>
<CAPTION>
                                                                                         FOR THE YEAR ENDED DECEMBER 31,

                                    FOR THE NINE MONTHS ENDED
                                       SEPTEMBER 30, 1997                           1996                                  1995
                               -----------------------------------  -------------------------------------  -----------------------
                                            PERCENT                                PERCENT                                PERCENT
                                            OF TOTAL     WEIGHTED                 OF TOTAL      WEIGHTED                 OF TOTAL
                                AVERAGE     AVERAGE      AVERAGE      AVERAGE      AVERAGE       AVERAGE     AVERAGE      AVERAGE
                                BALANCE     DEPOSITS       RATE       BALANCE     DEPOSITS        RATE       BALANCE     DEPOSITS
                               ---------  -----------   ----------  ----------   ----------    ----------  ----------  -----------
<S>                            <C>        <C>           <C>         <C>          <C>           <C>         <C>         <C>
Non-interest bearing demand.... $ 21,109        2.62%          --%    $ 19,491       2.42%         --%      $ 16,610      2.10
Money market accounts..........  134,681       16.71         3.30      124,097      15.40        3.28        129,426     16.37
Savings accounts...............  129,334       16.04         2.54      139,045      17.26        2.53        140,122     17.73
NOW accounts...................   57,077        7.08         1.90       54,079       6.71        1.96         50,552      6.40
                                --------      ------                  --------     ------                   --------    ------
      Total....................  342,201       42.45         2.56      336,712      41.79        2.57        336,710     42.60
                                --------      ------                  --------     ------                   --------    ------
Certificate accounts(1):
     Less than six months......  143,604       17.81         5.05      142,332      17.67        4.85        128,984     16.32
     Over 6 through 12 months..  167,818       20.82         5.32      166,356      20.65        5.34        157,267     19.90
     Over 12 through 36 months.   54,425        6.75         5.74       59,192       7.35        5.65         67,921      8.59
     Over 36 months............   98,092       12.17         6.05      101,014      12.54        6.16         99,483     12.59
                                --------      ------                  --------      -----                   --------    ------
      Total certificate
       accounts................  463,939       57.55         5.42      468,894      58.21        5.39        453,655     57.40
                                --------      ------                  --------      ------                   --------   ------
      Total average
       deposits................ $806,140      100.00%        4.21     $805,606     100.00%       4.22       $790,365    100.00
                                ========      ======                  ========     =======                  ========    ======

<CAPTION>
                                                                1994
                                                 ------------------------------------------
                                                               PERCENT
                                      WEIGHTED                 OF TOTAL      WEIGHTED
                                       AVERAGE     AVERAGE     AVERAGE        AVERAGE
                                        RATE       BALANCE     DEPOSITS        RATE
                                      --------    ---------  -----------    ----------
<S>                                   <C>         <C>        <C>            <C>
Non-interest bearing demand....           --%      $ 14,002       2.04         --%
Money market accounts..........           3.20      124,917      18.17        2.79
Savings accounts...............           2.55      143,738      20.91        2.51
NOW accounts...................           1.89       43,251       6.29        2.00
                                                   --------      ------
      Total....................           2.57      325,908      47.41        2.44
                                                   --------      ------
Certificate accounts(1):
     Less than six months......           5.05      110,320      16.04        3.26
     Over 6 through 12 months..           5.51      110,130      16.02        3.70
     Over 12 through 36 months.           5.22       52,264       7.60        4.64
     Over 36 months............           6.41       88,875      12.93        6.43
                                                   --------      ------
      Total certificate
       accounts................           5.53      361,589      52.59        4.35
                                                   --------      ------
      Total average
       deposits................           4.27     $687,497     100.00%       3.46
                                                   ========     ======
</TABLE>

                                      74
<PAGE>
 
BORROWINGS

     The Bank's policy has been to utilize borrowings as an alternative and/or
less costly source of funds. The Bank obtains advances from the FHLB-NY, which
are collateralized by the capital stock of the FHLB-NY held by the Bank, and
certain mortgage loans and mortgage-backed securities of the Bank. The Bank also
borrows funds via reverse repurchase agreements with the FHLB-NY and primary
broker/dealers. Advances from the FHLB-NY are made pursuant to several different
credit programs, each of which has its own interest rate and maturity. The
maximum amount that the FHLB-NY will advance to member institutions, including
the Bank, for purposes of other than meeting withdrawals, fluctuates from time
to time in accordance with the policies of the FHLB-NY and the OTS. The maximum
amount of FHLB-NY advances permitted to a member institution generally is
reduced by borrowings from any other source. At September 30, 1997, the Bank's
FHLB-NY advances totalled $33.0 million, representing 3.5% of total liabilities.

     During 1997, the Bank continued to borrow funds from primary
broker/dealers. The borrowings are collateralized by designated mortgage-backed
and investment securities. The total of these borrowings at September 30, 1997
was $90.9 million, representing 9.6% of total liabilities. The Bank has the
right to freely substitute collateral as long as the margin is at least 95% of
all outstanding borrowings, including accrued interest.

     The Bank also has an available overnight line-of-credit with the FHLB-NY
for a maximum of $48.9 million. The fee for the line-of-credit for the nine
months ended September 30, 1997 was $500. The Bank may continue to increase
borrowings in the future to fund asset growth. To the extent it does so, the
Bank may experience an increase in its cost of funds.

     The Bank, as part of the Reorganization, established, for eligible
employees, an ESOP which became effective at completion of the 1992 MHC
Reorganization. As part of the initial minority stock offering conducted in
connection with the 1992 MHC Reorganization, the Bank's ESOP borrowed funds
totalling $700,000 from an unrelated third party lender and used the funds to
purchase 7%, or 70,000 shares, of the common stock issued in the offering. On
September 30, 1994, the third party lender was repaid by the Mutual Holding
Company, which refinanced the ESOP loan at the same interest rate. The ESOP debt
as of September 30, 1997 and December 31, 1996 and 1995, was $571,000, $646,000
and $746,000, respectively, and bears an interest rate equal to the prime rate
less 1.50%, as published in The Wall Street Journal, with principal and interest
payable in quarterly installments over a ten-year period. During the nine months
ended September 30, 1997, and the year ended December 31, 1996, $25,000 of
dividends paid on ESOP shares during each of the periods was used to pay down
ESOP debt. Total interest paid on ESOP debt for the nine months ended September
30, 1997 and 1996, was $33,000 and $37,000, respectively, and for the years
ended December 31, 1996, 1995 and 1994 was $48,000, $41,000 and $26,000,
respectively. In July 1995, the Bank completed its 1995 Secondary Offering,
whereby the ESOP purchased an additional 42,000 shares of Common Stock at $13
per share, totalling $546,000. The funds to purchase those shares were borrowed
from the Mutual Holding Company. The borrowing is currently secured by 80,102
shares of the Bank's Common Stock, as adjusted for the 10% stock dividend
declared on September 24, 1997.

     Upon consummation of the Conversion and Reorganization, it is expected that
the Mutual Holding Company's loan to the ESOP will be assumed by the Company,
and that the Company will lend additional funds to the ESOP to enable it to
acquire 8% of the Conversion Stock. See "Management of the Bank--Executive
Compensation--Employee Stock Ownership Plan."

                                       75
<PAGE>
 
The following table sets forth certain information regarding the Bank's borrowed
fundson the dates indicated:

<TABLE>
<CAPTION>
                                                               AT OR FOR THE NINE MONTHS ENDED       AT OR FOR THE YEAR ENDED
                                                                        SEPTEMBER 30,                      DECEMBER 31,
                                                           ------------------------------------   -----------------------------
                                                                1997                  1996           1996      1995      1994
                                                           --------------         -------------   ---------  --------  --------
                                                                                    (DOLLARS IN THOUSANDS)
<S>                                                        <C>                    <C>             <C>        <C>       <C>
FHLB-NY advances:
     Average balance outstanding...........................    $ 36,200             $19,400        $21,846   $21,231   $29,538
     Maximum amount outstanding at any
        month-end during the period........................      40,000              22,000         30,000    34,000    37,000
     Balance outstanding at end of period..................      33,000              20,000         30,000    19,000    34,000
     Weighted average interest rate during the period......        6.18%               6.18%          6.13%     5.72%     4.74%
     Weighted average interest rate at end of period.......        6.06%               6.17%          6.06%     6.13%     5.22%
Repurchase agreements:
     Average balance outstanding...........................    $ 74,138             $26,862        $32,691   $11,834   $    --
     Maximum amount outstanding at any
       month-end during the period.........................      90,894              49,437         57,994    24,864        --
     Balance outstanding at end of period..................      90,894              49,437         57,994    19,750        --
     Weighted average interest rate during the period......        6.14%               5.91%          6.05%     6.50%       --%
     Weighted average interest rate at end of period.......        5.94%               6.04%          6.02%     6.13%       --%
ESOP debt:
       Average balance outstanding.........................    $    616             $   716        $   704   $   510   $   358
       Maximum amount outstanding at any
         month-end during the period ......................         646                 746            746       796       400
     Balance outstanding at end of period..................         571                 671            646       746       300
     Weighted average interest rate during the period......        7.03%               6.84%          7.74%     8.08%     7.25%
     Weighted average interest rate at end of period.......        7.00%               6.75%          6.75%     7.00%     8.50%
Total borrowings:
       Average balance outstanding.........................    $110,954             $46,978        $55,241   $33,575   $29,896
       Maximum amount outstanding at any
         month-end during the period ......................     124,465              70,108         88,640    59,661    37,325
     Balance outstanding at end of period..................     124,465              70,108         88,640    39,496    34,300
     Weighted average interest rate during the period......        6.16%               6.05%          6.10%     6.06%     4.82%
     Weighted average interest rate at end of period.......        5.98%               6.08%          6.04%     6.15%    5.24%
</TABLE>

                                       76
<PAGE>
 
SUBSIDIARY ACTIVITIES

     FSB FINANCIAL CORP. FSB Financial Corp. is a wholly-owned subsidiary of the
Bank. FSB Financial Corp. provides a line of fixed and variable rate annuity
products, along with mutual funds and term life insurance. For the nine months
ended September 30, 1997, FSB Financial Corp. had net income of $140,000.

     1000 WOODBRIDGE CENTER DRIVE, INC. 1000 Woodbridge Center Drive, Inc. is a
wholly-owned subsidiary of the Bank. 1000 Woodbridge Center Drive, Inc. was the
owner of the Bank's corporate center. For the year ended December 31, 1996, 1000
Woodbridge Center Drive, Inc. had a net loss of $110,000. The subsidiary was
inactive as of September 30, 1997.

PROPERTIES

     The Bank conducts its business through its main office and 17 full service
branch offices, all located in central New Jersey. The following table sets
forth certain information concerning the main office and each branch office of
the Bank at September 30, 1997. The aggregate net book value of the Bank's
premises and equipment was $13.3 million at September 30, 1997.

                                       77
<PAGE>
 
<TABLE>
<CAPTION>
                                        DATE LEASED         NET BOOK VALUE AT                         
            LOCATION                    OR ACQUIRED        SEPTEMBER 30, 1997       LEASED OR OWNED 
--------------------------------      ---------------    ----------------------   ------------------- 
<S>                                   <C>                <C>                      <C> 
MAIN OFFICE:

339 State Street                           4/29               $1,306,297                Owned       
Perth Amboy, NJ 08861(1)                                                                          
                                                                                                  
CORPORATE HEADQUARTERS:                                                                           
                                                                                                  
1000 Woodbridge Avenue                                                                            
Woodbridge, NJ 07095                       5/94                5,500,548                Owned     
                                                                                                  
BRANCH OFFICES:                                                                                   
                                                                                                  
158 Wyckoff Road                                                                                  
Eatontown, NJ 07724(2)                     7/93                  105,135                Leased     
                                                                                                  
980 Amboy Avenue                                                                                  
Edison, NJ 08837                           6/74                  673,607                Owned     
                                                                                                  
2100 Oak Tree Road                                                                                
Edison, NJ 08820                           4/84                  312,974                Owned     
                                                                                                  
206 South Avenue                                                                                  
Fanwood, NJ 07023                          9/91                  373,090                Owned     
                                                                                                  
Lafayette Road & Ford Avenue                                                                      
Fords, NJ 08863                            4/84                   54,524                Leased     
                                                                                                  
Rt. 35 & Bethany Road                                                                             
Hazlet, NJ 07730                           1/91                   15,755                Leased     
                                                                                                  
101 New Brunswick Avenue                                                                          
Hopelawn, NJ 08861                         6/76                   63,240                Leased     
                                                                                                  
1220 Green Street                                                                                 
Iselin, NJ 08830                          11/84                  644,436                Owned     
                                                                                                  
599 Middlesex Avenue                                                                              
Metuchen, NJ 08840(3)                      1/95                   44,382                Leased     
                                                                                                  
1580 Rt. 35 South                                                                                 
Middletown, NJ 07748                       4/95                  226,162                Leased     
                                                                                                  
97 North Main Street                                                                              
Milltown, NJ 08850(3)                      1/95                1,050,927                Owned     
                                                                                                  
Rt. 9 & Ticetown Road                                                                             
Old Bridge, NJ 08857                       6/79                    7,306                Leased     
                                                                                                  
100 Stelton Road                                                                                  
Piscataway, NJ 08854(4)                    9/91                  298,274                Leased     
                                                                                                  
325 Amboy Avenue                                                                                  
Woodbridge, NJ 07095                       1/70                  236,732                Owned     
                                                                                                  
Rt. 1 & St. Georges Avenue                                                                        
Woodbridge, NJ 07095                       6/80                      570                Leased  
</TABLE>

_______________
(1)  Includes an adjacent administrative building with a net book value of
     $942,000.
(2)  An agreement has been signed to sell the Eatontown branch. The transaction
     is anticipated to close in February 1998.
(3)  Acquired/leased in conjunction with purchase of deposits of the former
     Carteret Savings Bank from the RTC on January 20, 1995.
(4)  Includes property acquired for future branch site during 1994.

                                       78
<PAGE>
 
LEGAL PROCEEDINGS

     The Bank is involved in various legal actions arising in the normal course
of its business. In the opinion of management, the resolution of these legal
actions are not expected to have a material adverse effect on the Bank's results
of operations.

PERSONNEL

     As of September 30, 1997, the Bank had 208 full-time employees and 33 part-
time employees. The employees are not represented by a collective bargaining
unit and the Bank considers its relationship with its employees to be good. See
"Management of the Bank - Benefit Plans" for a description of certain
compensation and benefit programs offered to the Bank's employees.

                          FEDERAL AND STATE TAXATION

FEDERAL TAXATION

     General.  The Bank and the Company will report their income on a calendar
year basis using the accrual method of accounting and will be subject to federal
income taxation in the same manner as other corporations with some exceptions,
including particularly the Bank's reserve for bad debts discussed below. The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to the
Bank or the Company. The Bank was last audited by the IRS in 1984 and has not
been audited by the New Jersey Division of Taxation ("DOT") in the past five
years.

     Bad Debt Reserve.  Historically, savings institutions such as the Bank
which met certain definitional tests primarily related to their assets and the
nature of their business ("qualifying thrifts") were permitted to establish a
reserve for bad debts and to make annual additions thereto, which may have been
deducted in arriving at their taxable income. The Bank's deductions with respect
to "qualifying real property loans," which are generally loans secured by
certain interest in real property, were computed using an amount based on the
percentage of taxable income method.

     In August 1996, the provisions repealing the current thrift bad debt rules
were passed by Congress as part of "The Small Business Job Protection Act of
1996." The new rules eliminate the 8% of taxable income method for deducting
additions to the tax bad debt reserves for all thrifts for tax years beginning
after December 31, 1995. These rules also require that all thrift institutions
recapture all or a portion of their bad debt reserves added since the base year
(last taxable year beginning before January 1, 1988). The Bank has previously
recorded a deferred tax liability equal to the bad debt recapture and as such,
the new rules will have no effect on net income or federal income tax expense.

     For the tax years beginning after December 31, 1995, the Bank is not
permitted to maintain a tax reserve for bad debts. As of September 30, 1997, the
Bank had an excess amount subject to recapture equal to $12.7 million. The new
rules allow an institution to suspend the bad debt reserve recapture for the
1996 and 1997 tax years if the institution's lending activity for those years is
equal to or greater than the institution's average mortgage lending activity for
the six taxable years preceding 1996. For this purpose, only home purchase and
home improvement loans are included and the institution can elect to have the
tax years with the highest and lowest lending activity removed from the average
calculation. If an institution is permitted to postpone the reserve recapture,
it must begin its six year recapture no later than the 1998 tax year. The
unrecaptured base year reserves will not be subject to recapture as long as the
institution continues to carry on the business of banking. In addition, the
balance of the pre-1988 bad debt reserves continue to 

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be subject to provisions of present law referred to below that require recapture
in the case of certain excess distributions to shareholders.

     Distributions.  To the extent that the Bank makes "non-dividend
distributions" to the Company that are considered as made (i) from the reserve
for losses on qualifying real property loans, or (ii) from the supplemental
reserve for losses on loans ("Excess Distributions"), then an amount based on
the amount distributed will be included in the Bank's taxable income. Non-
dividend distributions include distributions in excess of the Bank's current and
accumulated earnings and profits, distributions in redemption of stock, and
distributions in partial or complete liquidation. However, dividends paid out of
the Bank's current or accumulated earnings and profits, as calculated for
federal income tax purposes, will not be considered to result in a distribution
from the Bank's bad debt reserve. Thus, any dividends to the Company that would
reduce amounts appropriated to the Bank's bad debt reserve and deducted for
federal income tax purposes would create a tax liability for the Bank. The
amount of additional taxable income created from an Excess Distribution is an
amount that, when reduced by the tax attributable to the income, is equal to the
amount of the distribution. Thus, if, after the Conversion, the Bank makes a
"non-dividend distribution," then approximately one and one-half times the
amount so used would be includable in gross income for federal income tax
purposes, assuming a 34% corporate income tax rate (exclusive of state and local
taxes). See "Regulation" and "Dividend Policy" for limits on the payment of
dividends of the Bank. The Bank does not intend to pay dividends that would
result in a recapture of any portion of its bad debt reserve.

     Corporate Alternative Minimum Tax.  The Internal Revenue Code of 1986, as
amended (the "Code") imposes a tax on alternative minimum taxable income
("AMTI") at a rate of 20%. Only 90% of AMTI can be offset by net operating loss
carryovers of which the Bank currently has none. AMTI is increased by an amount
equal to 75% of the amount by which the Bank's adjusted current earnings exceeds
its AMTI (determined without regard to this preference and prior to reduction
for net operating losses). The Bank does not expect to be subject to the AMT.

     Dividends Received Deduction and Other Matters.  The Company may exclude
from its income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. The corporate dividends received deduction is
generally 70% in the case of dividends received from unaffiliated corporations,
except that if the Company or the Bank own more than 20% of the stock of a
corporation distributing a dividend then 80% of any dividends received may be
deducted.

STATE AND LOCAL TAXATION

     State of New Jersey.  The Bank files New Jersey income tax returns. For New
Jersey income tax purposes, savings institutions are presently taxed at a rate
equal to 3% of taxable income. For this purpose, "taxable income" generally
means federal taxable income, subject to certain adjustments (including the
addition of net interest income on state and municipal obligations). The Bank is
not currently under audit with respect to its New Jersey income tax returns.

     The Company will be required to file a New Jersey income tax return because
it will be doing business in New Jersey. For New Jersey tax purposes, regular
corporations are presently taxed at a rate equal to 9% of taxable income. For
this purpose, "taxable income" generally means Federal taxable income subject to
certain adjustments (including addition of interest income on state and
municipal obligations).

     Delaware Taxation.  As a Delaware holding company not earning income in
Delaware, the Company is exempt from Delaware corporate income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.

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                                  REGULATION

GENERAL

     The Bank is subject to extensive regulation, examination and supervision by
the Department, as its chartering agency, the OTS, as its federal banking
regulator, and the FDIC, as the deposit insurer. The Bank is a member of the
FHLB System. The Bank's deposit accounts are insured up to applicable limits by
the SAIF managed by the FDIC. The Bank must file reports with the Commissioner
of the Department (the "Commissioner"), the OTS and the FDIC concerning its
activities and financial condition in addition to obtaining regulatory approvals
prior to entering into certain transactions such as mergers with, or
acquisitions of, other financial institutions. There are periodic examinations
by the Department, the OTS and the FDIC to test the Bank's compliance with
various regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such policies, whether by the Department, the OTS, the FDIC or the
Congress, could have a material adverse impact on the Company, the Bank and
their operations. The Company, as a savings and loan holding company, will also
be required to file certain reports with, and otherwise comply with the rules
and regulations of the OTS and of the Securities and Exchange Commission (the
"SEC") under the federal securities laws.

     Any change in the regulatory structure or the applicable statutes or
regulations, whether by the Department, the OTS, the FDIC or the Congress, could
have a material impact on the Company, the Bank, their operations or the
Conversion and Reorganization. Congress has been considering various proposals
to eliminate the federal thrift charter and abolish the OTS. The outcome of such
legislation is uncertain. Therefore, the Bank is unable to determine the extent
to which legislation, if enacted, would affect its business and what charter
alternatives will be available at that time. See "Risk Factors - Financial
Institution Regulation and Possible Legislation."

     Certain of the regulatory requirements applicable to the Bank and to the
Company are referred to below or elsewhere herein. The description of statutory
provisions and regulations applicable to savings associations set forth in this
Prospectus do not purport to be complete descriptions of such statutes and
regulations and their effects on the Bank and the Company and is qualified in
its entirety by reference to such statutes and regulations.

FEDERAL REGULATION OF SAVINGS INSTITUTIONS

     Business Activities.  The activities of savings institutions are governed
by the Home Owners' Loan Act, as amended (the "HOLA") and, in certain respects,
the Federal Deposit Insurance Act ("FDI Act") and the regulations issued by the
agencies to implement these statutes. These laws and regulations delineate the
nature and extent of the activities in which savings associations may engage.

     Loans-to-One Borrower.  Under the HOLA, savings institutions are generally
subject to the national bank limit on loans-to-one borrower. Generally, this
limit is 15% of the Bank's unimpaired capital and surplus, plus an additional
10% of unimpaired capital and surplus, if such loan is secured by readily-
marketable collateral, which is defined to include certain financial instruments
and bullion. At September 30, 1997, the Bank's general policy is to limit loans-
to-one borrower to $13.5 million. At September 30, 1997, the Bank's largest
aggregate amount of loans-to-one borrower totalled $11.1 million.

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<PAGE>
 
     QTL Test.  The HOLA requires savings institutions to meet a QTL test. Under
the QTL test, a savings association is required to maintain at least 65% of its
"portfolio assets" (total assets less: (i) specified liquid assets up to 20% of
total assets; (ii) intangibles, including goodwill; and (iii) the value of
property used to conduct business) in certain "qualified thrift investments"
(primarily residential mortgages and related investments, including certain
mortgage-backed and related securities) in at least nine months out of each 12
month period. A savings association that fails the QTL test must either convert
to a bank charter or operate under certain restrictions. As of September 30,
1997, the Bank maintained 88.8% of its portfolio assets in qualified thrift
investments and, therefore, met the QTL test. Recent legislation has expanded
the extent to which education loans, credit card loans and small business loans
may be considered as "qualified thrift investments."

     Limitation on Capital Distributions.  OTS regulations impose limitations
upon all capital distributions by a savings institution, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to shareholders
of another institution in a cash-out merger and other distributions charged
against capital. The rule establishes three tiers of institutions, which are
based primarily on an institution's capital level and supervisory condition. An
institution, such as the Bank, that exceeds all fully phased-in regulatory
capital requirements before and after a proposed capital distribution ("Tier 1
Bank") and has not been advised by the OTS that it is in need of more than
normal supervision, could, after prior notice to, but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of: (i) 100% of its net earnings to date during the calendar year plus the
amount that would reduce by one-half its "surplus capital ratio" (the excess
capital over its fully phased-in capital requirements) at the beginning of the
calendar year; or (ii) 75% of its net earnings for the previous four quarters.
Any additional capital distributions would require prior OTS approval. In the
event the Bank's capital fell below its capital requirements or the OTS notified
it that it was in need of more than normal supervision, the Bank's ability to
make capital distributions could be restricted. In addition, the OTS could
prohibit a proposed capital distribution by any institution, which would
otherwise be permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice.

     Liquidity.  The Bank is required to maintain an average daily balance of
specified liquid assets equal to a monthly average of not less than a specified
percentage (currently 4%) of its net withdrawable deposit accounts plus short-
term borrowings. Monetary penalties may be imposed for failure to meet these
liquidity requirements. The Bank's average liquidity ratio at September 30, 1997
was 8.17%, which exceeded the applicable requirements. The Bank has never been
subject to monetary penalties for failure to meet its liquidity requirements.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."

     Assessments.  Savings institutions are required by regulation to pay
assessments to the FDIC, the OTS and the New Jersey Department of Banking to
fund the various agency's operations and periodic Bank examinations. The
assessments paid by the Bank to these agencies for the nine months ended
September 30, 1997 and for the years ended December 31, 1996 and 1995 totalled
$251,000, $271,000 and $217,000, respectively.

     Transactions with Related Parties.  The Bank's authority to engage in
transactions with related parties or "affiliates" (i.e., any company that
controls or is under common control with an institution, including the Company
and any non-savings institution subsidiaries that the Company may establish) is
limited by Sections 23A and 23B of the Federal Reserve Act ("FRA"). Section 23A
restricts the aggregate amount of covered transactions with any individual
affiliate to 10% of the capital and surplus of the savings institution and also
limits the aggregate amount of transactions with all affiliates to 20% of the
savings institution's capital and surplus. Certain transactions with affiliates
are required to be secured by collateral in an amount and of a type described in
Section 23A and the purchase of low quality assets from affiliates 

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is generally prohibited. Section 23B generally requires that certain
transactions with affiliates, including loans and asset purchases, must be on
terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies.

     The Bank's authority to extend credit to executive officers, directors and
10% shareholders ("insiders"), as well as entities such persons control, is
governed by Sections 22(g) and 22(h) of the FRA, and Regulation O thereunder.
Among other things, these regulations require such loans to be made on terms and
conditions substantially the same as those offered to unaffiliated individuals
and not involve more than the normal risk of repayment. Recent legislation
created an exception for loans to insiders made pursuant to a benefit or
compensation program that are widely available to all employees of the
institution and do not give preference to insiders over other employees.
Regulation O also places individual and aggregate limits on the amounts of loans
the Bank may make to insiders based, in part, on the Bank's capital position,
and requires certain board approval procedures to be followed.

     Enforcement.  Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring action
against all "institution-affiliated parties," including stockholders, and any
attorneys, appraisers and accountants who knowingly or recklessly participate in
wrongful action likely to have an adverse effect on an insured institution.
Formal enforcement action may range from the issuance of a capital directive or
cease and desist order to removal of officers or directors, receivership,
conservatorship or termination of deposit insurance. Civil penalties cover a
wide range of violations and can amount to $25,000 per day, or $1 million per
day in especially egregious cases. Under the FDI Act, the FDIC has the authority
to recommend to the Director of the OTS that enforcement action be taken with
respect to a particular savings institution. If action is not taken by the
Director, the FDIC has authority to take such action under certain
circumstances. Federal and state law also establishes criminal penalties for
certain violations.

     Standards for Safety and Soundness.  The FDI Act requires each federal
banking agency to prescribe for all insured depository institutions standards
relating to, among other things, internal controls, information systems and
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, and compensation, fees and benefits and such other
operational and managerial standards as the agency deems appropriate. The
federal banking agencies have adopted final regulations and Interagency
Guidelines Establishing Standards for Safety and Soundness ("Guidelines") to
implement these safety and soundness standards. The Guidelines set forth the
safety and soundness standards that the federal banking agencies use to identify
and address problems at insured depository institutions before capital becomes
impaired. The Guidelines address internal controls and information systems;
internal audit system; credit underwriting; loan documentation; interest rate
risk exposure; asset growth; asset quality; earnings; and compensation, fees and
benefits. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the Guidelines, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard, as required by the FDI Act. The final
regulations establish deadlines for the submission and review of such safety and
soundness compliance plans.

     Capital Requirements.  The OTS capital regulations require savings
institutions to meet three capital standards: a 1.5% tangible capital standard,
a 3% leverage (core capital) ratio and an 8% risk based capital standard. Core
capital is defined as common stockholder's equity (including retained earnings),
certain non-cumulative perpetual preferred stock and related surplus, minority
interests in equity accounts of consolidated subsidiaries less intangibles other
than certain mortgage servicing rights ("MSRs") and credit card relationships.
The OTS regulations require that, in meeting the leverage ratio, tangible and
risk-based capital standards institutions generally must deduct investments in
and loans to subsidiaries engaged in activities not permissible for a national
bank. In addition, the OTS prompt corrective action regulation 

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<PAGE>
 
provides that a savings institution that has a leverage capital ratio of less
than 4% (3% for institutions receiving the highest CAMEL examination rating)
will be deemed to be "undercapitalized" and may be subject to certain
restrictions. See "- Prompt Corrective Regulatory Action."

     The risk-based capital standard for savings institutions requires the
maintenance of total capital (which is defined as core capital and supplementary
capital) to risk-weighted assets of 8%. In determining the amount of risk-
weighted assets, all assets, including certain off-balance sheet assets, are
multiplied by a risk-weight of 0% to 100%, as assigned by the OTS capital
regulation based on the risks OTS believes are inherent in the type of asset.
The components of core capital are equivalent to those discussed earlier under
the 3% leverage standard. The components of supplementary capital currently
include cumulative preferred stock, long-term perpetual preferred stock,
mandatory convertible securities, subordinated debt and intermediate preferred
stock and, within specified limits, the allowance for loan and lease losses.
Overall, the amount of supplementary capital included as part of total capital
cannot exceed 100% of core capital.

     At September 30, 1997, the Bank met each of its capital requirements, in
each case on a fully phased-in basis. See "Regulatory Capital Compliance" for a
table which sets forth in terms of dollars and percentages the OTS tangible,
leverage and risk-based capital requirements, the Bank's historical amounts and
percentages at September 30, 1997, and pro forma amounts and percentages based
upon the issuance of the shares within the Estimated Price Range and assuming
that a portion of the net proceeds are retained by the Company.

THRIFT RECHARTERING

     Recently enacted legislation provides that the BIF (the deposit insurance
fund that covers most commercial bank deposits) and the SAIF will merge on
January 1, 1999 if there are no more savings associations as of that date.
Several bills have been introduced in the current Congress that would eliminate
the federal thrift charter and the OTS. A bill recently reported by the House
Banking Committee would require federal thrifts to become national banks or
state banks or savings banks within two years after enactment or they would, by
operation of law, become national banks. A national bank resulting from a
converted federal thrift could continue to engage in activities, including
holding any assets, in which it was lawfully engaged on the day before the date
of enactment. Branches operated on the day before enactment could be retained
regardless of their permissibility for national banks. Subject to a
grandfathering provision, all savings and loan holding companies would become
subject to the same regulation and activities restrictions as bank holding
companies. The grandfathering could be lost under certain circumstances, such as
a change in control of the holding company. The legislative proposal would also
abolish the OTS and transfer its functions to the federal bank regulators with
respect to the institutions and to the Board of Governors of the Federal Reserve
Board with respect to the regulation of holding companies. The Bank is unable to
predict whether the legislation will be enacted or, given such uncertainty,
determine the extent to which the legislation, if enacted, would affect its
business. The Bank is also unable to predict whether the SAIF and BIF will
eventually be merged.

PROMPT CORRECTIVE REGULATORY ACTION

     Under the OTS prompt corrective action regulations, the OTS is required to
take certain supervisory actions against undercapitalized institutions, the
severity of which depends upon the institution's degree of capitalization.
Generally, a savings institution that has a total risk-based capital of less
than 8.0% or a leverage ratio or a Tier 1 capital ratio that is less than 4.0%
is considered to be undercapitalized. A savings institution that has a total
risk-based capital less than 6.0%, a Tier 1 risk-based capital ratio of less
than 3.0% or a leverage ratio that is less than 3.0% is considered to be
"significantly undercapitalized" and a savings institution that has a tangible
capital to assets ratio equal to or less than 2.0% is deemed to be "critically

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undercapitalized." Subject to a narrow exception, the banking regulator is
required to appoint a receiver or conservator for an institution that is
critically undercapitalized. The regulation also provides that a capital
restoration plan must be filed with the OTS within 45 days of the date an
association receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." Compliance with the plan
must be guaranteed by any parent holding company. In addition, numerous
mandatory supervisory actions may become immediately applicable to the
institution depending upon its category, including, but not limited to,
increased monitoring by regulators, restrictions on growth, and capital
distributions and limitations on expansion. The OTS could also take any one of a
number of discretionary supervisory actions, including the issuance of a capital
directive and the replacement of senior executive officers and directors.

INSURANCE OF DEPOSIT ACCOUNTS

     The FDIC has adopted a risk-based insurance assessment system. The FDIC
assigns an institution to one of three capital categories based on the
institution's financial information, as of the reporting period ending seven
months before the assessment period. The capital categories are (1) well
capitalized, (2) adequately capitalized or (3) undercapitalized. An institution
is also placed in one of three supervisory subcategories within each capital
group. The supervisory subgroup to which an institution is assigned is based on
a supervisory evaluation provided to the FDIC by the institution's primary
federal regulator and information that the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds. An institution's assessment rate depends on the capital category and
supervisory category to which it is assigned with the most well capitalized,
healthy institutions receiving the lowest rates.

     Deposits of the Bank are presently insured by the SAIF. Both the SAIF and
the BIF are statutorily required to be recapitalized to a 1.25% of insured
reserve deposits ratio. Until recently, members of the SAIF and BIF were paying
average deposit insurance assessments of between 24 and 25 basis points. The BIF
met the required reserve in 1995, whereas the SAIF was not expected to meet or
exceed the required level until 2002 at the earliest. This situation was
primarily due to the statutory requirement that SAIF members make payments on
bonds issued in the late 1980s by the Financing Corporation ("FICO") to
recapitalize the predecessor to the SAIF.

     In view of the BIF's achieving the 1.25% ratio, the FDIC ultimately adopted
a new assessment rate schedule of from 0 to 27 basis points under which 92% of
BIF members paid an annual premium of only $2,000. With respect to SAIF member
institutions, the FDIC adopted a final rule retaining the previously existing
assessment rate schedule applicable to SAIF member institutions of 23 to 31
basis points. As long as the premium differential continued, it may have had
adverse consequences for SAIF members, including reduced earnings and an
impaired ability to raise funds in the capital markets. In addition, SAIF
members, such as the Bank, could have been placed at a substantial competitive
disadvantage to BIF members with respect to pricing of loans and deposits and
the ability to achieve lower operating costs.

     On September 30, 1996, the President of the United States signed into law
the Deposit Insurance Funds Act of 1996 (the "Funds Act") which, among other
things, imposed a special one-time assessment on SAIF member institutions,
including the Bank, to recapitalize the SAIF. As required by the Funds Act, the
FDIC imposed a special assessment of 65.7 basis points on SAIF assessable
deposits held as of March 31, 1995, payable November 27, 1996. The SAIF Special
Assessment was recognized by the Bank as an expense in the quarter ended
September 30, 1996 and was tax deductible. The SAIF Special Assessment recorded
by the Bank amounted to $5.2 million on a pre-tax basis and $3.3 million on an
after-tax basis.

     The Funds Act also spread the obligations for payment of the FICO bonds
across all SAIF and BIF members. Beginning on January 1, 1997, BIF deposits were
assessed for a FICO payment of 1.3 basis points, 

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<PAGE>
 
while SAIF deposits pay 6.48 basis points. Full pro rata sharing of the FICO
payments between BIF and SAIF members will occur on the earlier of January 1,
2000 or the date the BIF and SAIF are merged.

     As a result of the Funds Act, the FDIC voted to effectively lower SAIF
assessments to 0 to 27 basis points as of January 1, 1997, a range comparable to
that of BIF members. SAIF members will also continue to make the FICO payments
described above. The FDIC also lowered the SAIF assessment schedule for the
fourth quarter of 1996 to 18 to 27 basis points. Management cannot predict the
level of FDIC insurance assessments on an on-going basis, whether the federal
thrift charter will be eliminated or whether the BIF and SAIF will eventually be
merged.

     The Bank's assessment rate for the nine months ended September 30, 1997 was
6.48 basis points and the regular premium expense for this period was $285,000.

     The FDIC is authorized to raise the assessment rates in certain
circumstances. The FDIC has exercised this authority several times in the past
and may raise insurance premiums in the future. If such action is taken by the
FDIC, it could have an adverse effect on the earnings of the Bank.

     Under the FDI Act, insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.

FEDERAL HOME LOAN BANK SYSTEM

     The Bank is a member of the FHLB System, which consists of 12 regional
FHLBs. The FHLB provides a central credit facility primarily for member
institutions. The Bank, as a member of the FHLB, is required to acquire and hold
shares of capital stock in the FHLB in an amount at least equal to 1% of the
aggregate principal amount of its unpaid residential mortgage loans and similar
obligations at the beginning of each year, or 1/20 of its advances (borrowings)
from the FHLB, whichever is greater. The Bank was in compliance with this
requirement with an investment in FHLB stock at September 30, 1997 of $8.0
million. FHLB advances must be secured by specified types of collateral and all
long-term advances may only be obtained for the purpose of providing funds for
residential housing finance. At September 30, 1997, the Bank had $33.0 million
in FHLB advances and $38.2 million in repurchase agreements with the FHLB.

     The FHLBs are required to provide funds for the resolution of insolvent
thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest on
advances to their members. For the nine months ended September 30, 1997 and the
years ended December 31, 1996 and 1995, dividends from FHLB stock to the Bank
amounted to $382,000, $469,000 and $475,000, respectively. If dividends were
reduced, the Bank's net interest income would likely also be reduced. Further,
there can be no assurance that the impact of recent or future legislation on the
FHLBs will not also cause a decrease in the value of the FHLB stock held by the
Bank.

FEDERAL RESERVE SYSTEM

     The Federal Reserve Board regulations require savings institutions to
maintain noninterest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve Board
regulations generally require that reserves be maintained against aggregate
transaction accounts as follows: for accounts aggregating $47.8 million or less
(subject to adjustment by the Federal 

                                       86
<PAGE>
 
Reserve Board) the reserve requirement is 3%; and for accounts greater than
$47.8 million, the reserve requirement is $1.479 million (subject to adjustment
by the Federal Reserve Board between 8% and 14%) against that portion of total
transaction accounts in excess of $47.8 million. The first $4.7 million of
otherwise reservable balances (subject to adjustment by the Federal Reserve
Board) are exempted from the reserve requirements. The Bank is in compliance
with the foregoing requirements. Because required reserves must be maintained in
the form of either vault cash, a noninterest-bearing account at a Federal
Reserve Bank or a pass-through account as defined by the Federal Reserve Board,
the effect of this reserve requirement is to reduce the Bank's interest-earning
assets. FHLB System members are also authorized to borrow from the Federal
Reserve "discount window," but Federal Reserve Board regulations require
institutions to exhaust all FHLB sources before borrowing from a Federal Reserve
Bank.

NEW JERSEY LAW
     
     The Commissioner regulates, among other things, the Bank's internal
business procedures as well as its deposits, lending and investment activities.
The Commissioner must approve changes to the Bank's Certificate of
Incorporation, establishment or relocation of branch offices, mergers and the
issuance of additional stock. In addition, the Commissioner conducts periodic
examinations of the Bank. Certain of the areas regulated by the Commissioner are
not subject to similar regulation by the FDIC.

     Recent federal and state legislative developments have reduced distinctions
between commercial banks and SAIF-insured savings institutions in New Jersey
with respect to lending and investment authority, as well as interest rate
limitations. As federal law has expanded the authority of federally chartered
savings institutions to engage in activities previously reserved for commercial
banks, New Jersey legislation and regulations ("parity legislation") have given
New Jersey chartered savings institutions, such as the Bank, the powers of
federally chartered savings institutions.

     New Jersey law provides that, upon satisfaction of certain triggering
conditions, as determined by the Commissioner, insured institutions or savings
and loan holding companies located in a state which has reciprocal legislation
in effect on substantially the same terms and conditions as stated under New
Jersey law may acquire, or be acquired by, New Jersey insured institutions or
holding companies on either a regional or national basis. New Jersey law
explicitly prohibits interstate branching.

HOLDING COMPANY REGULATION

     The Company will be a non-diversified unitary savings and loan holding
company within the meaning of the HOLA. As such, the Company will be required to
register with the OTS and will be subject to OTS regulations, examinations,
supervision and reporting requirements. In addition, the OTS has enforcement
authority over the Company and its non-savings institution subsidiaries. Among
other things, this authority permits the OTS to restrict or prohibit activities
that are determined to be a serious risk to the subsidiary savings institution.
The Bank must notify the OTS 30 days before declaring any dividend to the
Company.

     As a unitary savings and loan holding company, the Company generally will
not be restricted under existing laws as to the types of business activities in
which it may engage, provided that the Bank continues to be a QTL. See "-
Federal Regulation of Savings Institutions - QTL Test" for a discussion of the
QTL requirements. Upon any non-supervisory acquisition by the Company of another
savings association, the Company would become a multiple savings and loan
holding company (if the acquired institution is held as a separate subsidiary)
and would be subject to extensive limitations on the types of business
activities in which it could engage. The HOLA limits the activities of a
multiple savings and loan holding company and its non-insured institution
subsidiaries primarily to activities permissible for bank holding companies
under 

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<PAGE>
 
Section 4(c)(8) of the Bank Holding Company ("BHC") Act, subject to the prior
approval of the OTS, and to other activities authorized by OTS regulation.
Recently proposed legislation would treat all savings and loan holding companies
as bank holding companies and limit the activities of such companies to those
permissible for bank holding companies. See "Risk Factors - Financial
Institution Regulation and Possible Legislation."

     The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5% of
the voting stock of another savings institution, or holding company thereof,
without prior written approval of the OTS; from acquiring or retaining, with
certain exceptions, more than 5% of a non-subsidiary holding company or savings
association. The HOLA also prohibits a savings and loan holding company from
acquiring more than 5% of a company engaged in activities other than those
authorized for savings and loan holding companies by the HOLA; or acquiring or
retaining control of a depository institution that is not insured by the FDIC.
In evaluating applications by holding companies to acquire savings institutions,
the OTS must consider the financial and managerial resources and future
prospects of the company and institution involved, the effect of the acquisition
on the risk to the insurance funds, the convenience and needs of the community
and competitive factors.

     The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, except: (i) the approval of interstate supervisory
acquisitions by savings and loan holding companies, and (ii) the acquisition of
a savings institution in another state if the laws of the state of the target
savings institution specifically permit such acquisitions. The states vary in
the extent to which they permit interstate savings and loan holding company
acquisitions.

FEDERAL SECURITIES LAWS

     The Company has filed with the SEC a registration statement under the
Securities Act of 1933, as amended ("Securities Act"), for the registration of
the Common Stock to be issued pursuant to the Conversion. Upon completion of the
Conversion, the Company's Common Stock will be registered with the SEC under the
Exchange Act. The Company will then be subject to the information, proxy
solicitation, insider trading restrictions and other requirements under the
Exchange Act.

     The registration under the Securities Act of shares of the Common Stock to
be issued in the Conversion does not cover the resale of such shares. Shares of
the Common Stock purchased by persons who are not affiliates of the Company may
be resold without registration. Shares purchased by an affiliate of the Company
will be subject to the resale restrictions of Rule 144 under the Securities Act.
If the Company meets the current public information requirements of Rule 144
under the Securities Act, each affiliate of the Company who complies with the
other conditions of Rule 144 (including those that require the affiliate's sale
to be aggregated with those of certain other persons) would be able to sell in
the public market, without registration, a number of shares not to exceed, in
any three-month period, the greater of (i) 1% of the outstanding shares of the
Company or (ii) the average weekly volume of trading in such shares during the
preceding four calendar weeks. Provision may be made in the future by the
Company to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances.

                           MANAGEMENT OF THE COMPANY

     The Board of Directors of the Company is divided into three classes, each
of which contains approximately one-third of the Board. The directors shall be
elected by the stockholders of the Company for staggered three year terms, or
until their successors are elected and qualified. One class of directors,
consisting of Messrs. Mulkerin, Shein and Burke has a term of office expiring at
the first annual meeting of

                                       88
<PAGE>
 
stockholders, a second class, consisting of Mr. Timpson and Dr. Akey, has a term
of office expiring at the second annual meeting of stockholders, and a third
class, consisting of Messrs. Martin, McLaughlin and Ruegger has a term of office
expiring at the third annual meeting of stockholders. Their names and
biographical information are set forth under "Management of the Bank -
Directors." The Company will hold its first annual meeting of stockholders prior
to consummation of the Conversion and Reorganization. The Company's first annual
meeting of public stockholders is expected to occur in April 1999.

     The following individuals are the executive officers of the Company and
hold the offices set forth below opposite their names.

<TABLE>
<CAPTION>
           NAME                       POSITIONS HELD WITH COMPANY
--------------------------         ---------------------------------
<S>                                <C> 
John P. Mulkerin                   President and Chief Executive Officer of the
                                   Bank and Company, General Counsel
Christopher P. Martin              Executive Vice President, Chief Operating
                                   and Financial Officer, Corporate Secretary
</TABLE> 
                                 

     The executive officers of the Company are elected annually and hold office
until their respective successors have been elected and qualified or until
death, resignation or removal at the discretion of the Board of Directors.

     Since the formation of the Company, none of the executive officers,
directors or other personnel of the Company has received remuneration from the
Company. Information concerning the principal occupations, employment and other
information concerning the directors and officers of the Company during the past
five years is set forth under "Management of the Bank -Biographical
Information."

                            MANAGEMENT OF THE BANK
     DIRECTORS

     The following table sets forth certain information regarding the Board of
Directors of the Bank.

<TABLE>
<CAPTION>
                                          POSITION(S) HELD WITH THE                      DIRECTOR         TERM
        NAME               AGE(1)                  BANK(2)                                SINCE         EXPIRES
-----------------------    ---------   --------------------------------------------    ----------    ------------
<S>                        <C>         <C>                                             <C>           <C>
Walter K. Timpson            75        Chairman of the Board                              1964            2000
Donald T. Akey, M.D.         75        Director                                           1979            2000
Harry F. Burke               90        Director                                           1970            1999
Keith H. McLaughlin          61        Director                                           1983            1999
John P. Mulkerin             60        President, Chief Executive Officer, General
                                       Counsel and Director                               1996            1998
Philip T. Ruegger, Jr.       70        Director                                           1983            2000
Jeffries Shein               57        Director                                           1985            1998
Christopher P.  Martin       40        Executive Vice President, Chief Financial
                                       and Operating Officer, Corporate Secretary
                                       and Director                                       1997            1998
</TABLE> 
         
__________________                             
(1)  As of September 30, 1997.
(2)  All directors of the Bank are also directors of the Company.

                                       89
<PAGE>
 
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

     The following table sets forth certain information regarding the executive
officers of the Bank who are not also directors.

<TABLE>
<CAPTION>
          NAME                  AGE(1)                POSITION(S) HELD WITH THE BANK
---------------------------    -------       ------------------------------------------------
<S>                            <C>           <C>
John F. Cerulo, Jr.               46         Senior Vice President/Retail Banking
Karen I. Martino                  38         Senior Vice President/Audit and Compliance
Richard Spengler                  36         Senior Vice President/Chief Lending Officer
</TABLE>

______________
(1)  As of September 30, 1997.

     Each of the executive officers of the Bank will retain his office in the
Bank until their re-election at the annual meeting of the Board of Directors of
the Bank, held immediately after the first annual meeting of stockholders
subsequent to the Conversion, and until their successors are elected and
qualified or until they are removed or replaced. Officers are subject to re-
election by the Board of Directors annually.

BIOGRAPHICAL INFORMATION

     DIRECTORS

     John P. Mulkerin was named President and Chief Executive Officer and a
member of the Board of Directors of the Bank in June 1996, following the death
of Joseph S. Yewaisis. Mr. Mulkerin joined the Bank in 1987 as Executive Vice
President, Chief Operating Officer and Corporate Secretary. He was named General
Counsel of the Bank in 1993. Mr. Mulkerin also serves as President and Chief
Executive Officer of the Company and is a director of FSB Financial Corp., a
wholly-owned subsidiary of the Bank. Mr. Mulkerin is also a member of the Board
of Directors of Middlesex Water Company, Raritan Bay Medical Center and Daytop
Village Foundation, headquartered in New York.

     Christopher P. Martin is the Executive Vice President, Chief Financial and
Operating Officer and Corporate Secretary. He joined the Bank in 1984 and served
as Controller of the Bank until 1989, when he was named Senior Vice President
and Chief Financial Officer. He was named Executive Vice President in 1994. Mr.
Martin is also the Executive Vice President and Chief Financial Officer of the
Company and he serves as Treasurer and a director of FSB Financial Corp.

     Donald T. Akey, M.D. joined the Board of First Savings in 1979. Dr. Akey is
a surgeon who had practiced in Metuchen, New Jersey, for over forty years. Dr.
Akey retired from active practice in 1993.

     Harry F. Burke joined the Board of First Savings in 1970. Mr. Burke owned
and operated a general insurance agency in Woodbridge, New Jersey prior to the
sale of said business in 1980.

     Keith H. McLaughlin joined the Board of First Savings in 1983. He is the
President and Chief Executive Officer of Raritan Bay Medical Center, which
operates acute care hospitals in Perth Amboy and Old Bridge, New Jersey. Mr.
McLaughlin also serves as a director of the Princeton Insurance Company.

     Philip T. Ruegger, Jr. joined the Board of First Savings in 1983. Mr.
Ruegger is now an investor. Previously, he was President of Northwest
Construction Co., a real estate construction and management firm. Mr. Ruegger
served as director of the National Bank of New Jersey, a commercial bank, from
1968 through 1981.

                                       90
<PAGE>
 
     Jeffries Shein joined the Board of First Savings in 1985. He is a partner
with Jacobson, Goldfarb and Tanzman Associates, L.L.C., a commercial real estate
brokerage firm. Mr. Shein serves on the Board of Directors of Middlesex Water
Co. and is Chairman of the Board of Raritan Bay Medical Center.

     Walter K. Timpson was appointed Chairman of the Board of Directors in June
1996, following the death of Mr. Joseph S. Yewaisis. Mr. Timpson has operated a
real estate appraisal firm in Metuchen, New Jersey, for over forty years.

     Each director named above is also a director of the Company.

     EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

     John F. Cerulo, Jr. joined the Bank in 1988 as Senior Vice President -
Retail Banking. Prior to First Savings, Mr. Cerulo worked for another savings
institution for 16 years as a Branch Administrator.

     Karen I. Martino joined the Bank in 1984. She is now Senior Vice President
and Auditor, a position she has held since 1990.

     Richard Spengler joined the Bank in 1983. He was appointed Assistant Vice
President in 1990, and Vice President of Mortgage Operations in 1991. In January
1995, Mr. Spengler was named Senior Vice President - Chief Lending Officer.
 
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS OF THE BANK AND COMPANY

     The business of the Bank's Board of Directors is conducted through meetings
and activities of the Board and its committees. During the nine months ended as
of September 30, 1997, the Board of Directors held 10 regular meetings,
including the annual organization meeting, and five special meetings. During the
nine months ended September 30, 1997, no director attended fewer than 75% of the
total meetings of the Board of Directors of the Bank and committees on which
such director served.

     The Audit Committee consists of Directors Akey (Chairman), Burke,
McLaughlin, Ruegger and Timpson. The Audit Committee met four times during the
nine months ended September 30, 1997. The Audit Committee reviews audit programs
and results of audits of compliance, departmental internal controls and
operating procedures.

     The Nominating Committee consists of the entire Board of Directors except
those directors standing for election. The Nominating Committee meets annually
to select the nominees for the Board of Directors. The Board of Directors met
once in its capacity as a nominating committee during the nine months ended
September 30, 1997.

     The Compensation Committee consists of Directors Timpson (Chairman),
McLaughlin, Ruegger and Shein. The Compensation Committee meets at least
annually to review the performance and remuneration of the officers and
employees of the Bank. The committee reviews and approves all compensation
programs to be implemented by the Bank. The Compensation Committee met twice in
its capacity as a compensation committee during the nine months ended September
30, 1997.

                                       91
<PAGE>
 
DIRECTOR COMPENSATION

     Nonemployee directors receive $750 for each Board of Directors meeting
attended, plus a $1,750 monthly retainer. Nonemployee directors serving on the
committees are paid $300 for each meeting attended.

     DIRECTORS' DEFERRED FEE PLAN. Directors may elect to defer all or part of
their fees under the Agreement for Deferment of Directors' Fees (the "Deferral
Fee Agreement"). The fees so deferred are recorded on the books of the Bank as a
liability in the year the fees are earned; however, the Bank does not
specifically fund the amount so deferred. The Bank pays the deferred fees to the
directors not earlier than the time they cease to be a director, retirement or
when they attain age 65 (or some other age specifically elected by the
director), unless the Bank determines it serves its best interests or the best
interests of the director to disburse these funds at an earlier date.

     The Bank also maintains the First Savings Bank, SLA Directors' Deferred Fee
Stock Unit Plan (the "Deferred Fee Stock Unit Plan"). During the Bank's 1992 and
1995 stock offerings, Directors who had deferred fees under the Deferred Fee
Agreement had the opportunity to elect to defer the fees under the Deferred Fee
Stock Unit Plan. Each Director who elected to participate in the Deferred Fee
Stock Unit Plan had his deferred fees credited with a number of shares of Common
Stock based on the fair market value of the stock. Messrs. Burke, McLaughlin,
Martin, Ruegger, Shein and Timpson currently participate in the Plan. It is
expected that Directors will again be able to defer fees previously earned into
the Deferred Fee Stock Unit Plan in connection with the Offerings.

     RETIREMENT PLAN. First Savings also maintains a nonqualified, unfunded
retirement plan for directors who are not employees, have served as a director
for five (5) years, and who retire from the Board of Directors within the time
specified under the Retirement Plan. Benefits, in general, are equal either to
all or a portion of the current annual retainer received by Board members,
depending upon the director's age and length of service at retirement. Benefits
are paid monthly, commencing in the month following the director's retirement
from the Board and ending in the month following the director's death.

     STOCK OPTION PLAN FOR OUTSIDE DIRECTORS. During 1992, the Board of
Directors adopted the First Savings Bank, SLA 1992 Stock Option Plan for Outside
Directors (the "Directors' Stock Option Plan") of the Bank and its affiliates.
Under the terms of the Director's Stock Option Plan, 100,399 shares of the
Common Stock have been reserved for issuance to current directors who are not
employees of the Bank. The Directors' Stock Option Plan is a self administering
plan and provides that each member of the Board of Directors of the Bank who is
not an officer or employee of the Bank or the Mutual Holding Company will be
granted non-statutory stock options to purchase 16,733 shares of the Common
Stock (based on adjustments for four 10% stock dividends and a two-for-one stock
split). All stock options granted under this plan are currently exercisable at
an exercise price of $3.413 per share, as adjusted the four stock dividends and
the stock split. As of September 30, 1997, 33,466 options had been exercised
under this plan.

     INCENTIVE PLAN. During 1995, the Board of Directors adopted the First
Savings Bank, SLA 1996 Omnibus Incentive Plan for directors, officers and
certain employees of the Bank and its affiliates. Under the terms of the
Incentive Plan, 21,780 shares of the Common stock have been reserved for
issuance to current directors who are not employees of the Bank. The portion of
the Incentive Plan granting awards to directors is self administering and
provides that each member of the Board of Directors who is not an officer or
employee of the Bank or the Holding Company will be granted non-statutory
options to purchase 3,630 shares of the Bank's Common Stock at an exercise price
of $13.02 per share. Stock options granted under this plan vest in equal
installments over a three-year period from the date of issuance.

                                       92
<PAGE>
 
EXECUTIVE COMPENSATION

     Summary Compensation Table. The following table sets forth certain
information as to the total remuneration paid by the Bank to the Chief Executive
Officer and other executive officers who received salary and bonuses in excess
of $100,000 during the year ended December 31, 1996 ("Named Executive
Officers"). In addition, the table sets forth information regarding total
remuneration for the years ended December 31, 1996, 1995 and 1994.

<TABLE>
<CAPTION> 
------------------------------------------------------------------------------------------------------------------------------------

                                                                                          LONG-TERM COMPENSATION
                                                                             -------------------------------------------------------

                                                ANNUAL COMPENSATION(1)                    AWARDS           PAYOUTS
                                          ------------------------------------------------------------------------------------------

                                                                    OTHER                     SECURITIES      
                                                                    ANNUAL      RESTRICTED    UNDERLYING    LTIP       ALL OTHER
                                           SALARY                COMPENSATION  STOCK AWARDS  OPTIONS/SARS  PAYOUTS    COMPENSATION
NAME AND PRINCIPAL POSITIONS        YEAR   (1)(2)      BONUS(3)       (4)          (5)           (6)         (7)         (8)(9)
------------------------------------------------------------------------------------------------------------------------------------

<S>                                 <C>   <C>          <C>       <C>           <C>           <C>           <C>        <C>    
Joseph S. Yewaisis(10)              1996  $185,770      $  --       $    --      $    --            --     $    --        $17,742
  Chairman of the Board,            1995   330,000       99,000          --           --            --          --         17,122
  President and Chief Executive     1994   315,000       94,500          --           --            --          --         14,615
  Officer
 
John P. Mulkerin (11)               1996   202,250       67,500          --       66,138        13,915          --         19,813
  President, Chief Executive        1995   152,000       30,400          --           --            --          --         17,062
  Officer and General Counsel       1994   145,000       29,000          --           --            --          --         14,128
 
Christopher P. Martin(12)           1996   160,460       54,000          --       66,138        13,915          --         18,905
  Executive Vice President, Chief   1995   125,000       25,000          --           --            --          --         14,168
  Financial Officer, Chief          1994   110,000       22,000          --           --            --          --         10,718
  Operating Officer and Corporate 
  Secretary
 
Richard Spengler                    1996   100,000       15,000          --       17,875         2,420          --         13,042
  Senior Vice President, Lending    1995    74,480       11,250          --           --            --          --          7,995
                                    1994    63,000        7,875          --           --            --          --          6,020
</TABLE> 

_________________________
(1)    Includes directors' fees paid to Mr. Mulkerin in 1996.
(2)    Includes amounts of salary deferred pursuant to the Bank's Incentive
       Savings Plan for Employees of First Savings Bank, SLA 401(k).
(3)    Includes bonuses granted pursuant to the Bank's Annual Incentive Plan.
       Under this plan, bonuses are awarded by the Compensation Committee of the
       Board of Directors based upon achieving certain predetermined profit
       levels and other identifiable goals.  See "Compensation Committee
       Report."
(4)    The Bank provides certain executive officers with the use an automobile,
       club dues and certain other benefits, which, in the aggregate, do not
       exceed the lesser of either $50,000, or 10% of the total annual salary
       and bonus reported for any of the named executive officers.
(5)    Pursuant to the 1996 Incentive Plan, Messrs. Mulkerin, Martin and
       Spengler were awarded 4,477 shares, 4,477 shares and 1,210 shares of
       Common stock, respectively, in November 1996, as adjusted for a 10% stock
       dividend paid on October 30, 1997, which had a market value of $75,300,
       $75,300 and $19,600, respectively, at December 31, 1996.  The dollar
       amounts set forth in the table represent the market value of the shares
       awarded on the date of grant.  A committee of non-employee directors
       determines the date on which plan share awards vest.  Pursuant to the
       award agreements, the awards will vest over a three-year period from the
       date of grant.
(6)    The Bank maintains the 1992 Incentive Stock Option Plan for the benefit
       of officers and employees.  All options granted pursuant to the 1992
       Incentive Stock Option Plan became exercisable as of July 10, 1993.  The
       Bank also maintains the 1996 Incentive Plan for the benefit of officers
       and directors.  Messrs. Mulkerin, Martin and Spengler were awarded 13,915
       shares, 13,915 shares and 2,420 shares subject to options, respectively,
       under the 1996 Incentive Plan, as adjusted for a 10% stock dividend paid
       on October 30, 1997.  Options granted become exercisable in equal
       installments at an annual rate of 33-1/3% beginning November 19, 1997.
(7)    For 1996, 1995 and 1994, the Bank had no long-term incentive plan;
       accordingly, there were no payouts or awards under any long-term
       incentive plan.
(8)    Includes $4,950, $3,847 and $3,000 contributed by the Bank in 1996 to the
       accounts of Messrs. Mulkerin, Martin and Spengler, respectively, under
       the Incentive Savings Plan for Employees of First Savings Bank, SLA
       401(k).
(9)    Includes $15,063, $15,063 and $10,042, contributed by the Bank pursuant
       to the Bank's Employee Stock Ownership Plan ("ESOP") in 1997 allocated
       for the benefit of Messrs. Mulkerin, Martin and Spengler.
(10)   Mr. Yewaisis passed away on May 29, 1996.
(11)   Mr. Mulkerin was appointed to the positions of President and Chief
       Executive Officer on June 12, 1996.
(12)   Mr. Martin was appointed to the added positions of Chief Operating
       Officer and Corporate Secretary on June 12, 1996.

                                       93
<PAGE>
 
     1996 Incentive Plan. On April 24, 1996, the Bank's stockholders approved
the First Savings Bank, SLA 1996 Omnibus Incentive Plan under which all
employees of the Bank are eligible to receive awards. The 1996 Incentive Plan
provides discretionary awards to officers and key employees, as determined by a
committee of non-employee directors. Stock options were awarded to officers
under the 1996 Incentive Plan on November 19, 1996. The following table lists
all grants of stock options under the Incentive Plan to the Named Executive
Officers for fiscal 1996 and contains certain information about the potential
value of those options based upon certain assumptions regarding the appreciation
of the Bank's stock over the life of the stock option.

                       OPTIONS GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                                                        POTENTIAL REALIZABLE
                                                                                           VALUE AT ASSUMED
                                                                                        ANNUAL RATES OF STOCK
                                                                                          PRICE APPRECIATION
                                 INDIVIDUAL GRANTS                                          FOR OPTIONS(1)
--------------------------------------------------------------------------------------  ---------------------
                            NUMBER OF                                                                               
                            SECURITIES      % OF TOTAL                                                              
                            UNDERLYING      OPTION/SARS                                                             
                           OPTIONS/SARS      GRANTED TO      EXERCISE OR                                            
                             GRANTED        EMPLOYEES IN      BASE PRICE    EXPIRATION                              
       NAME                (2)(3)(4)(5)     FISCAL YEAR       PER SHARE       DATE(6)       5%         10%             
------------------------  --------------  ---------------  --------------  -----------  ----------  ---------
<S>                       <C>             <C>              <C>             <C>          <C>         <C> 
John P. Mulkerin             13,915             21.1%          $14.773       11/19/06    $129,504    $326,844     
Christopher P. Martin        13,915             21.1            14.773       11/19/06     129,504     326,844     
Richard Spengler              2,420              3.7            14.773       11/19/06      22,523      56,843      
</TABLE>

__________________________
(1)  The amounts represent certain assumed rates of appreciation. Actual gains,
     if any, on stock exercises and Common Stock holdings are dependent on the
     future performance of the Common Stock and overall stock market conditions.
     There can be no assurance that the amounts reflected in this table will be
     realized. All stock options and their respective prices reflect the 10%
     stock dividend paid on October 30, 1997.
(2)  Options granted pursuant to the Incentive Plan become exercisable in equal
     installments at an annual rate of 33 1/3% beginning on November 19, 1997.
(3)  The purchase price may be paid in cash or in Common Stock.
(4)  Under limited circumstances, such as death or disability of an employee,
     the employee (or his beneficiary) may request that the Bank, in exchange
     for the employee's surrender of an option, pay to the employee (or
     beneficiary) the amount by which the fair market value of the Common Stock
     exceeds the exercise price of the option on the date of the employee's
     termination of employment. It is within the Bank's discretion to accept or
     reject such a request.
(5)  To the extent possible, options will be treated as incentive options.
(6)  The option term is ten years.

                                       94
<PAGE>
 
     The following table provides certain information with respect to the number
of shares of Common Stock acquired upon exercise of stock options and the value
realized thereon. Also reported is the number of shares of Common Stock
represented by outstanding stock options at December 31, 1996, held by named
executive officers and the values for "in-the-money" options which represent the
positive spread between the exercise price of any existing stock option and the
year-end price of the Common Stock.

                       FISCAL YEAR-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
 
                                     NUMBER OF SECURITIES          VALUE OF UNEXERCISED IN-THE-
                                    UNDERLYING UNEXERCISED              MONEY OPTIONS AT                     
                                    OPTIONS AT DECEMBER 31,          DECEMBER 31, 1996 (1)(2)                      
                                            1996(1)                                    
                              --------------------------------    --------------------------------
 
           NAME                EXERCISABLE      UNEXERCISABLE      EXERCISABLE      UNEXERCISABLE
--------------------------    -------------    ---------------    -------------    ---------------
<S>                           <C>              <C>                <C>              <C> 
John P. Mulkerin..........          2,130             13,915         $ 28,540            $28,460
                                                                                                
Christopher P. Martin.....          8,785             13,915          117,740             28,460
                                                                                                
Richard Spengler..........             --              2,420               --              4,950 
</TABLE>

     ___________________________
     (1)  All options granted under the 1992 Incentive Stock Option Plan were
          issued on July 10, 1992, and exercisable on July 10, 1993, at an
          option price of $3.413 per share. All options granted under the 1996
          Incentive Plan were issued on November 19, 1996, at an option price of
          $14.773 per share. Options granted to Messrs. Mulkerin and Martin are
          exercisable at the rate of 4,638 shares per year commencing on
          November 19, 1997. Options granted to Mr. Spengler are exercisable at
          the rate of 807 shares per year commencing on November 19, 1997. All
          options will immediately vest upon a change in control.
     (2)  The market value of the Common Stock at December 31, 1996, was $18.50
          per share.


     The 1996 Incentive Plan was implemented by the Bank and the Mutual Holding
Company as a means of providing employees and outside directors, respectively,
of the Bank and the Mutual Holding Company with a proprietary interest in the
Bank in a manner designed to encourage such persons to remain with the Bank and
the Company. In November 1996, the 1996 Incentive Plan acquired 18,000 shares of
Bank Common Stock from authorized but unissued shares (21,780 shares as adjusted
for two 10% stock dividends).

     A Committee of the Board of Directors of the Bank and the Company comprised
of nonemployee directors administers the 1996 Incentive Plan, and makes awards
to executive officers pursuant to the Plan. Awards under the 1996 Incentive Plan
become immediately vested in the event of death, disability, retirement or a
change in control of the Bank or its successors.

     Officers, directors and employees of the Bank were awarded a total of
18,000 shares of Bank Common Stock during the year ended December 31, 1996
(21,780 as adjusted for two 10% stock dividends paid on October 30, 1997). Of
the total, 21,780 shares of Bank Common Stock acquired by the 1996 Incentive
Plan, 14,524 shares were unallocated at November 30, 1997. At the completion of
the Conversion and Reorganization, the unallocated shares will be converted into
shares of Company Common Stock in accordance with the applicable Exchange Ratio
and will be available for grants to participants in the 1996 Incentive Plan.

                                       95
<PAGE>
 
     Adoption of Existing Bank Plans by Company. The Company has approved
adoption of the Bank's existing 1992 Stock Option Plans and 1996 Incentive Plan
(collectively the "Plans") as plans of the Company upon consummation of the
Conversion and Reorganization and will issue Common Stock in lieu of Bank Common
Stock to such Plans pursuant to the terms of such Plans. As of the effective
date of the Conversion and Reorganization, rights outstanding under the Plans
shall be assumed by the Company and thereafter shall be rights only for shares
of Company Common Stock, with each such right being for a number of shares of
Common Stock equal to the number of shares of Bank Common Stock that were
available thereunder immediately prior to such effective date times the Exchange
Ratio, and the price of each such right shall be adjusted to reflect the
Exchange Ratio and so that the aggregate purchase price of the right is
unaffected, but with no change in other terms or conditions of such right. The
Company shall make appropriate amendments to the Plans to reflect the adoption
of the Plans by the Company without adverse effect upon the rights outstanding
thereunder. In addition, the Bank's Incentive Savings Plan for Employees of
First Savings Bank, SLA (the "401(k) Plan"), will be amended to permit
participants to invest in the Common Stock of the Company. Currently, the 401(k)
Plan has an employer stock fund which enables participants to invest in Bank
Common Stock.

EMPLOYMENT AGREEMENTS

     The Mutual Holding Company and the Bank currently have employment
agreements with Messrs. Mulkerin and Martin. Effective upon the Conversion and
Reorganization, the Company intends to enter into employment agreements
(collectively, the "Employment Agreements") with Messrs. Mulkerin and Martin
(the "Executives"). The Bank's contracts will remain in effect. The Employment
Agreements are subject to the review and approval of the Company, and the review
of the OTS and may be amended as a result of such review. Review of the
compensation arrangements by the OTS does not indicate, and should not be
construed to indicate that the OTS has passed upon the merits thereof. The
Employment Agreements are intended to ensure that the Bank and the Company will
be able to maintain a stable and competent management base after the Conversion
and Reorganization. The continued success of the Bank and the Company depends to
a significant degree on the skills and competence of Messrs. Mulkerin and
Martin.

     The proposed Employment Agreements are expected to provide for a three-year
term for the Executives. The Bank's Employment Agreements provide that,
commencing on the first anniversary date and continuing each anniversary date
thereafter, the Board of Directors of the Bank reviews the agreements and the
Executive's performance for purposes of determining whether to extend the
agreements with the Bank for an additional year such that the remaining terms
would be the amount of the original terms. It is expected that the Company
Employment Agreement would automatically extend daily, such that the remaining
terms would be the amount of the original term unless written notice of non-
renewal is given by the Board of Directors of the Company after conducting a
performance evaluation of the executive. The base annual salary which will be
effective for the Employment Agreement for Messrs. Mulkerin and Martin will be
$260,000 and $210,000, respectively. In addition to the base salary, the
proposed Employment Agreements would provide for, among other things,
participation in stock benefit plans and other fringe benefits applicable to
executive personnel. The Employment Agreements provide for termination by the
Bank or the Company for "cause," as defined in the agreements, at any time. In
the event the Bank or the Company would choose to terminate the Executive's
employment for reasons other than for "cause," or in the event of the
Executive's resignation from the Bank and the Company upon: (i) failure to re-
elect the Executive to his current offices; (ii) a material change in the
Executive's functions, duties or responsibilities; (iii) a relocation of the
Executive's principal place of employment by more than 25 miles; (iv)
liquidation or dissolution of the Bank or the Company; or (v) a breach of the
agreement by the Bank or the Company, the Executive or, in the event of death,
his beneficiary, would be entitled to receive the remaining base salary payments
due to the Executive and the contributions that would have been made on the
Executive's behalf to any employee benefit plans of the Bank or the Company
during the remaining term of the agreement. The Bank and the 

                                       96
<PAGE>
 
Company would also continue and pay for the Executive's life, health and
disability coverage for the remaining term of the Employment Agreements.

     Under the current and proposed Employment Agreements, if voluntary or
involuntary termination follows a "change in control" of the Bank or the
Company, as defined in the proposed Employment Agreements, the Executive or, in
the event of death, his beneficiary, would be entitled to a payment equal to the
greater of: (1) the payments due for the remaining term of the agreement; or (2)
a severance payment equal to three times the average of the five preceding
taxable years' compensation, in the case of the Company's proposed Employment
Agreement, and three times the average of the three preceding taxable years'
compensation in the case of the Bank's existing Employment Agreements. It is
also expected that the Company, like the Bank, would also continue the
Executive's life, health, and disability coverage for 36 months. Notwithstanding
that both agreements would provide for a severance payment in the event of a
change in control, the Executive would only be entitled to receive a severance
payment under one agreement.

     Payments to the Executives under the Bank's proposed Employment Agreements
are expected to be guaranteed by the Company in the event that payments or
benefits are not paid by the Bank. Payment under the Company's Employment
Agreements would be made by the Company. All reasonable costs and legal fees
paid or incurred by the Executive pursuant to any dispute or question of
interpretation relating to the Employment Agreements would be paid by the Bank
or Company, respectively, if the Executive is successful on the merits pursuant
to a legal judgment, arbitration or settlement. The Bank's Employment Agreement
provides, and it is expected that the Company's Employment Agreement would
provide, that the Bank and Company indemnify the Executive to the fullest extent
allowable under federal and Delaware law, respectively. In the event of a
"change in control" of the Bank or Company, the total amount of payments that
would be due under the Employment Agreements, based solely on cash compensation
paid to Messrs. Mulkerin and Martin in the past fiscal year and excluding any
benefits under any employee benefit plan which may be payable, would be
approximately $709,000 and $567,000, respectively.

CHANGE IN CONTROL AGREEMENTS

     Effective upon the Conversion and Reorganization, the Bank and the Company
intend to enter into Change in Control Agreements ("CIC Agreements") with
__________________. Such agreements will have terms ranging from one to three
years. The proposed CIC Agreements are expected to provide that commencing on
the first anniversary date and continuing on each anniversary thereafter, the
Bank's CIC Agreements may be renewed by the Board of Directors for an additional
year while the term of the Company's CIC Agreements shall be extended on a daily
basis unless written notice of non-renewal is given by the Board of Directors of
the Company. It is also expected that the CIC Agreements with the Company will
provide that in the event voluntary or involuntary termination follows a change
in control of the Bank or the Company, the officer would be entitled to receive
a severance payment equal to one to three times the officer's average annual
compensation for the five years preceding termination, depending on the term of
the officers' CIC Agreement. It is also expected that the Bank's CIC Agreement
would have a similar change in control provision; however, the officer would
only be entitled to receive a severance payment under one agreement. The Company
and the Bank would also continue, and pay for, the officer's life, health and
disability coverage for 12 to 36 months following termination. Payments to the
officer under the Bank's CIC Agreements would be guaranteed by the Company in
the event that payments or benefits are not paid by the Bank. In the event of a
change in control of the Bank or Company, the total payments that would be due
under the CIC Agreements, based solely on the cash compensation paid to the
officers covered by the CIC Agreements over the past three fiscal years and
excluding any benefits under any employee benefit plan which may be payable,
would be approximately $___ million.

                                       97
<PAGE>
 
EMPLOYEE SEVERANCE COMPENSATION PLAN

     It is anticipated that the Bank's Board of Directors will, subsequent to
the Conversion and Reorganization, establish the First Savings Bank, SLA
Employee Severance Compensation Plan ("Severance Plan") which would provide
eligible employees with severance pay benefits in the event of a change in
control of the Bank or the Company following Conversion and Reorganization.
Management personnel with employment or CIC Agreements would not be eligible to
participate in the Severance Plan. Generally, all employees would be eligible to
participate in the Severance Plan. It is expected that under the Severance Plan,
in the event of a change in control of the Bank or the Company, eligible
employees who are terminated from or terminate their employment within one year
of the change in control (for reasons specified under the Severance Plan), would
be entitled to receive a severance payment. The participant would be entitled to
a cash severance payment equal to one-twelfth of then-current annual
compensation for each year of service up to a maximum of 100% of annual
compensation. Such payments may tend to discourage takeover attempts by
increasing costs to be incurred by the Bank in the event of a takeover. In the
event the provisions of the Severance Plan were triggered, the total amount of
payments that would be due thereunder, based solely upon salary levels at
December 31, 1996, would be approximately $___ million.

BENEFITS

     Pension Plan. On January 1, 1993, the Bank became a participant in the
Financial Institutions Retirement Fund, a multiple-employer defined benefit
plan. All employees who attain the age of 21 years and complete one year of
service are eligible to participate in this Plan. Retirement benefits are based
upon a formula utilizing years of service and average compensation. Participants
are vested 100% upon the completion of five years of service.

     Financial Institutions Retirement Fund does not segregate its assets,
liabilities or costs by participating employer. Therefore, disclosure of the
accumulated benefit obligations, plan assets and the components of annual
pension expense attributable to the Bank cannot be ascertained.

     First Savings is required to make an annual contribution to the plan based
upon the actuarial estimated provided by the actuary. During the nine months
ended September 30, 1997, this amounted to $143,000, which includes past
conversion costs from prior plan year revaluations.

                                       98
<PAGE>
 
     The following table illustrates annual pension benefits at age 65 under the
most advantageous plan provisions available at various levels of compensation
and years of service. The benefits listed in the table are not subject to a
deduction for Social Security or any other offset amount.

<TABLE>
<CAPTION>
                                         YEARS OF SERVICE                
                          ---------------------------------------------- 
                                                                         
             AVERAGE          10         15         20       25 AND OVER  
          --------------  ---------  ---------  ----------   -----------  
          <S>             <C>        <C>        <C>          <C>          
          $ 20,000......   $ 4,000    $ 6,000    $  8,000     $ 10,000    
          $ 30,000......     6,000      9,000      12,000       15,000    
          $ 50,000......    10,000     15,000      20,000       25,000    
          $ 75,000......    15,000     22,500      30,000       37,500    
          $100,000......    20,000     30,000      40,000       50,000    
          $150,000......    30,000     45,000      60,000       75,000    
          $200,000......    40,000     60,000      80,000      100,000    
          $300,000 and                                                    
          over(1).......    60,000     90,000     130,000(2)   130,000(2) 
</TABLE>

________________
(1)  Under current law, the average final compensation for computing benefits
     under the Pension Plan cannot exceed $160,000 (indexed for inflation).
     However, benefits are not reduced below the level of benefits accrued as of
     December 31, 1992.
(2)  Under current law, the maximum benefit is limited to $130,000 per year
     beginning in 1998.
(3)  The compensation utilized for formula purposes include salary amounts
     listed under "Summary Compensation Table."


     The following table sets forth the years of credited service as of December
31, 1996, for each of the individuals named in the Executive Compensation Table.

<TABLE>
<CAPTION>
                                            YEARS OF CREDITED
                                                 SERVICE 
                                           -------------------
               <S>                         <C>                
               John P. Mulkerin                      9
               Christopher P. Martin                13
               Richard Spengler                     14 
</TABLE>

     Supplemental Executive Retirement Plan. Effective as of January 1, 1994,
the Board of Directors revised a previously existing plan entitled the
Retirement Benefit Maintenance Plan (the "Maintenance Plan") and restated it as
the First Savings Bank, SLA Supplemental Executive Retirement Plan ("SERP"). The
SERP provides a post-employment supplemental retirement benefit for participants
who retire on or after their "Normal Retirement Age" (age 65) equal to (i)
seventy-five percent (75%) of the participant's base salary during the twelve
months prior to retirement, (ii) less the amount of the participant's "Pension
Plan Annual Benefit" and "Primary Social Security Benefit," as defined in the
plan. The plan allows for benefits, reduced according to actuarial
considerations, for early retirement. The SERP is not a tax-qualified employee
benefit plan. Pursuant to the SERP, the estimated additional annual benefits
payable upon retirement at normal retirement age for Messrs. Mulkerin and Martin
are $107,600 and $47,900, respectively.

                                       99
<PAGE>
 
     The Bank intends to implement an additional supplemental executive
retirement plan to provide for supplemental benefits to certain employees whose
benefits under the ESOP and/or 401(k) Plan are reduced by limitations imposed by
the Code. From time to time, the Board will designate which employees may
participate in this additional supplemental executive retirement plan. This
supplemental executive retirement plan will also be an "unfunded" promise to pay
supplemental benefits in the future and any amount set aside to pay the benefits
under the plan remain subject to the claims of the Bank's general creditors
until they are paid to plan participants. The Bank may establish a grantor trust
in connection with the plan to satisfy the obligations of the Bank under the
plan. The grantor trust would be permitted to invest in a wide-variety of
investments, including Company Common Stock.

     Employee Stock Ownership Plan and Trust. The Bank established the First
Savings Bank, SLA Employee Stock Ownership Plan (the "ESOP") and related trust
for eligible employees in connection with the 1992 MHC Reorganization. Employees
employed with the Bank as of January 1, 1992 and employees of the Company or the
Bank employed after such date, who have been credited with at least 1,000 hours
during a 12-month period and who have attained the age of 21 participate in the
ESOP.

     In July 1992, the ESOP borrowed $700,000 from an unaffiliated lender to
purchase 70,000 shares of Bank Common Stock issued in the 1992 MHC
Reorganization ("1992 ESOP Loan"). In connection with the Bank's 1995 Secondary
Issuance, the ESOP purchased an additional 42,000 shares of Bank Common Stock at
$13.00 per share. The ESOP borrowed an additional $546,000 from the MHC to fund
the purchase of the shares. The MHC also assumed the 1992 ESOP Loan. Upon
consummation of the Conversion and Reorganization, the Public Bank Shares held
by the ESOP will convert into Common Stock of the Company based upon the
Exchange Ratio, and the Company expects to refinance the MHC's existing loan to
the ESOP. See "The Conversion and Reorganization - Effect on Existing
Compensation Plans" and "Use of Proceeds."

     In connection with the establishment of the ESOP, a Committee of the Board
of Directors was appointed to administer the ESOP (the "ESOP Committee"). A
trustee for the ESOP was appointed prior to the 1992 MHC Reorganization and
continuing thereafter. The ESOP Committee may instruct the trustee regarding
investment of funds contributed to the ESOP. The ESOP trustee, subject to its
fiduciary duty, must vote all allocated shares held in the ESOP in accordance
with the instructions of the participating employees. Under the ESOP, allocated
shares for which no instructions are given and unallocated shares will be voted
by the trustee in a manner calculated to most accurately reflect the
instructions it has received from participants regarding the allocated stock,
provided such vote is in accordance with the provisions of ERISA.

     The ESOP intends to purchase 8% of the Conversion Stock issued in the
Conversion. As part of the Conversion and in order to fund the ESOP's purchase
of the Conversion Stock to be issued in the Conversion, the ESOP intends to
borrow funds either from the Company or a third-party lender equal to 8% of the
aggregate purchase price of the Conversion Stock. In either case, the loan will
be repaid principally from the Company's or the Bank's contribution's to the
ESOP over a period of 15 years and the collateral for the loan will be the
Common Stock purchased by the ESOP. This loan will be in addition to the
existing ESOP loans, which will continue to be repaid over their original terms.
Subject to receipt of any necessary regulatory approvals or opinions, the Bank
may make contributions to the ESOP for repayment of the loan since the
participants are all employees of the Bank, or to reimburse the Company for
contributions made by it. Contributions to the ESOP will be discretionary,
however, the Company or the Bank intend to make annual contributions to the ESOP
in an aggregate amount at least equal to the principal and interest requirement
on the debt. The interest rate for the loan is expected to be the current market
rate.

     Shares purchased by the ESOP will initially be pledged as collateral for
the loan, and will be held in a suspense account until released for allocation
among participants as the loan is repaid. The pledged shares will be released
annually from the suspense account in an amount proportional to the repayment of
the ESOP loan for each plan year. The released shares will be allocated among
the accounts of participants on the basis of the participant's compensation for
the year of allocation. Participants will vest in their ESOP

                                      100
<PAGE>
 
accounts after five years of credited service. Participants also vest completely
in their accounts if their service terminates due to death, early retirement,
permanent disability or a change in control. Forfeitures will be reallocated
among remaining participating employees, in the same proportion as
contributions. Benefits may be payable upon death, retirement, early retirement,
disability or separation from service. The contributions to the ESOP are not
fixed, so benefits payable under the ESOP cannot be estimated.

     Stock-Based Incentive Plan. Following the Conversion and Reorganization,
the Board of Directors of the Company intends to adopt one or more stock-based
benefit plans to provide stock options, awards of restricted stock and certain
related rights to eligible officers, employees, and directors of the Company and
Bank. The Company anticipates granting stock options and restricted stock awards
under a single plan. However, it is possible separate plans could be established
for directors and employees (including officers).

     At a meeting of stockholders of the Company following the Conversion and
Reorganization, which under applicable OTS regulations may be held no earlier
than six months after the completion of the Conversion and Reorganization, the
Board of Directors intends to present the Stock-Based Incentive Plan or any
separate plan(s) to stockholders for approval. The Company has reserved an
amount equal to 10% of the shares of Common Stock issued in the Conversion and
Reorganization, or 1,424,207 shares (based upon the issuance of 14,242,072
shares), for stock options, and 4% of the shares of Common Stock issued in the
Conversion, or 569,682 shares (based upon the issuance of 14,242,072 shares),
for restricted stock awards. OTS regulations provide that no individual officer
or employee of the Bank may receive more than 25% of the stock options available
under the Stock-Based Incentive Plan (or any separate plan for officers and
employees) and non-employee directors may not receive more than 5% individually,
or 30% in the aggregate, of the stock options available under the Stock-Based
Incentive Plan (or any separate plan for directors). OTS regulations also
provide that no individual officer or employee of the Bank may receive more than
25% of the restricted stock awards available under the Stock-Based Incentive
Plan (or any separate plan for officers and employees) and non-employee
directors may not receive more than 5% individually, or 30% in the aggregate, of
the restricted stock awards available under the Stock-Based Incentive Plan (or
any separate plan for directors). The Bank expects to contribute funds to a
trust established in connection with the Stock-Based Incentive Plan (or any
separate plan(s)) to enable the plan to acquire, in the aggregate, an amount
equal to 4% of the shares of Common Stock issued in the Conversion, or 569,682
shares (based upon the issuance of 14,242,072 shares). These shares would be
acquired through open market purchases, if permitted, or from authorized but
unissued shares. The Board intends to appoint an independent fiduciary to serve
as trustee of a trust to be established in connection with the Stock-Based
Incentive Plan. In the event that additional authorized but unissued shares are
acquired by the Stock-Based Incentive Plan after the Conversion and
Reorganization, the interests of existing shareholders would be diluted. See
"Pro Forma Data."

     The grants of stock options and restricted stock awards will be designed to
attract and retain qualified personnel in key positions, provide officers and
key employees with a propriety interest in the Company as an incentive to
contribute to the success of the Company and reward key employees for
outstanding performance. All employees of the Company and its subsidiaries,
including the Bank, will be eligible to participate in the Stock-Based Incentive
Plan (or any separate plan for employees). It is expected that the committee
administering the plan will determine which officers and employees will be
granted stock options, restricted stock awards and related rights, including
limited rights. The committee will also determine whether stock options will be
incentive or non-statutory stock options, the number of shares subject to each
stock option and restricted stock award, the exercise price of each non-
statutory stock option, whether stock options may be exercised by delivering
other shares of Common Stock, and when stock options become exercisable or
restricted stock awards vest. Only employees may receive grants of Incentive
Stock Options. Therefore, under the Stock-Based Incentive Plan (or any separate
plan for directors), directors may receive only grants of Non-Statutory Stock
Options.

                                      101
<PAGE>
 
     The Stock-Based Incentive Plan (or any separate plan for employees) will
provide for the grant of: (i) options to purchase the Common Stock intended to
qualify as incentive stock options under Section 422 of the Code ("Incentive
Stock Options"); (ii) options that do not so qualify ("Non-Statutory Stock
Options"); and (iii) limited option rights ("Limited Option Rights"). Limited
Option Rights are exercisable only upon a change in control of the Bank or the
Company. Upon exercise of Limited Option Rights in the event of a change in
control, the employee or director will be entitled to receive a lump sum cash
payment equal to the difference between the exercise price of any unexercised
option, whether exercisable or unexercisable at such time, and the fair market
value of the shares of common stock subject to the stock option on the date of
exercise of the right in lieu of purchasing the stock underlying the stock
option. It is anticipated that all stock options granted contemporaneously with
stockholder approval of the Stock-Based Incentive Plan will qualify as Incentive
Stock Options to the extent permitted under Section 422 of the Code. Unless
sooner terminated, the Stock-Based Incentive Plan will be in effect for a period
of ten years from the earlier of adoption by the Board of Directors or approval
by the Company's Stockholders. Subject to stockholder approval, the Company
intends to grant stock options with Limited Option Rights under the Plan at an
exercise price equal to at least the fair market value of the underlying Common
Stock on the date of grant.

     An individual will not be deemed to have received taxable income upon the
grant or exercise of any Incentive Stock Option, provided that such shares
received through the exercise of such option are not disposed of by the employee
for at least one year after the date the stock is received in connection with
the stock option exercise and two years after the date of grant of the stock
option (a "disqualifying disposition"). No compensation deduction will be
available to the Company as a result of the grant or exercise of Incentive Stock
Options unless there has been a disqualifying disposition. In the case of a Non-
Statutory Stock Option and in the case of a disqualifying disposition of an
Incentive Stock Option, an individual will realize ordinary income upon exercise
of the stock option (or upon the disqualifying disposition) in an amount equal
to the amount by which the exercise price exceeds the fair market value of the
Common Stock purchased by exercising the stock option on the date of exercise.
The amount of any ordinary income realized by an optionee upon the exercise of a
Non-Statutory Stock Option or due to a disqualifying disposition of an Incentive
Stock Option will be a deductible expense to the Company for tax purposes. In
the case of Limited Rights, the option holder will have to include the amount
paid to him or her upon exercise in his gross income for federal income tax
purposes in the year in which the payment is made and the Company will be
entitled to a deduction for federal income tax purposes of the amount paid.

     Under the Stock-Based Incentive Plan (or any separate plans for directors
and employees), restricted stock awards and related Limited Stock Rights, would
be granted in the form of shares of Common Stock held by the plans. Awards will
be non-transferable and non-assignable. Allocations and grants of restricted
stock awards, and related Limited Stock Rights, to officers and employees may be
made in the form of base grants and/or performance grants (the vesting of which
would be contingent upon performance goals established by the committee
administering the plan). In establishing any performance goals, the committee
may utilize the annual financial results of the Bank, actual performance of the
Bank as compared to targeted goals such as the ratio of the Bank's net worth to
total assets, the Bank's return on average assets or average equity, or such
other performance standards as determined by the committee with the approval of
the Board of Directors.

     Limited Stock Rights would be exercisable by participants upon a change in
control of the Company or Bank as described in the plan. Subject to OTS
regulations, upon the exercise of a Limited Stock Right, the recipient will be
entitled to receive a cash payment equal to the fair market value of all
unvested stock awards in exchange for any rights to such unvested stock awards.

     When a participant becomes vested with respect to restricted stock awards,
the participant will realize ordinary income equal to the fair market value of
the Common Stock at the time of vesting (unless the participant made an election
pursuant to Section 83(b) of the Code). The amount of income recognized by the
participants will be a deductible expense for tax purposes for the Bank. When
restricted stock awards

                                      102
<PAGE>
 
become vested and shares of Common Stock are actually distributed to
participants, the participants would receive amounts equal to any accrued
dividends with respect thereto. Prior to vesting, recipients of stock awards may
direct the voting of the shares awarded to them. Shares not subject to grants
and shares allocated subject to the achievement of performance goals will be
voted by the trustee in proportion to the directions provided with respect to
shares subject to grants. Vested shares will be distributed to recipients as
soon as practicable following the day on which they vest.

     If the Stock-Based Incentive Plan (or any separate plans for employees and
directors) is adopted in the form described above, stock awards would become
vested and stock options would become vested and exercisable in the manner
specified by the Company, subject to applicable OTS regulations, which require
that stock options and restricted stock awards begin vesting no earlier than one
year from the date of shareholder approval of the plan and thereafter vest at a
rate of no more than 20% per year. Stock options could be exercisable for three
months following the date on which the employee or director ceases to perform
services for the Bank or the Company, except that in the event of death or
disability, options accelerate and become fully vested and could be exercisable
for up to one year thereafter or such longer period as determined by the
Company. In the case of death or disability, stock options may be exercised for
a period of 12 months. However, any Incentive Stock Options exercised more than
three months following the date the employee ceases to perform services as an
employee would be treated as a Non-Statutory Stock Option. In the event of
retirement, if the optionee continues to perform services as a director or
consultant on behalf of the Bank, the Company or an affiliate, unvested options
would continue to vest in accordance with their original vesting schedule until
the optionee ceases to serve as a consultant or director. In the event of death,
disability or normal retirement, the Company, if requested by the optionee, or
the optionee's beneficiary, could elect, in exchange for vested options, to pay
the optionee, or the optionee's beneficiary in the event of death, the amount by
which the fair market value of the Common Stock exceeds the exercise price of
the options on the date of the employee's termination of employment.

     Applicable OTS regulations currently do not permit accelerated vesting in
the event of a change in control of stock options or stock awards granted under
a plan adopted within one year after conversion. Subject to any applicable
regulatory requirements, the Stock-Based Incentive Plan (or any separate plans
for employees and directors) may be amended subsequent to the expiration of the
one-year period following the Conversion and Reorganization to provide for
accelerated vesting of previously granted options in the event of a change in
control of the Company or the Bank. A change in control would generally be
considered to occur when a person or group of persons acting in concert acquires
beneficial ownership of 20% or more of any class of equity security of the
Company or the Bank or in the event of a tender or exchange offer, merger or
other form of business combination, sale of all or substantially all of the
assets of the Company or the Bank or contested election of directors which
resulted in the replacement of a majority of the Board of Directors by persons
not nominated by the directors in office prior to the contested election.

TRANSACTIONS WITH CERTAIN RELATED PERSONS

     The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") required that all loans or extensions of credit to executive officers
and directors be made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
the general public and not involve more than the normal risk of repayment or
present other unfavorable features. In addition, loans made to a director or
executive officer in excess of the greater of $25,000, or 5% of the Bank's
capital and surplus (up to a maximum of $500,000) must have been approved in
advance by a majority of the disinterested members of the Board of Directors.

     The Bank currently makes loans to executive officers and directors on the
same terms and conditions offered to the general public. The Bank's policy
provides that all loans made by the Bank to its executive officers and directors
be made in the ordinary course of business, on substantially the same terms,
including collateral, as those prevailing at the time for comparable
transactions with other persons and may not involve

                                      103
<PAGE>
 
more than the normal risk of collectibility or present other unfavorable
features. The Bank may, in the future, determine to offer loans to executive
officers and directors on terms not available to the public, but available to
other employees, in accordance with recently modified regulations.

     Prior to the enactment of FIRREA, the Bank provided loans to Directors and
executive officers at reduced rates and/or with points waived or reduced. There
were no loans to the Bank's current executive officers and directors that
exceeded $500,000 as of September 30, 1997. The largest principal amount
outstanding on a pre-FIRREA basis loan during the nine months ended September
30, 1997 was a first mortgage loan of $149,000, and the amount outstanding and
the interest rate on such loan on such date were $147,000 and 8.00%,
respectively. All other loans that exceeded $60,000 at any time during fiscal
year 1997 to executive officers, directors, immediate family members of
executive officers and directors, or organizations with which executive officers
and directors are affiliated, were made in the ordinary course of business, on
substantially the same terms including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons.

                                      104
<PAGE>
 
                     BENEFICIAL OWNERSHIP OF CAPITAL STOCK

BENEFICIAL OWNERSHIP OF BANK COMMON STOCK

     The following table includes, as of November 30, 1997, certain information
as to the Bank Common Stock beneficially owned by (i) the only persons or
entities, including any "group" as that term issued in Section 13(d)(3) of the
Exchange Act, who or which was known to the Bank to be the beneficial owner of
more than 5% of the issued and outstanding Bank Common Stock, (ii) the directors
of the Bank, (iii) certain executive officers of the Bank, and (iv) all
directors and executive officers of the Bank as a group. For information
concerning proposed subscriptions by directors and executive officers and the
anticipated ownership of Common Stock by such persons upon consummation of the
Conversion and Reorganization, see "-Subscriptions by Executive Officers and
Directors."

<TABLE>
<CAPTION>
                                              AMOUNT AND NATURE OF                          
     NAME OF BENEFICIAL                            BENEFICIAL                  PERCENT OF   
     OWNER OR NUMBER OF                         OWNERSHIP AS OF                   BANK      
      PERSONS IN GROUP                   NOVEMBER 30, 1997(1)(3)(4)(5)        COMMON STOCK  
----------------------------------       -----------------------------        ------------  
<S>                                      <C>                                  <C>            
First Savings Bancshares,  MHC (2)                                                       
1000 Woodbridge Center Drive
Woodbridge, NJ 07095                               4,134,812                      51.6%  
Walter K. Timpson                                    137,426                       1.7   
Donald T. Akey, M.D.                                  29,453                       0.4   
Harry F. Burke                                        54,855                       0.7   
Keith H. McLaughlin                                   65,145                       0.8   
Philip T. Ruegger, Jr.                               153,588                       1.9   
Jeffries Shein                                       206,132                       2.6   
John P. Mulkerin                                      87,544                       1.1   
Christopher P. Martin                                 50,543                       0.6   
John F. Cerulo, Jr.                                   12,479                       0.2   
Karen I. Martino                                       9,035                       0.1   
Richard Spengler                                      23,655                       0.3   
All Directors and Executive                                                              
Officers as a Group (11 persons)                     829,855                      10.4%   
</TABLE>

__________________
(1)  In accordance with Rule 13d-3 under the Exchange Act, a person is deemed to
     be the beneficial owner for purposes of this table, of any shares of Common
     Stock if he has shared voting or investment power with respect to such
     security, or has a right to acquire beneficial ownership at any time within
     60 days from the date as to which beneficial ownership is being determined.
     As used herein, "voting power" is the power to vote or direct the voting of
     shares and "investment power" is the power to dispose or direct the
     disposition of shares. Includes all shares held directly as well as by
     spouses and minor children, in trust and other indirect ownership, over
     which shares the named individuals effectively exercise sole or shared
     voting and investment power.
(2)  The Bank's executive officers and directors are also executive officers
     and directors of First Savings Bancshares, MHC.
(3)  Based upon filings made pursuant to the Exchange Act and information
     furnished by the respective individuals. Under regulations promulgated
     pursuant to the Exchange Act, shares of Bank Common Stock are deemed to be
     beneficially owned by a person if he directly or indirectly has or shares
     (i) voting power, which includes the power to vote or to direct the voting
     of the shares, or (ii) investment power, which includes the power to
     dispose or to direct the disposition of the shares. Unless otherwise
     indicated, the named beneficial owner has sole voting and dispositive power
     with respect to the shares.
(4)  Under applicable regulations, a person is deemed to have beneficial
     ownership of any shares of Bank Common Stock which may be acquired within
     60 days of November 30, 1997 pursuant to the exercise of outstanding stock
     options. Shares of Bank Common Stock which are subject to stock options are
     deemed to be outstanding for the purpose of computing the percentage of
     outstanding Bank Common Stock owned by such person or group or group but
     not deemed outstanding for the purpose of computing the percentage of Bank
     Common Stock owned by any other person or group.
(5)  Includes the following amount of unvested shares of restricted stock
     awarded under the 1996 Incentive Plan which may be voted by the recipient
     pending vesting and distribution: 726 shares to each of Messrs. Akey,
     Burke, McLaughlin, Ruegger and Shein; 2,985 shares to both Messrs. Mulkerin
     and Martin; and 807 shares to each of Mr. Cerulo, Ms. Martino and Mr.
     Spengler. Includes options to purchase stock pursuant to the Bank's 1992
     Stock Option Plans which were vested as of November 30, 1997: 17,943 shares
     to each of Messrs. Timpson, McLaughlin, Ruegger and Shein, 1,210 shares to
     each of Messrs. Akey and Burke; 6,768 shares to Mr. Mulkerin; 4,638 shares
     to Mr. Martin; and 807 shares to each of Messrs. Cerulo, Spengler and Ms.
     Martino.

                                      105
<PAGE>
 
SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS

     The following table sets forth, for each of the Company's directors and
executive officers and for all of the directors and executive officers as a
group, (i) the number of Exchange Shares to be held upon consummation of the
Conversion and Reorganization, based upon their beneficial ownership of the Bank
Common Stock as of November 30, 1997, (2) the proposed purchases of Conversion
Stock, assuming sufficient shares are available to satisfy their subscriptions,
and (3) the total amount of Common Stock to be held upon consummation of the
Conversion and Reorganization, in each case assuming that 12,384,495 shares of
Conversion Stock are sold, which is the midpoint of the Valuation Price Range.

<TABLE>
<CAPTION>
                                                    
                                                    
                                                  PROPOSED PURCHASES OF          TOTAL COMMON STOCK          
                               NUMBER OF           CONVERSION STOCK(1)               TO BE HELD        
                                                ------------------------      -------------------------- 
                           EXCHANGE SHARES TO                    NUMBER         NUMBER        PERCENTAGE
                           BE HELD (2)(3)(4)      AMOUNT       OF SHARES      OF SHARES       OF TOTAL 
                        ------------------      -----------    ---------      -----------   ------------
<S>                     <C>                     <C>            <C>            <C>           <C>
Walter K. Timpson               355,379           $ 50,000        5,000        360,379           1.52%
Donald T. Akey, M.D.             82,343             30,000        3,000         85,343           0.36 
Harry F. Burke                  158,359             50,000        5,000        163,359           0.68
Keith H. McLaughlin             139,079            156,000       15,500        154,079           0.64
Philip T. Ruegger,              403,745            250,000       25,000        428,745           1.79
 Jr.                     
Jeffries Shein (5)              560,983                  0            0        566,983           2.34
John P. Mulkerin                232,791            250,000       25,000        257,791           1.07
Christopher P.                  128,439            200,000       20,000        148,439           0.62
 Martin                  
John F. Cerulo, Jr.              32,513             60,000        6,000         38,513           0.16
Karen I. Martino                 22,206             25,000        2,500         24,706           0.10
Richard Spengler                 75,957             40,000        4,000         69,957           0.29
                              ---------           --------       ------      ---------          -----  
All Directors and             
 Executive Officers           
  as a Group (11 persons)     2,181,794         $1,105,000      110,500      2,292,294           9.55%
                              =========           ========       ======      =========          =====  
</TABLE>

____________________
(1)  Includes proposed subscriptions, if any, by associates. Does not include
     subscription orders by the ESOP. Intended purchases by the ESOP are
     expected to be 8% of the shares issued in the Conversion.
(2)  Excludes shares which may be received upon the exercise of outstanding
     stock options. Based upon the Exchange Ratio of 2.9925 Exchange Shares for
     each Public Bank Share at the midpoint of the Valuation Price Range, the
     persons named in the table would have options to purchase Common Stock as
     follows: Mr. Timpson, 60,936 shares; Dr. Akey, 10,862 shares; Mr. Burke,
     10,862 shares; Mr. McLaughlin, 60,936 shares; Mr. Ruegger, 60,936 shares; 
     Mr. Shein, 60,936 shares; Mr. Mulkerin, 48,014 shares; Mr. Martin, 41,640
     shares; Mr. Cerulo, 7,241 shares; Ms. Martino, 7,241 shares; Mr. Spengler,
     7,241 shares; and all directors and executive officers as a group, 376,845
     shares.
(3)  Excludes the following amount of shares awarded under the 1996 Incentive
     Plan, which have not yet vested based upon the above Exchange Ratio, in the
     following amounts: Mr. Timpson, 2,172 shares; Dr. Akey, 2,172 shares; Mr.
     Burke, 2,172 shares; Mr. McLaughlin, 2,172 shares; Mr. Ruegger, 2,172
     shares; Mr. Shein, 2,172 shares; Mr. Mulkerin, 8,932 shares; Mr. Martin,
     8,932 shares; Mr. Cerulo, 2,414 shares; Ms. Martino, 2,414 shares; Mr.
     Spengler, 2,414 shares; and all directors and executive officers as a
     group, 38,138 shares.
(4)  Excludes stock options and awards to be granted under the Company's 1998
     Stock Option Plan and 1998 Stock Program if such plans are approved by
     stockholders at an annual or special meeting of shareholders at least six
     months following the Conversion and Reorganization. See "Management of the
     Bank - New Benefits Resulting from the Conversion and Reorganization."
(5)  Due to the purchase limitations, Mr. Shein may be precluded from purchasing
     any shares in the Offerings.

                                      106
<PAGE>
 
                       THE CONVERSION AND REORGANIZATION

     THE BOARDS OF DIRECTORS OF THE MUTUAL HOLDING COMPANY, THE BANK AND THE
COMPANY HAVE APPROVED THE PLAN OF CONVERSION, AS HAS THE OTS, SUBJECT TO
APPROVAL BY THE MEMBERS OF THE MUTUAL HOLDING COMPANY AND THE STOCKHOLDERS OF
THE BANK ENTITLED TO VOTE ON THE MATTER AND THE SATISFACTION OF CERTAIN OTHER
CONDITIONS. SUCH OTS APPROVAL, HOWEVER, DOES NOT CONSTITUTE A RECOMMENDATION OR
ENDORSEMENT OF THE PLAN BY SUCH AGENCY.

GENERAL

     On October 24, 1997 the Boards of Directors of the Mutual Holding Company
and the Bank unanimously adopted, subject to approval by the OTS, the Plan
pursuant to which the Mutual Holding Company will convert to a stock form of
organization; the Company will offer and sell the Conversion Stock; and the
Company will issue Common Stock in exchange for the Public Bank Shares. The Plan
was subsequently amended on December 16, 1997. It is intended that all of the
outstanding capital stock of the Bank will be held by the Company, which is
incorporated under Delaware law. The Plan was approved by the OTS, subject to,
among other things, approval of the Plan by the Members of the Mutual Holding
Company and the stockholders of the Bank. A special meeting of members and a
special meeting of stockholders has been called for this purpose to be held on
____________, 1998.

     The Company has received approval of the OTS to become a savings and loan
holding company and to acquire all of the Common Stock of the Bank to be issued
in the Conversion and Reorganization. The Company plans to retain 50% of the net
proceeds from the sale of the Conversion Stock, with all the remaining proceeds
contributed to the Bank. The Conversion and Reorganization will be effected only
upon completion of the sale of all of the shares of Conversion Stock of the
Company to be issued pursuant to the Plan.

     The Plan provides generally that (i) the Mutual Holding Company will
convert to the stock form of organization and (ii) the Company will offer shares
of Conversion Stock for sale in the Subscription Offering to the Bank's Eligible
Account Holders, the ESOP, Supplemental Eligible Account Holders, and Other
Members. Concurrently, shares will be offered in a Community Offering with a
first preference given to the holders of the Public Bank Shares. It is
anticipated that all shares not subscribed for in the Subscription and Community
Offerings will be offered for sale by the Company to the general public in a
Syndicated Community Offering. The Primary Parties have the right to accept or
reject, in whole or in part, any orders to purchase shares of the Conversion
Stock received in the Community Offering or in the Syndicated Community
Offering. See "-Community Offering" and "- Syndicated Community Offering."

     The aggregate price of the shares of Conversion Stock to be issued in the
Conversion within the Estimated Price Range, currently estimated to be between
$105.3 million and $142.4 million, will be determined based upon an independent
appraisal, prepared by FinPro of the estimated pro forma market value of the
Common Stock of the Company. All shares of Conversion Stock to be issued and
sold in the Conversion and Reorganization will be sold at the same price. The
independent appraisal will be affirmed or, if necessary, updated at the
completion of the Subscription and Community Offerings, if all shares are
subscribed for, or at the completion of the Syndicated Community Offering. The
appraisal has been performed by FinPro, a consulting firm experienced in the
valuation and appraisal of savings institutions. See "- Stock Pricing and
Exchange Ratio" for additional information as to the determination of the
estimated pro forma market value of the Conversion Stock.

                                      107
<PAGE>
 
     The following is a brief summary of pertinent aspects of the Conversion.
The summary is qualified in its entirety by reference to the provisions of the
Plan. A copy of the Plan is available for inspection at each branch of the Bank
and at the Northeast Region and Washington, D.C. offices of the OTS. The Plan is
also filed as an Exhibit to the Registration Statement of which this Prospectus
is a part, copies of which may be obtained from the SEC. See "Additional
Information."

PURPOSES OF THE CONVERSION AND REORGANIZATION

     The Mutual Holding Company, as a federally-chartered mutual holding
company, does not have stockholders and has no authority to issue capital stock.
As a result of the Conversion and Reorganization, the Mutual Holding Company
will be restructured into the form used by holding companies of commercial
banks, other business entities and a growing number of savings institutions. The
Conversion and Reorganization will enhance the ability of the Company and the
Bank to access capital markets, expand current operations, acquire other
financial institutions or branch offices, provide affordable home financing
opportunities to the communities the Bank serves or diversify into other
financial services to the extent allowable by applicable law and regulation.

     The stock holding company form of organization would provide additional
flexibility to diversify the Bank's business activities through existing or
newly formed subsidiaries, or through acquisitions of or mergers with both
mutual and stock institutions, as well as other companies. Although there are no
current arrangements, understandings or agreements regarding any such
opportunities, the Company will be in a position after the Conversion and
Reorganization, subject to regulatory limitations and the Company's financial
position, to take advantage of any such opportunities that may arise. See "Use
of Proceeds."

     While the Bank currently has the ability to raise additional capital
through the sale of additional shares of its common stock, that ability is
limited by the mutual holding company structure which, among other things,
requires that the Mutual Holding Company own a majority of the outstanding
shares of its savings institution subsidiary's common stock. The Conversion and
Reorganization will significantly increase the Bank's capital position to a
level whereby the Bank will be better positioned to take advantage of business
opportunities as they arise. At September 30, 1997, the Bank had stockholders'
equity, determined in accordance with generally accepted accounting principles
("GAAP"), of $99.2 million, or 9.5% of total assets. Assuming that the Company
contributes 50% of net proceeds at the maximum of the Estimated Price Range to
the Bank, the Bank's GAAP capital will increase to $161.4 million, or a ratio of
GAAP capital to adjusted assets, on a pro forma basis, of 14.58% after the
Conversion and Reorganization. The investment of the net proceeds from the sale
of the Conversion Stock is expected to provide the Bank with additional income
to increase further its capital position. The additional capital may also assist
the Bank in offering new programs and expanded services to its customers. See
"Use of Proceeds."

     If the Bank had undertaken a standard conversion involving the formation of
a stock holding company in 1992 when it reorganized into mutual holding company
form, applicable OTS regulations would have required a greater amount of common
stock to be sold than the $10.0 million raised in the 1992 MHC Reorganization,
and in light of then prevailing market conditions there was uncertainty as to
whether the greater amount of common stock could have been sold. A standard
conversion in 1995 also would have immediately eliminated all aspects of the
mutual form of organization. In light of current market conditions for the
stocks of savings institutions and their holding companies and the Bank's
financial condition, the Boards of Directors of the Bank and the Mutual Holding
Company believe that it is in the best interests of such companies and their
respective stockholders and members to raise additional capital at this time,
and that the most feasible way to do so is through the Conversion and
Reorganization.

                                      108
<PAGE>
 
     After completion of the Conversion and Reorganization, the unissued common
and preferred stock authorized by the Company's Certificate of Incorporation
will permit the Company, subject to market conditions and regulatory approval of
an offering, to raise additional equity capital through further sales of
securities, and to issue securities in connection with possible acquisitions. At
the present time, the Company has no plans with respect to additional offerings
of securities, other than the issuance of additional shares upon exercise of
stock options or the possible issuance of authorized but unissued shares for
restricted stock awards under the Stock-Based Incentive Plan. Following the
Conversion and Reorganization, the Company will also be able to use stock-
related incentive programs to attract and retain executive and other personnel
for itself and its subsidiaries. See "Management of the Bank - Executive
Compensation."

DESCRIPTION OF THE CONVERSION

     The Boards of Directors of the Bank and the Mutual Holding Company adopted
the Plan on October 24, 1997. Thereafter, the Bank caused the Company to be
incorporated under Delaware law as a first-tier, wholly owned subsidiary of the
Bank, and the Board of Directors of the Company adopted the Plan on December 16,
1997. After receipt of all requisite regulatory approvals, the Company will form
First Interim as a first-tier, wholly owned subsidiary of the Company, and the
Board of Directors of First Interim shall adopt the Plan by at least a two-
thirds vote. In addition, the Bank and the Company shall approve the Plan in
their capacities as the sole shareholders of the Company and First Interim,
respectively.

     Pursuant to OTS regulations, the Plan must be approved by the affirmative
vote of at least a majority of the total number of votes eligible to be cast by
Members at the Special Meeting and by holders of at least two-thirds of the
outstanding common stock of the Bank at the Stockholders' Meeting. In addition,
in accordance with current OTS policy, the Plan must be approved by a majority
of the votes cast, in person or by proxy, by the holders of the Public Bank
Shares at the Stockholders' Meeting.

                                      109
<PAGE>
 
     The following diagram outlines the current organizational structure of
the parties' ownership interests:

<TABLE>
<S>                                   <C> 
-----------------------------------   ------------------------------------  
    FIRST SAVINGS BANCSHARES, MHC         HOLDERS OF PUBLIC BANK SHARES

-----------------------------------   ------------------------------------ 
                     51.6%                            48.4% 
 
                    ---------------------------------     
                         FIRST SAVINGS BANK, SLA
 
                    ---------------------------------   
 
                                        100%
 
                    ---------------------------------     
                        FIRST SOURCE BANCORP, INC.
 
                    ---------------------------------
 
                                        100%
 
                    ---------------------------------
                     FIRST INTERIM SAVINGS BANK, FSB

                    --------------------------------- 
</TABLE>

     The following diagram reflects the resulting structure of the parties upon
consummation of the Conversion and Reorganization, including (i) the merger of
the Mutual Holding Company (following its conversion into an interim federal
stock savings institution) with and into the Bank, (ii) the merger of First
Interim with and into the Bank, pursuant to which the Public Bank Shares will be
converted into Exchange Shares, and (iii) the offering of Conversion Stock. The
diagram assumes that there are no fractional shares and does not give effect to
purchase of Conversion Stock by holders of Public Bank Shares or the exercise of
outstanding stock options.

<TABLE>
     <S>                                  <C> 
     ------------------------             -----------------------  
            PURCHASERS                           HOLDERS OF
       OF CONVERSION STOCK                 PUBLIC  BANK SHARES  

     ------------------------             -----------------------  

                    51.6%                            48.4%   
                                                      
                   -----------------------------------  
                        FIRST SOURCE BANCORP, INC.

                   -----------------------------------   
 
                                        100%
 
                   -----------------------------------  
                         FIRST SAVINGS BANK, SLA

                   -----------------------------------  
</TABLE>

EFFECTS OF THE CONVERSION AND REORGANIZATION

     General. Each depositor in the Bank has both a deposit account in the
institution and a pro rata ownership interest in the net worth of the
institution based upon the balance in his account, which interest may only be
realized in the event of a liquidation of the Mutual Holding Company. However,
this ownership interest is tied to the depositor's account and has no tangible
market value separate from such deposit account. Any depositor who opens a
deposit account obtains a pro rata ownership interest in the net worth 

                                      110
<PAGE>
 
of the Mutual Holding Company without any additional payment beyond the amount
of the deposit. A depositor who reduces or closes his account receives a portion
or all of the balance in the account but nothing for his ownership interest in
the net worth of the Mutual Holding Company, which is lost to the extent that
the balance in the account is reduced.

     Consequently, the depositors of the Bank normally have no way to realize
the value of their ownership interest, which has realizable value only in the
unlikely event that the Mutual Holding Company is liquidated. In such event, the
depositors of record at that time, as owners, would share pro rata in any
residual surplus and reserves after other claims, including claims of depositors
to the amounts of their deposits, are paid.

     Upon consummation of the Conversion and Reorganization, permanent
nonwithdrawable capital stock is created to represent the ownership of the net
worth of the Company. THE COMMON STOCK OF THE COMPANY IS SEPARATE AND APART FROM
DEPOSIT ACCOUNTS AND CANNOT BE AND IS NOT INSURED BY THE FDIC OR ANY OTHER
GOVERNMENTAL AGENCY. Certificates are issued to evidence ownership of the
capital stock. The stock certificates are transferable and, therefore, the stock
may be sold or traded if a purchaser is available with no effect on any account
the seller may hold in the Bank.

     Continuity. While the Conversion and Reorganization is being accomplished,
the normal business of the Bank of accepting deposits and making loans will
continue without interruption. The Bank will continue to be subject to
regulation by the OTS and the FDIC. After the Conversion and Reorganization, the
Bank will continue to provide services for depositors and borrowers under
current policies by its present management and staff.

     The Directors serving the Bank at the time of Conversion and Reorganization
will serve initially as Directors of the Bank after the Conversion and
Reorganization. The Directors of the Company will consist initially of
individuals currently serving on the Board of Directors of the Mutual Holding
Company. All officers of the Bank at the time of Conversion and Reorganization
will retain their positions immediately after Conversion and Reorganization.

     Effect on Public Bank Shares. Under the Plan, upon consummation of the
Conversion and Reorganization, the Public Bank Shares shall be converted into
Common Stock based upon the Exchange Ratio without any further action on the
part of the holder thereof. Upon surrender of the Public Bank Shares, Common
Stock will be issued in exchange for such shares.

     Upon consummation of the Conversion and Reorganization, the Public
Stockholders of the Bank, a New Jersey chartered savings association, will
become stockholders of the Company, a Delaware corporation. For a description of
certain changes in the rights of stockholders as a result of the Conversion and
Reorganization, see "Comparison of Stockholders' Rights" below.

     Under New Jersey law, Public Stockholders of the Bank will not have
dissenters' rights or appraisal rights in connection with the Conversion and
Reorganization. See "Comparison of Stockholders' Rights - Dissenters' Rights of
Appraisal."

     Effect on Deposit Accounts. Under the Plan, each depositor in the Bank at
the time of Conversion and Reorganization will automatically continue as a
depositor after the Conversion and Reorganization, and each such deposit account
will remain the same with respect to deposit balance, interest rate and other
terms. Each such account will be insured by the FDIC to the same extent as
before the Conversion (i.e., up to $100,000 per depositor). Depositors will
continue to hold their existing certificates, passbooks and other evidences of
their accounts.

                                      111
<PAGE>
 
     Effect on Loans. No loan outstanding from the Bank will be affected by the
Conversion and Reorganization, and the amount, interest rate, maturity and
security for each loan will remain as they were contractually fixed prior to the
Conversion and Reorganization.

     Effect on Voting Rights of Members. At present, all depositors and certain
borrowers of the Bank are members of, and have voting rights in, the Mutual
Holding Company as to all matters requiring membership action. Upon Conversion
and Reorganization, the Mutual Holding Company will cease to exist and
therefore, depositors and borrowers will no longer have membership rights in the
Mutual Holding Company. Upon Conversion and Reorganization, all voting rights in
the Bank will be vested in the Company as the sole stockholder of the Bank.
Exclusive voting rights with respect to the Company will be vested in the
holders of Common Stock. Depositors and borrowers of the Bank will not have
voting rights in the Company after the Conversion and Reorganization except to
the extent that they become stockholders of the Company.

     Tax Effects. The Primary Parties have received an opinion from Muldoon,
Murphy & Faucette with regard to federal income taxation and New Jersey taxation
which provides that the adoption and implementation of the Plan of Conversion
and Agreement and Plan of Reorganization set forth herein will not be taxable
for federal or New Jersey tax purposes to the Primary Parties or the Bank's
Eligible Account Holders, Supplemental Eligible Account Holders or Other
Members, except as discussed below. See "- Tax Aspects."

     Effect on Liquidation Rights. If the Mutual Holding Company were to
liquidate, all claims of creditors (including those of depositors, to the extent
of deposit balances) would be paid first. Thereafter, if there were any assets
remaining, depositors would be entitled to such remaining assets, pro rata,
based upon the deposit balances in their deposit accounts immediately prior to
liquidation. In the unlikely event that the Bank were to liquidate after
Conversion, all claims of creditors (including those of depositors, to the
extent of their deposit balances) would also be paid first, followed by
distribution of the "liquidation account" to certain depositors (see "-
Liquidation Rights"), with any assets remaining thereafter distributed to the
Company as the holder of the Bank's capital stock. Pursuant to the rules and
regulations of the OTS, a post-Conversion merger, consolidation, sale of bulk
assets or similar combination or transaction with another insured savings
institution would not be considered a liquidation and, in such a transaction,
the liquidation account would be assumed by the surviving institution.

EFFECT ON EXISTING COMPENSATION PLANS

     Under the Plan, the Bank's 1992 Stock Option Plans and 1996 Incentive Plan
will become stock benefit plans of the Company and the Bank's 1992 ESOP will
continue as a benefit plan of the Bank and shares of Common Stock will be issued
(or reserved for issuance) pursuant to such benefit plans. See "Management of
the Bank - Benefits."

STOCK PRICING AND EXCHANGE RATIO

     The Plan of Conversion requires that the Aggregate Purchase Price of the
Conversion Stock must be based on the appraised pro forma market value of the
Company's Common Stock, as determined on the basis of an independent valuation.
The Primary Parties have retained FinPro to make such valuation. For its
services in making such appraisal, FinPro will receive a fee of $25,000, plus
reasonable expenses. The Primary Parties have agreed to indemnify FinPro and its
employees and affiliates against certain losses (including any losses in
connection with claims under the federal securities laws) arising out of its
services as appraiser, except where FinPro liability results from its
negligence, willful misconduct or bad faith.

                                      112
<PAGE>
 
     An appraisal has been made by FinPro in reliance upon the information
contained in this Prospectus, including the Consolidated Financial Statements.
FinPro also considered the following factors, among others: the present and
projected operating results and financial condition of the Primary Parties and
the economic and demographic conditions in the Mutual Holding Company's and the
Bank's existing marketing area; certain historical, financial and other
information relating to the Mutual Holding Company and the Bank; a comparative
evaluation of the operating and financial statistics of the Bank with those of
other similarly situated publicly-traded savings banks and savings institutions
located in the Mutual Holding Company's and the Bank's primary market area and
northeastern United States; the aggregate size of the offering of the Conversion
Stock; the impact of Conversion and Reorganization on the Mutual Holding
Company's and the Bank's net worth and earnings potential; the proposed dividend
policy of the Company and the Bank; and the trading market for the Bank Common
Stock and securities of comparable institutions and general conditions in the
market for such securities.

     On the basis of the foregoing, FinPro has advised the Primary Parties in
its opinion the estimated pro forma market value of the Company's Common Stock,
after giving effect to the Conversion and Reorganization, was $240.0 million as
of December 18, 1997. Because the holders of the Public Bank Shares will
continue to hold the same aggregate percentage ownership interest in the Company
as they currently hold in the Bank (before giving effect to the payment of cash
in lieu of issuing fractional Exchange Shares, and any shares of Conversion
Stock purchased by the Bank's stockholders in the Offerings or by the ESOP
thereafter), the Appraisal was multiplied by the Mutual Holding Company's
percentage interest in the Bank which corresponds with the amount of Conversion
Stock to be sold in the Offerings (i.e., 51.6%), to determine the midpoint of
the valuation ($123.8 million), and the minimum and maximum of the valuation
were set at 15% below and above the midpoint, respectively, resulting in a range
of $105.3 million to $142.4 million. The Boards of Directors of the Primary
Parties determined that the Conversion Stock would be sold at $10.00 per share,
resulting in a range of 10,526,917 to 14,242,072 shares of Conversion Stock
being offered. Upon consummation of the Conversion and Reorganization, the
Conversion Stock and the Exchange Shares will represent approximately 51.6% and
48.4%, respectively, of the Company's total outstanding shares. The Boards of
Directors of the Primary Parties reviewed FinPro's appraisal report, including
the methodology and the assumptions used by FinPro, and determined that the
Valuation Price Range was reasonable and adequate. The Boards of Directors of
the Primary Parties also established the formula for determining the Exchange
Ratio. Based upon such formula and the Valuation Price Range, the Exchange Ratio
ranged from a minimum of 2.5436 to a maximum of 3.4414 Exchange Shares for each
Public Bank Shares, with a midpoint of 2.9925. Based upon these Exchange Ratios,
the Company expects to issue between 9,873,083 and 13,357,928 shares of Exchange
Shares to the holders of Public Bank Shares outstanding immediately prior to the
consummation of the Conversion and Reorganization. The Valuation Price Range and
the Exchange Ratio may be amended with the approval of the OTS, if required, or
if necessitated by subsequent developments in the financial condition of any of
the Primary Parties or market conditions generally. In the event the Appraisal
is updated to below $204.0 million or above $317.4 million (the maximum of the
Valuation Price Range, as adjusted by 15%), such Appraisal will be filed with
the SEC by post-effective amendment.

     Based upon current market and financial conditions and recent practices and
policies of the OTS, in the event the Company receives orders for Conversion
Stock in excess of $142.4 million (the maximum of the Valuation Price Range) and
up to $163.8 million (the maximum of the Valuation Price Range, as adjusted by
15%), the Company may be required by the OTS to accept all such orders. No
assurances, however, can be made that the Company will receive orders for
Conversion Stock in excess of the maximum of the Valuation Price Range or that,
if such orders are received, that all such orders will be accepted because the
Company's final valuation and number of shares to be issued are subject to the
receipt of an updated appraisal from FinPro, which reflects such an increase in
the valuation and the approval of such increase by the OTS. 

                                      113
<PAGE>
 
There is no obligation or understanding on the part of management to take and/or
pay for any shares of Conversion Stock in order to complete the Offerings.

     The following table sets forth, based upon the minimum, midpoint, maximum
and 15% above the maximum of the Valuation Price Range, the following: (i) the
total number of shares of Conversion Stock and Exchange Shares; (ii) the
percentage of the total Common Stock represented by the Conversion Stock and the
Exchange Shares; and (iii) the Exchange Ratio. The table assumes that there is
no cash paid in lieu of issuing fractional Exchange Shares.


<TABLE>
<CAPTION>
                                   CONVERSION STOCK             EXCHANGE SHARES          TOTAL SHARES                              
                                   TO BE OFFERED(1)            TO BE ISSUED(1)(2)          OF COMMON                               
                               -----------------------       -----------------------                                               
                                                                                          STOCK TO BE         EXCHANGE             
                                 AMOUNT        PERCENT         AMOUNT        PERCENT     OUTSTANDING(1)       RATIO(1)             
<S>                            <C>             <C>           <C>             <C>         <C>                  <C>                  
Minimum.....................   10,526,917         51.6%       9,873,083         48.4%       20,400,000          2.5436             
Midpoint....................   12,384,495         51.6       11,615,505         48.4        24,000,000          2.9925             
Maximum.....................   14,242,072         51.6       13,357,928         48.4        27,600,000          3.4414             
15% above maximum...........   16,378,421         51.6       15,361,579         48.4        31,740,000          3.9576              

</TABLE>

________________________________
(1)  Assumes that outstanding options to purchase 142,541 shares of Bank Common
     Stock at October 31, 1997 are not exercised prior to consummation of the
     Conversion and Reorganization.
(2)  Based upon 3,881,539 Public Bank Shares outstanding as of October 31, 1997.
     Does not reflect unexercised options.

     SUCH VALUATION, HOWEVER, IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING SUCH SHARES.
FINPRO DID NOT INDEPENDENTLY VERIFY THE CONSOLIDATED FINANCIAL STATEMENTS AND
OTHER INFORMATION PROVIDED BY THE BANK AND THE MUTUAL HOLDING COMPANY, NOR DID
FINPRO VALUE INDEPENDENTLY THE ASSETS OR LIABILITIES OF THE BANK AND THE MUTUAL
HOLDING COMPANY. THE VALUATION CONSIDERS THE BANK AND THE MUTUAL HOLDING COMPANY
AS GOING CONCERNS AND SHOULD NOT BE CONSIDERED AS AN INDICATION OF THE
LIQUIDATION VALUE OF THE BANK AND THE MUTUAL HOLDING COMPANY. MOREOVER, BECAUSE
SUCH VALUATION IS NECESSARILY BASED UPON ESTIMATES AND PROJECTIONS OF A NUMBER
OF MATTERS, ALL OF WHICH ARE SUBJECT TO CHANGE FROM TIME TO TIME, NO ASSURANCE
CAN BE GIVEN THAT PERSONS PURCHASING CONVERSION STOCK OR RECEIVING EXCHANGE
STOCK IN THE CONVERSION AND REORGANIZATION WILL THEREAFTER BE ABLE TO SELL SUCH
SHARES AT PRICES AT OR ABOVE THE PURCHASE PRICE OR IN THE RANGE OF THE FOREGOING
VALUATION OF THE PRO FORMA MARKET VALUE THEREOF. SEE "MARKET FOR THE COMMON
STOCK."

     Following commencement of the Subscription and Community Offerings, the
maximum of the Estimated Price Range may be increased up to 15% and the number
of shares of Conversion Stock to be issued in the Conversion may be increased to
16,378,421 shares due to regulatory considerations or changes in market or
general financial and economic conditions, without the resolicitation of
subscribers. See "- Limitations on Conversion Stock Purchases" as to the method
of distribution and allocation of additional shares that may be issued in the
event of an increase in the Estimated Price Range to fill unfilled orders in the
Subscription and Community Offerings.

     No sale of shares of Conversion Stock may be consummated unless, prior to
such consummation, FinPro confirms to the Primary Parties and the OTS that, to
the best of its knowledge, nothing of a material nature has occurred which,
taking into account all relevant factors, would cause FinPro to conclude that
the value of the Conversion Stock at the price so determined is incompatible
with its estimate of the pro forma market value of the Common Stock at the
conclusion of the Subscription and Community Offerings.

     If the pro forma market value of the Common Stock is either more than 15%
above the maximum of the Estimated Price Range or less than the minimum of the
Estimated Price Range, the Bank and the

                                      114
<PAGE>
 
Company, after consulting with the OTS, may terminate the Plan and return all
funds promptly with interest at the Bank's passbook rate of interest on payments
made by check, bank draft or money order, extend or hold a new Subscription and
Community Offering, establish a new Estimated Price Range, commence a
resolicitation of subscribers or take such other actions as permitted by the OTS
in order to complete the Conversion. In the event that a resolicitation is
commenced, unless an affirmative response is received within a reasonable period
of time, all funds will be promptly returned to investors as described above. A
resolicitation, if any, following the conclusion of the Subscription and
Community Offerings would not exceed 45 days unless further extended by the OTS
for periods of up to 90 days not to extend beyond ____________________, 2000.

     If all shares of Conversion Stock are not sold through the Subscription and
Community Offerings, then the Bank and the Company expect to offer the remaining
shares in a Syndicated Community Offering which would occur as soon as
practicable following the close of the Subscription and Community Offerings but
may commence during the Subscription and Community Offerings subject to prior
rights of subscribers. All shares of Conversion Stock will be sold at the same
price per share in the Syndicated Community Offering as in the Subscription and
Community Offerings. See "--Syndicated Community Offering."

     No sale of shares of Conversion Stock may be consummated unless, prior to
such consummation, FinPro confirms to the Bank, the Company and the OTS that, to
the best of its knowledge, nothing of a material nature has occurred which,
taking into account all relevant factors, including those which would be
involved in a cancellation of the Syndicated Community Offering, would cause
FinPro to conclude that the aggregate value of the Conversion Stock at the
Purchase Price is incompatible with its estimate of the pro forma market value
of the Common Stock of the Company at the time of the Syndicated Community
Offering. Any change which would result in an aggregate purchase price which is
below or more than 15% above the Estimated Price Range would be subject to OTS
approval. If such confirmation is not received, the Primary Parties may extend
the Offerings, extend, reopen or commence new Subscription and Community
Offerings or Syndicated Community Offering, establish a new Estimated Price
Range and commence a resolicitation of all subscribers with the approval of the
OTS or take such other actions as permitted by the OTS in order to complete the
Conversion and Reorganization, or terminate the Plan and cancel the Subscription
and Community Offerings and/or the Syndicated Community Offering. In the event
market or financial conditions change so as to cause the aggregate purchase
price of the shares to be below the minimum of the Estimated Price Range or more
than 15% above the maximum of such range, and the Company and the Bank determine
to continue the Conversion and Reorganization, subscribers will be resolicited
(i.e., be permitted to continue their orders, in which case they will need to
affirmatively reconfirm their subscriptions prior to the expiration of the
resolicitation offering or their subscription funds will be promptly refunded
with interest at the Bank's passbook rate of interest, or be permitted to
decrease or cancel their subscriptions). Any change in the Estimated Price Range
must be approved by the OTS. A resolicitation, if any, following the conclusion
of the Subscription and Community Offerings would not exceed 45 days, or if
following the Syndicated Community Offering, 90 days, unless further extended by
the OTS for periods up to 90 days not to extend beyond ____________, 2000. If
such resolicitation is not effected, the Bank will return all funds promptly
with interest at the Bank's passbook rate of interest on payments made by check,
bank draft or money order.

     Copies of the appraisal report of FinPro including any amendments thereto,
and the detailed memorandum of the appraiser setting forth the method and
assumptions for such appraisal are available for inspection at the main office
of the Bank and the other locations specified under "Additional Information."

                                      115
<PAGE>
 
INTERPRETATION, AMENDMENT AND TERMINATION

     All interpretations of the Plan by the Boards of Directors of the Primary
Parties will be final, subject to the authority of the OTS, including but not
limited to interpretations relating to residence requirements applicable to
subscribers and purchase limitations. The Plan provides that, if deemed
necessary or desirable by the Boards of Directors of the Primary Parties, the
Plan may be substantively amended prior to the solicitation of proxies from
members entitled to vote on the Plan by a two-thirds vote of the Boards of
Directors; amendment of the Plan thereafter requires the approval of the OTS.
The Plan will terminate if the sale of all shares of stock being offered
pursuant to the Plan is not completed prior to 24 months after the date of the
Special Meeting. The Plan may be terminated by a two-thirds vote of the Boards
of Directors of the Primary Parties at any time prior to the Special Meeting,
and thereafter by such a vote with the approval of the OTS.

NUMBER OF SHARES TO BE ISSUED

     Depending upon market or financial conditions following the commencement
of the Subscription and Community Offerings, the total number of shares of
Conversion Stock to be issued in the Conversion and Reorganization may be
increased or decreased without a resolicitation of subscribers, provided that
the product of the total number of shares times the price per share is not below
the minimum of the Estimated Price Range or more than 15% above the maximum of
the Estimated Price Range. Based on a fixed purchase price of $10.00 per share
and the FinPro estimate of the pro forma market value of the Conversion Stock
ranging from a minimum of $105.3 million to a maximum, as increased by 15%, of
$163.8 million, the number of shares of Conversion Stock expected to be issued
is between a minimum of 10,526,917 shares and a maximum, as adjusted by 15%, of
16,378,421 shares. The actual number of shares issued between this range will
depend on a number of factors and shall be determined by the Primary Parties
subject to OTS approval, if necessary.

     In the event market or financial conditions change so as to cause the
aggregate purchase price of the shares to be below the minimum of the Estimated
Price Range or more than 15% above the maximum of the Estimated Price Range and,
if the Plan is not terminated by the Primary Parties after consultation with the
OTS, purchasers will be resolicited (i.e., permitted to continue their orders,
in which case they will need to affirmatively reconfirm their subscriptions
prior to the expiration of the resolicitation offering or their subscription
funds will be promptly refunded, or be permitted to modify or rescind their
subscriptions). Any change in the Estimated Price Range must be approved by the
OTS. If the number of shares issued in the Conversion and Reorganization is
increased due to an increase of up to 15% in the Estimated Price Range to
reflect changes in market or financial condition, persons who subscribed for the
maximum number of shares will not be given the opportunity to subscribe for an
adjusted maximum number of shares, except for the ESOP which will be able to
subscribe for such adjusted amount. See "- Limitations on Conversion Stock
Purchases." Any increase or decrease in the number of shares of Common Stock
will result in a corresponding change in the number of Exchange Shares, so that
upon consummation of the Conversion and Reorganization, the Conversion Stock and
the Exchange Shares will represent approximately 51.6% and 48.4%, respectively,
of the Company's total outstanding shares of Common Stock.

     An increase in the number of shares of Conversion Stock as a result of an
increase in the estimated pro forma market value would decrease both a
subscriber's ownership interest and the Company's pro forma net earnings and
stockholders' equity on a per share basis while increasing pro forma net
earnings and stockholders' equity on an aggregate basis. A decrease in the
number of shares of Conversion Stock would increase both a subscriber's
ownership interest and the Company's pro forma net earnings and stockholders'
equity on a per share basis while decreasing pro forma net earnings and
stockholder's equity on an aggregate basis. For a presentation of the effects of
such changes, see "Pro Forma Data."

                                      116
<PAGE>
 
SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS

     In accordance with the Plan of Conversion, rights to subscribe for the
purchase of Conversion Stock have been granted under the Plan of Conversion to
the following persons in the following order of descending priority: (1) holders
of savings accounts with a balance of $50 or more as of December 31, 1995
("Eligible Account Holders"); (2) the ESOP; (3) holders of savings accounts with
a balance of $50 or more as of December 31, 1997 ("Supplemental Eligible Account
Holders"); and (4) members of the Bank, consisting of depositors of the Bank as
of ___________, 1998, the Voting Record Date, and borrowers with loans
outstanding as of July 10, 1992, which continue to be outstanding as of the
Voting Record Date other than Eligible Account Holders and Supplemental Eligible
Account Holders ("Other Members"). All subscriptions received will be subject to
the availability of Conversion Stock after satisfaction of all subscriptions of
all persons having prior rights in the Subscription Offering and to the maximum
and minimum purchase limitations set forth in the Plan of Conversion and as
described below under "- Limitations on Conversion Stock Purchases."

     Priority 1: Eligible Account Holders. Each Eligible Account Holder will
receive, without payment therefor, first priority, nontransferable subscription
rights to subscribe for in the Subscription Offering up to the greater of the
amount permitted to be purchased in the Community Offering, currently $250,000
of Conversion Stock offered, one-tenth of one percent (.10%) of the total
offering of shares of Conversion Stock or fifteen times the product (rounded
down to the next whole number) obtained by multiplying the total number of
shares of Conversion Stock to be issued by a fraction of which the numerator is
the amount of the Eligible Account Holder's Qualifying Deposit (defined by the
Plan as any savings account in the Bank with a balance of $50 or more as of
December 31, 1995) and the denominator is the total amount of Qualifying
Deposits of all Eligible Account Holders, in each case on the Eligibility Record
Date, subject to the overall purchase limitation and exclusive of an increase in
the shares issued pursuant to an increase in the Estimated Price Range of up to
15%. See "-Limitations on Conversion Stock Purchases."

     In the event that Eligible Account Holders exercise subscription rights for
a number of shares in excess of the total number of shares eligible for
subscription, the shares will be allocated so as to permit each subscribing
Eligible Account Holder to purchase a number of shares sufficient to make his
total allocation equal to the lesser of 100 shares or the number of shares
subscribed for. Thereafter, unallocated shares will be allocated among the
remaining subscribing Eligible Account Holders whose subscriptions remain
unfilled in the proportion that the amounts of their respective Qualifying
Deposits bear to the total amount of Qualifying Deposits of all remaining
Eligible Account Holders whose subscriptions remain unfilled, exclusive of any
increase in the shares issued pursuant to an increase in the Estimated Price
Range of up to 15%.

     To ensure proper allocation of stock, each Eligible Account Holder must
list on his subscription order form all accounts in which he has an ownership
interest. Failure to list an account could result in less shares being allocated
than if all accounts had been disclosed. The subscription rights of Eligible
Account Holders who are also Directors or Officers of the Bank or their
associates will be subordinated to the subscription rights of other Eligible
Account Holders to the extent attributable to increased deposits in the year
preceding December 31, 1994.

     Priority 2: Employee Stock Ownership Plan. To the extent that there are
sufficient shares remaining after satisfaction of the subscriptions by Eligible
Account Holders, the ESOP will receive, without payment therefor, second
priority, nontransferable subscription rights to purchase, in the aggregate, up
to 10% of Conversion Stock issued in the Conversion, including any increase in
the number of shares of Conversion Stock to be issued in the Conversion after
the date hereof as a result of an increase of up to 15% in the maximum of the
Estimated Price Range. The ESOP intends to purchase 8% of the shares to be
issued in the 

                                      117
<PAGE>
 
Conversion or 842,153 shares and 1,139,365 shares, based on the issuance of
10,526,917 shares and 14,242,072 shares, respectively. Subscriptions by the ESOP
will not be aggregated with shares of Conversion Stock purchased directly by or
which are otherwise attributable to any other participants in the Subscription
and Community Offerings, including subscriptions of any of the Bank's directors,
officers, employees or associates thereof. See "Management of the Bank - Benefit
Plans - Employee Stock Ownership Plan and Trust."

     Priority 3: Supplemental Eligible Account Holders. Each Supplemental
Eligible Account Holder will receive, without payment therefor, third priority,
nontransferable subscription rights to subscribe for in the Subscription
Offering up to the greater of the amount permitted to be purchased in the
Community Offering, currently $250,000 of Conversion Stock offered, one-tenth of
one percent (.10%) of the total offering of shares of Conversion Stock or
fifteen times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Conversion Stock to be issued by a
fraction of which the numerator is the amount of the Supplemental Eligible
Account Holder's Qualifying Deposit and the denominator is the total amount of
Qualifying Deposits of all Supplemental Eligible Account Holders, in each case
on the Supplemental Eligibility Record Date, subject to the overall purchase
limitation and exclusive of an increase in the shares issued pursuant to an
increase in the Estimated Price Range of up to 15%. See "- Limitations on
Conversion Stock Purchases."

     In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares in excess of the total number of
shares eligible for subscription, the shares will be allocated so as to permit
each subscribing Supplemental Eligible Account Holder, to the extent possible,
to purchase a number of shares sufficient to make his total allocation equal to
the lesser of 100 shares or the number of shares subscribed for. Thereafter,
unallocated shares will be allocated among the remaining subscribing
Supplemental Eligible Account Holders whose subscriptions remain unfilled in the
proportion that the amounts of their respective Qualifying Deposits bear to the
total amount of Qualifying Deposits of all remaining Supplemental Eligible
Account Holders whose subscriptions remain unfilled, exclusive of any increase
in the shares issued pursuant to an increase in the Estimated Price Range of up
to 15%.

     To ensure proper allocation of stock, each Supplemental Eligible Account
Holder must list on his subscription order form all accounts in which he has an
ownership interest. Failure to list an account could result in less shares being
allocated than if all accounts had been disclosed. The subscription rights
received by Eligible Account Holders will be applied in partial satisfaction to
the subscription rights to be received as a Supplemental Eligible Account
Holder.

     Priority 4: Other Members. To the extent that there are sufficient shares
remaining after satisfaction of subscriptions by the Eligible Account Holders,
the ESOP and the Supplemental Eligible Account Holders, each Other Member will
receive, without payment therefor, fourth priority nontransferable subscription
rights to subscribe for Conversion Stock in the Subscription Offering up to the
greater of the amount permitted to be purchased in the Community Offering,
currently $250,000 of Conversion Stock offered, or one-tenth of one percent
(.10%) of the total offering of shares of Conversion Stock, subject to the
overall purchase limitation and exclusive of an increase in shares issued
pursuant to an increase in the Estimated Price Range of up to 15%. See "-
Limitations on Conversion Stock Purchases."

     In the event that Other Members exercise subscription rights for a number
of shares in excess of the total number of shares eligible for subscription, the
shares will be allocated so as to permit each subscribing Other Member, to the
extent possible, to purchase a number of shares sufficient to make his total
allocation equal to the lesser of 100 shares or the number of shares subscribed
for. Thereafter, unallocated shares will be allocated among the remaining
subscribing Other Members whose subscriptions remain unfilled on a pro 

                                      118
<PAGE>
 
rata basis in the same proportion as a subscribing Other Member's total votes on
the Voting Record Date for the Special Meeting bears to the total votes of all
subscribing Other Members on such date.

     Expiration Date for the Subscription Offering. The Subscription Offering
will expire at ______ .m., New Jersey time, on ___________, 1998, unless
extended for up to 45 days by the Primary Parties or such additional periods
with the approval of the OTS. Subscription rights which have not been exercised
prior to the Expiration Date will become void.

     The Primary Parties will not execute orders until all shares of Conversion
Stock have been subscribed for or otherwise sold. If all shares have not been
subscribed for or sold within 45 days after the Expiration Date, unless such
period is extended with the consent of the OTS, all funds delivered to the Bank
pursuant to the Subscription Offering will be returned promptly to the
subscribers with interest and all withdrawal authorizations will be canceled. If
an extension beyond the 45 day period following the Expiration Date is granted,
the Primary Parties will notify subscribers of the extension of time and of any
rights of subscribers to modify or rescind their subscriptions and have their
funds returned promptly with interest, and of the time period within which
subscribers must affirmatively notify the Primary Parties of their intention to
confirm, modify, or rescind their subscription. If an affirmative response to
any resolicitation is not received by the Company from a subscriber, such order
will be rescinded and all subscription funds will be promptly returned with
interest. Such extensions may not go beyond __________, 2000.

COMMUNITY OFFERING

     To the extent that shares remain available for purchase after satisfaction
of all subscriptions of the Eligible Account Holders, the ESOP, the Supplemental
Eligible Account Holders and Other Members, the Primary Parties have determined
to offer shares pursuant to the Plan to certain members of the general public,
with a preference given to holders of Public Bank Shares, subject to the right
of the Company to accept or reject any such orders, in whole or in part, in
their sole discretion. Such persons, together with associates of and persons
acting in concert with such persons, may purchase up to $250,000 of Conversion
Stock offered subject to the maximum overall purchase limitation and exclusive
of shares issued pursuant to an increase in the Estimated Price Range by up to
15%. See "- Limitations on Conversion Stock Purchases." This amount may be
increased to up to a maximum of 5% of the Conversion Stock offered or decreased
to less than $250,000 of Conversion Stock at the sole discretion of the Primary
Parties. THE OPPORTUNITY TO SUBSCRIBE FOR SHARES OF CONVERSION STOCK IN THE
COMMUNITY OFFERING CATEGORY IS SUBJECT TO THE RIGHT OF THE PRIMARY PARTIES, IN
THEIR SOLE DISCRETION, TO ACCEPT OR REJECT ANY SUCH ORDERS IN WHOLE OR IN PART
EITHER AT THE TIME OF RECEIPT OF AN ORDER OR AS SOON AS PRACTICABLE FOLLOWING
THE EXPIRATION DATE.

     Subject to the foregoing, if the amount of stock remaining is insufficient
to fill the orders of the Public Stockholders after completion of the
Subscription and Community Offerings, such stock will be allocated first to each
holder of Public Bank Shares whose order is accepted by the Bank, in an amount
equal to the lesser of 100 shares or the number of shares subscribed for by each
such Public Stockholder, if possible. Thereafter, unallocated shares will be
allocated among the Public Stockholders whose order remains unsatisfied on a 100
shares per order basis until all such orders have been filled or the remaining
shares have been allocated. To the extent that there are shares remaining after
all subscriptions by Public Stockholders have been filed, shares will be
allocated, applying the same allocation formula described above, to Preferred
Subscribers. If there are any shares remaining, shares will be allocated to
other persons of the general public who purchase in the Community Offering
applying the same allocation described above for Public Stockholders and
Preferred Subscribers.

     Persons in Nonqualified States or Foreign Countries. The Primary Parties
will make reasonable efforts to comply with the securities laws of all states in
the United States in which persons entitled to

                                      119
<PAGE>
 
subscribe for stock pursuant to the Plan reside. However, the Plan provides that
the Primary Parties are not required to offer stock in the Subscription Offering
to any person who resides in a foreign country or resides in a state of the
United States with respect to which both of the following apply: (i) a small
number of persons otherwise eligible to subscribe for shares of Conversion Stock
reside in such state; and (ii) the Primary Parties determines that compliance
with the securities laws of such state would be impracticable for reasons of
cost or otherwise, including but not limited to a request that the Primary
Parties or their officers, directors or trustees register as a broker, dealer,
salesman or selling agent, under the securities laws of such state, or a request
to register or otherwise qualify the subscription rights or Conversion Stock for
sale or submit any filing with respect thereto in such state. Where the number
of persons eligible to subscribe for shares in one state is small, the Primary
Parties will base their decision as to whether or not to offer the Conversion
Stock in such state on a number of factors, including the size of accounts held
by account holders in the state, the cost of registering or qualifying the
shares or the need to register the Company, its officers, directors or employees
as brokers, dealers or salesmen.

MARKETING AND UNDERWRITING ARRANGEMENTS

     The Bank has engaged Sandler O'Neill as a consultant and financial advisor
in connection with the offering of the Conversion Stock, and Sandler O'Neill has
agreed to use its best efforts to assist the Company with the solicitation of
subscriptions and purchase orders for shares of Conversion Stock in the
Offerings. Based upon negotiations between the Primary Parties concerning fee
structure, Sandler O'Neill will receive a equal to 1.15% of the aggregate
Purchase Price of all shares sold in Subscription Offering and Community
Offering, excluding shares purchased by directors, officers, employees and any
immediate family member thereof and the ESOP for which Sandler O'Neill will not
receive a fee. In the event that a selected dealers agreement is entered into in
connection with a Syndicated Community Offering, the Bank will pay a fee (to be
negotiated at such time under such agreement) to such selected dealers, any
sponsoring dealers fees, and a management fee to Sandler O'Neill of 1.15% for
shares sold by a National Association of Securities Dealers, Inc. ("NASD")
member firm pursuant to a selected dealers agreement; provided, however, that
any fees payable to Sandler O'Neill for Conversion Stock sold by them pursuant
to such a selected dealers agreement shall not exceed 1.15% of the Purchase
Price and provided, further, however, that the aggregate fees payable to Sandler
O'Neill and the selected dealers will not exceed 7.0% of the aggregate purchase
price of the Conversion Stock sold by selected dealers. Fees to Sandler O'Neill
and to any other broker-dealer may be deemed to be underwriting fees, and
Sandler O'Neill and such broker-dealers may be deemed to be underwriters.
Notwithstanding the foregoing, in the event the Offerings are not consummated or
Sandler O'Neill ceases, under certain circumstances after the subscription
solicitation activities are commenced, to provide assistance to the Company,
Sandler O'Neill will be entitled to a fee for its management advisory services
in an amount to be agreed upon by the Bank and Sandler O'Neill, and based upon
the amount of services performed by Sandler O'Neill and will also be reimbursed
for its reasonable out-of-pocket expenses as described above. The Primary
Parties have agreed to indemnify Sandler O'Neill for reasonable costs and
expenses in connection with claims or liabilities under applicable federal or
state law, or otherwise, related to or arising out of the Conversion except to
the extent that such claim or liability arose out of or was based upon any
untrue statement of material fact, omission of a material fact related to or
made in reliance upon and in conformity with written information furnished to
the Primary Parties by Sandler O'Neill or such claim or liability was primarily
attributable to the gross negligence, willful misconduct or bad faith of Sandler
O'Neill. Such claims and liabilities could include claims under the federal and
state securities laws. Sandler O'Neill has received advances towards its fees
totaling $25,000. Total marketing fees to Sandler O'Neill are expected to be
$1.1 million and $1.5 million at the minimum and the maximum of the Estimated
Price Range, respectively. See "Pro Forma Data" for the assumptions used to
arrive at these estimates.

                                      120
<PAGE>
 
     Sandler O'Neill also will perform proxy solicitation services, conversion
agent services and records management services for the Primary Parties in the
Conversion and is expected to receive a fee for these services of approximately
$10,000. Sandler O'Neill has received advances toward its fees for these
services totaling $5,000.

     Directors and executive officers of the Primary Parties may participate in
the solicitation of offers to purchase Common Stock. Questions of prospective
purchasers will be directed to executive officers or registered representatives.
Other employees of the Bank may participate in the Offering in administrative
capacities or providing clerical work in effecting a sales transaction. Such
other employees have been instructed not to solicit offers to purchase Common
Stock or provide advice regarding the purchase of Common Stock. The Company will
rely on Rule 3a4-1 under the Exchange Act, and sales of Common Stock will be
conducted within the requirements of Rule 3a4-1, so as to permit officers,
directors and employees to participate in the sale of Common Stock. No officer,
director or employee of Primary Parties will be compensated in connection with
his participation by the payment of commissions or other remuneration based
either directly or indirectly on the transactions in the Conversion Stock.

PROCEDURE FOR PURCHASING SHARES IN SUBSCRIPTION AND COMMUNITY OFFERINGS

     To ensure that each purchaser receives a prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of the Exchange Act,
no prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the stock
order form and certification form will confirm receipt or delivery in accordance
with Rule 15c2-8. Stock order and certification forms will only be distributed
with a prospectus.

     To purchase shares in the Subscription and Community Offerings, an executed
stock order form and certification form with the required payment for each share
subscribed for, or with appropriate authorization for withdrawal from the Bank's
deposit account (which may be given by completing the appropriate blanks in the
stock order form), must be received by the Bank at any of its offices by 12:00
noon, New Jersey Time, on the Expiration Date. Stock order forms which are not
received by such time or are executed defectively or are received without full
payment (or appropriate withdrawal instructions) are not required to be
accepted. In addition, the Primary Parties are not obligated to accept orders
submitted on photocopied or facsimilied stock order forms and will not accept
stock order forms unaccompanied by an executed certification form.
Notwithstanding the foregoing, the Company shall have the right, in its sole
discretion, to permit institutional investors to submit irrevocable orders
together with a legally binding commitment for payment and to thereafter pay for
the shares of Conversion Stock for which they subscribe in the Community
Offering at any time prior to 48 hours before the completion of the Conversion.
The Primary Parties have the right to waive or permit the correction of
incomplete or improperly executed forms, but do not represent that they will do
so. Once received, an executed stock order form may not be modified, amended or
rescinded without the consent of the Primary Parties unless the Conversion has
not been completed within 45 days after the end of the Subscription and
Community Offerings, unless such period has been extended.

     In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the Eligibility Record Date (December 31,
1995) and/or the Supplemental Eligibility Record Date (December 31, 1997) and/or
the Voting Record Date (__________, 1998) must list all accounts on the stock
order form giving all names in each account and the account number.

     Payment for subscriptions may be made (i) in cash if delivered in person at
any branch office of the Bank, (ii) by check, bank draft or money order, or
(iii) by authorization of withdrawal from deposit accounts maintained with the
Bank. No wire transfers will be accepted. Interest will be paid on payments made
by 

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cash, check, bank draft or money order at the Bank's passbook rate of interest
from the date payment is received until the completion or termination of the
Conversion and Reorganization. If payment is made by authorization of withdrawal
from deposit accounts, the funds authorized to be withdrawn from a deposit
account will continue to accrue interest at the contractual rates until
completion or termination of the Conversion and Reorganization, but a hold will
be placed on such funds, thereby making them unavailable to the depositor until
completion or termination of the Conversion and Reorganization.

     If a subscriber authorizes the Bank to withdraw the amount of the purchase
price from his deposit account, the Bank will do so as of the effective date of
the Conversion and Reorganization. The Bank will waive any applicable penalties
for early withdrawal from certificate accounts. If the remaining balance in a
certificate account is reduced below the applicable minimum balance requirement
at the time that the funds actually are transferred under the authorization, the
certificate will be canceled at the time of the withdrawal, without penalty, and
the remaining balance will earn interest at the Bank's passbook rate.

     If the ESOP subscribes for shares during the Subscription Offering, the
ESOP will not be required to pay for the shares subscribed for at the time it
subscribes, but rather, may pay for such shares of Conversion Stock subscribed
for at the Purchase Price upon consummation of the Subscription and Community
Offering, if all shares are sold, or upon consummation of the Syndicated
Community Offering if shares remain to be sold in such offering; provided, that
there is in force from the time of its subscription until such time, a loan
commitment from an unrelated financial institution or the Company to lend to the
ESOP, at such time, the aggregate Purchase Price of the shares for which it
subscribed.

     Owners of self-directed Individual Retirement Accounts ("IRAs") may use the
assets of such IRAs to purchase shares of Conversion Stock in the Subscription
and Community Offerings, provided that such IRAs are not maintained at the Bank.
Persons with self-directed IRAs maintained at the Bank must have their accounts
transferred to an unaffiliated institution or broker to purchase shares of
Common Stock in the Subscription and Community Offerings. In addition, the
provisions of ERISA and IRS regulations require that officers, directors and 10%
shareholders who use self-directed IRA funds to purchase shares of Conversion
Stock in the Subscription and Community Offerings, make such purchases for the
exclusive benefit of the IRAs.

     Certificates representing shares of Conversion Stock purchased will be
mailed to purchasers at the address specified in properly completed stock order
forms, as soon as practicable following consummation of the sale of all shares
of Conversion Stock. Any certificates returned as undeliverable will be disposed
of in accordance with applicable law.

RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES

     Prior to the completion of the Conversion and Reorganization, the OTS
conversion regulations prohibit any person with subscription rights, including
the Eligible Account Holders, the ESOP, the Supplemental Eligible Account
Holders and Other Members of the Bank, from transferring or entering into any
agreement or understanding to transfer the legal or beneficial ownership of the
subscription rights issued under the Plan or the shares of Conversion Stock to
be issued upon their exercise. Such rights may be exercised only by the person
to whom they are granted and only for his account. Each person exercising such
subscription rights will be required to certify that he is purchasing shares
solely for his own account and that he has no agreement or understanding
regarding the sale or transfer of such shares. The regulations also prohibit any
person from offering or making an announcement of an offer or intent to make an
offer to purchase such subscription rights or shares of Conversion Stock prior
to the completion of the Conversion and Reorganization.

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<PAGE>
 
     THE PRIMARY PARTIES WILL PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES
(INCLUDING FORFEITURE) IN THE EVENT THEY BECOME AWARE OF THE TRANSFER OF
SUBSCRIPTION RIGHTS AND WILL NOT HONOR ORDERS KNOWN BY THEM TO INVOLVE THE
TRANSFER OF SUCH RIGHTS.

SYNDICATED COMMUNITY OFFERING

     As a final step in the Conversion and Reorganization, the Plan provides
that, if feasible, all shares of Conversion Stock not purchased in the
Subscription and Community Offerings, if any, will be offered for sale to the
general public in a Syndicated Community Offering through a syndicate of
registered broker-dealers to be formed and managed by Sandler O'Neill acting as
agent of the Company to assist the Company and the Bank in the sale of the
Conversion Stock. The Company and the Bank have the right to reject orders in
whole or in part in their sole discretion in the Syndicated Community Offering.
Neither Sandler O'Neill nor any registered broker-dealer shall have any
obligation to take or purchase any shares of the Conversion Stock in the
Syndicated Community Offering, however, Sandler O'Neill have agreed to use their
best efforts in the sale of shares in the Syndicated Community Offering.

     The price at which Conversion Stock is sold in the Syndicated Community
Offering will be determined as described above under "- Stock Pricing and
Exchange Ratio." Subject to overall purchase limitations, no person, together
with any associate or group of persons acting in concert, will be permitted to
subscribe in the Syndicated Community Offering for more than $250,000 of the
total number of shares offered in the Conversion, exclusive of an increase in
shares issued pursuant to an increase in the Estimated Price Range of up to 15%;
provided, however, that shares of Conversion Stock purchased in the Community
Offering by any persons, together with associates of or persons acting in
concert with such persons, will be aggregated with purchases in the Syndicated
Community Offering and be subject to the overall maximum purchase limitation,
exclusive of an increase in shares issued pursuant to an increase in the
Estimated Price Range by up to 15%.

     Payments made in the form of a check, bank draft, money order or in cash
will earn interest at the Bank's passbook rate of interest from the date such
payment is actually received by the Bank until completion or termination of the
Conversion.

     In addition to the foregoing, if a syndicate of broker-dealers ("selected
dealers") is formed to assist in the Syndicated Community Offering, a purchaser
may pay for his shares with funds held by or deposited with a selected dealer.
If an order form is executed and forwarded to the selected dealer or if the
selected dealer is authorized to execute the order form on behalf of a
purchaser, the selected dealer is required to forward the order form and funds
to the Bank for deposit in a segregated account on or before noon of the
business day following receipt of the order form or execution of the order form
by the selected dealer. Alternatively, selected dealers may solicit indications
of interest from their customers to place orders for shares. Such selected
dealers shall subsequently contact their customers who indicated an interest and
seek their confirmation as to their intent to purchase. Those indicating an
intent to purchase shall execute order forms and forward them to their selected
dealer or authorize the selected dealer to execute such forms. The selected
dealer will acknowledge receipt of the order to its customer in writing on the
following business day and will debit such customer's account on the third
business day after the customer has confirmed his intent to purchase (the "debit
date") and on or before noon of the next business day following the debit date
will send order forms and funds to the Bank for deposit in a segregated account.
Although purchasers' funds are not required to be in their accounts with
selected dealers until the debit date in the event that such alternative
procedure is employed once a confirmation of an intent to purchase has been
received by the selected dealer, the purchaser has no right to rescind his
order. 

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<PAGE>
 
     Certificates representing shares of Conversion Stock purchased, together
with any refund due, will be mailed to purchasers at the address specified in
the order form, as soon as practicable following consummation of the sale of the
Conversion Stock. Any certificates returned as undeliverable will be disposed of
in accordance with applicable law.

     The Syndicated Community Offering will terminate no more than 45 days
following the Subscription Expiration Date, unless extended by the Company with
the approval of the OTS. Such extensions may not be beyond ____________, 2000.
See "- Stock Pricing and Exchange Ratio" above for a discussion of rights of
subscribers, if any, in the event an extension is granted.

LIMITATIONS ON CONVERSION STOCK PURCHASES

     The Plan includes the limitations set forth below on the number of shares
of Conversion Stock which may be purchased during the Conversion. The purchase
limits set forth in paragraphs (2), (4), (5), (6) and (7) are subject to the
overall maximum purchase limitations in (8) below which includes Exchange Shares
received by purchasers.

     (1)  No less than 25 shares;

     (2)  Each Eligible Account Holder may subscribe for and purchase in the
          Subscription Offering up to the greater of the amount permitted to be
          purchased in the Community Offering, currently $250,000 of Conversion
          Stock offered, one-tenth of one percent (.10%) of the total offering
          of shares of Conversion Stock or fifteen times the product (rounded
          down to the next whole number) obtained by multiplying the total
          number of shares of Conversion Stock to be issued by a fraction of
          which the numerator is the amount of the Qualifying Deposit of the
          Eligible Account Holder and the denominator is the total amount of
          Qualifying Deposits of all Eligible Account Holders in each case on
          the Eligibility Record Date subject to the overall maximum purchase
          limitation in (8) below and exclusive of an increase in the total
          number of shares issued due to an increase in the Estimated Price
          Range of up to 15%;

     (3)  The ESOP is permitted to purchase in the aggregate up to 10% of the
          shares of Conversion Stock issued in the Conversion and
          Reorganization, including shares issued in the event of an increase in
          the Estimated Price Range of 15% and intends to purchase 8% of the
          shares of Conversion Stock issued in the Conversion and
          Reorganization, including any increase in the number of shares to be
          issued after the date hereof as a result of an increase of up to 15%
          in the maximum of the Estimated Price Range;

     (4)  Each Supplemental Eligible Account Holder may subscribe for and
          purchase in the Subscription Offering up to the greater of the amount
          permitted to be purchased in the Community Offering, currently
          $250,000 of Conversion Stock offered, one-tenth of one percent (.10%)
          of the total offering of shares of Conversion Stock or fifteen times
          the product (rounded down to the next whole number) obtained by
          multiplying the total number of shares of Conversion Stock to be
          issued by a fraction of which the numerator is the amount of the
          Qualifying Deposit of the Supplemental Eligible Account Holder and the
          denominator is the total amount of Qualifying Deposits of all
          Supplemental Eligible Account Holders in such case on the Supplemental
          Eligibility Record Date subject to the overall maximum purchase
          limitation in (8) below and exclusive of an increase in the total
          number of shares issued due to an increase in the Estimated Price
          Range of up to 15%;

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<PAGE>
 
     (5)  Each Other Member may subscribe for and purchase in the Subscription
          Offering up to the greater of the amount permitted to be purchased in
          the Community Offering, currently $250,000 of Conversion Stock
          offered, or one-tenth of one percent (.10%) of the total offering of
          shares of Conversion Stock subject to the overall maximum purchase
          limitation in (8) below and exclusive of an increase in the total
          number of shares issued due to an increase in the Estimated Price
          Range of up to 15%;

     (6)  Persons purchasing shares of Conversion Stock in the Community
          Offering, together with associates of and groups of persons acting in
          concert with such persons, may purchase in the Community Offering up
          to $250,000 of Conversion Stock offered in the Conversion and
          Reorganization subject to the overall maximum purchase limitation in
          (8) below and exclusive of an increase in the total number of shares
          issued due to an increase in the Estimated Price Range of up to 15%;

     (7)  Persons purchasing shares of Conversion Stock in the Syndicated
          Community Offering, together with associates of and persons acting in
          concert with such persons, may purchase in the Syndicated Offering up
          to $250,000 of shares of Conversion Stock offered in the Conversion
          and Reorganization subject to the overall maximum purchase limitation
          in (8) below and exclusive of an increase in the total number of
          shares issued due to an increase in the Estimated Price Range of up to
          15% and, provided further that shares of Conversion Stock purchased in
          the Community Offering by any persons, together with associates of and
          persons acting in concert with such persons, will be aggregated with
          purchases in the Syndicated Community Offering in applying the
          $250,000 purchase limitation;

     (8)  Eligible Account Holders, Supplemental Eligible Account Holders and
          Other Members may purchase stock in the Community Offering and
          Syndicated Community Offering subject to the purchase limitations
          described in (6) and (7) above, provided that, except for the ESOP,
          the overall maximum number of shares of Conversion Stock subscribed
          for or purchased in all categories of the Conversion and
          Reorganization by any person, together with associates of and groups
          of persons acting in concert with such persons when combined with any
          Exchange Shares received by such persons, shall not exceed 4.0% of the
          shares of Conversion Stock offered in the Conversion and
          Reorganization and exclusive of an increase in the total number of
          shares issued due to an increase in the Estimated Price Range of up to
          15%; and

     (9)  No more than 25.00% of the total number of shares of Conversion Stock
          offered for sale in the Conversion and Reorganization may be purchased
          by directors and officers of the Bank and the Mutual Holding Company
          and their associates in the aggregate, when combined with any Exchange
          Shares received and excluding purchases by the ESOP.

     Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the members of
the Mutual Holding Company or the Public Stockholders of the Bank, both the
individual amount permitted to be subscribed for and the overall maximum
purchase limitation may be increased to up to a maximum of 5% at the sole
discretion of the Primary Parties. If such amount is increased, subscribers for
the maximum amount will be, and certain other large subscribers in the sole
discretion of the Bank may be, given the opportunity to increase their
subscriptions up to the then applicable limit. In addition, the Boards of
Directors of the Primary Parties may, in their sole discretion, increase the
maximum purchase limitation referred to above up to 9.99%, provided that orders
for shares exceeding 5% of the shares being offered in the Subscription and
Community Offerings shall not exceed, in the aggregate, 10% of the shares being
offered in the Subscription and Community Offerings. Requests 

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<PAGE>
 
to purchase additional shares of Conversion Stock under this provision will be
determined by the Boards of Directors and, if approved, allocated on a pro rata
basis giving priority in accordance with the priority rights set forth herein.
In any event, any Exchange Shares received by an individual will be aggregated
with shares subscribed for by such person for purposes of applying the maximum
purchase limitation.

     The overall maximum purchase limitation may not be reduced to less than 1%
but the individual amount permitted to be subscribed for may be reduced by the
Primary Parties to less than 1%, subject to paragraphs (2), (4), and above
without the further approval of members or Public Stockholders or resolicitation
of subscribers. An individual Eligible Account Holder, Supplemental Eligible
Account Holder or Other Member may not purchase individually in the Subscription
Offering the overall maximum purchase limit of 4.0% of the shares of Conversion
Stock offered, but may make such purchase, together with associates of and
persons acting in concert with such person, by also purchasing in other
available categories of the Conversion and Reorganization, subject to
availability of shares, the overall maximum purchase limit for purchases in the
Conversion and Reorganization and the amount of Exchange Shares received by such
individual.

     In the event of an increase in the total number of shares offered in the
Conversion and Reorganization due to an increase in the Estimated Price Range of
up to 15% (the "Adjusted Maximum"), the additional shares will be allocated in
the following order or priority in accordance with the Plan: (i) to fill the
ESOP's subscription of 8% of the Adjusted Maximum number of shares; (ii) in the
event that there is an oversubscription by Eligible Account Holders, to fill
unsatisfied subscriptions of Eligible Account Holders, exclusive of the Adjusted
Maximum; (iii) in the event that there is an oversubscription by Supplemental
Eligible Account Holders, to fill unsatisfied subscriptions of Supplemental
Eligible Account Holders, exclusive of the Adjusted Maximum; (iv) in the event
that there is an oversubscription by Other Members, to fill unsatisfied
subscriptions of Other Members exclusive of the Adjusted Maximums; and (v) to
fill unsatisfied subscriptions in the Community Offering to the extent possible,
exclusive of the Adjusted Maximum and with a preference to Public Stockholders.

     The term "associate" of a person is defined to mean: (i) any corporation
(other than the Primary Parties or a majority-owned subsidiary of the Bank) of
which such person is an officer, partner or 10% stockholder; (ii) any trust or
other estate in which such person has a substantial beneficial interest or
serves as a trustee or in a similar fiduciary capacity; provided, however, such
term shall not include any employee stock benefit plan of the Bank in which such
person has a substantial beneficial interest or serves as a trustee or in a
similar fiduciary capacity; and (iii) any relative or spouse of such person, or
any relative of such spouse, who either has the same home as such person or who
is a director or officer of the Bank. Directors are not treated as associates of
each other solely because of their Board membership. For a further discussion of
limitations on purchases of a converting institution's stock at the time of
Conversion and subsequent to Conversion, see "Beneficial Ownership of Capital
Stock - Subscriptions by Executive Officers and Directors," "- Certain
Restrictions on Purchase or Transfer of Shares After Conversion and
Reorganization" and "Restrictions on Acquisition of the Company and the Bank."

LIQUIDATION RIGHTS

     In the unlikely event of a complete liquidation of the Mutual Holding
Company in its present mutual form, each depositor would receive his pro rata
share of any assets of the Mutual Holding Company remaining after payment of
claims of all creditors (including the claims of all depositors to the
withdrawal value of their accounts). Each depositor's pro rata share of such
remaining assets would be in the same proportion as the value of his deposit
account was to the total value of all deposit accounts in the Bank at the time
of liquidation. After the Conversion and Reorganization, each depositor, in the
event of a complete liquidation, would have a claim as a creditor of the same
general priority as the claims of all other general

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<PAGE>
 
creditors of the Bank. However, except as described below, his claim would be
solely in the amount of the balance in his deposit account plus accrued
interest. He would not have an interest in the value or assets of the Bank or
the Company above that amount.

     The Plan provides for the establishment, upon the completion of the
Conversion and Reorganization, of a special "liquidation account" for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders in
an amount equal to the greater of (1) the Bank's retained earnings at December
31, 1991, the date of the latest statement of financial condition contained in
the final offering circular utilized in the 1992 MHC Reorganization or (2) 51.6%
of the Bank's shareholders' equity as of the date of its latest balance sheet
contained in the final Prospectus used in connection with the Conversion and
Reorganization. Each Eligible Account Holder and Supplemental Eligible Account
Holder, if he were to continue to maintain his deposit account at the Bank,
would be entitled, on a complete liquidation of the Bank after the Conversion
and Reorganization, to an interest in the liquidation account prior to any
payment to the stockholders of the Bank. Each Eligible Account Holder and
Supplemental Eligible Account Holder would have an initial interest in such
liquidation account for each deposit account, including regular savings
accounts, transaction accounts such as NOW accounts, money market deposit
accounts, and certificates of deposit, with a balance of $50 or more held in the
Bank on December 31, 1995 and September 30, 1997, respectively. Each Eligible
Account Holder and Supplemental Eligible Account Holder will have a pro rata
interest in the total liquidation account based on the proportion that the
balance of his Qualifying Deposits on the Eligibility Record Date or
Supplemental Eligibility Record Date, respectively, bore to the total amount of
all Qualifying Deposits of all Eligible Account Holders and Supplemental
Eligible Account Holders in the Bank. For Qualifying Deposits in existence at
both dates separate subaccounts shall be determined on the basis of the
Qualifying Deposits in such deposit accounts on such respective record dates.

     If, however, on any annual closing date subsequent to the Eligibility
Record Date or Supplemental Eligibility Record Date, the amount of the
Qualifying Deposit of an Eligible Account Holder or Supplemental Eligible
Account Holder is less than the amount of the Qualifying Deposit of such
Eligible Account Holder or Supplemental Eligible Account Holder as of the
Eligibility Record Date or Supplemental Eligibility Record Date, respectively,
or less than the amount of the Qualifying Deposits as of the previous annual
closing date, then the interest in the liquidation account relating to such
Qualifying Deposit would be reduced from time to time by the proportion of any
such reduction, and such interest will cease to exist if such Qualifying Deposit
accounts are closed. In addition, no interest in the liquidation account would
ever be increased despite any subsequent increase in the related Qualifying
Deposit. Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders are satisfied would be
distributed to the Company as the sole stockholder of the Bank.

TAX ASPECTS

     Consummation of the Conversion and Reorganization is expressly conditioned
upon the receipt by the Primary Parties of either a favorable ruling from the
IRS or an opinion of counsel with respect to federal and New Jersey income
taxation to the effect that the Conversion and Reorganization will not be a
taxable transaction to the Mutual Holding Company, the Company, the Bank,
Eligible Account Holders, or Supplemental Eligible Account Holders except as
noted below.

     No private ruling will be received from the IRS with respect to the
proposed Conversion and Reorganization. Instead, the Bank has received an
opinion of Muldoon, Murphy & Faucette, to the effect that for federal income tax
purposes, among other matters: (1) the conversion of the Mutual Holding Company
from mutual form to a federal interim stock savings institution and its
simultaneous merger with and into the Bank, with the Bank being the surviving
institution, will qualify as a reorganization within the meaning of Section
368(a)(1)(A) of the Code, (2) no gain or loss will be recognized by the Bank
upon the 

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<PAGE>
 
receipt of the assets of the Mutual Holding Company in such merger, (3) the
merger of the First Interim with and into the Bank, with the Bank being the
surviving institution, will qualify as a reorganization within the meaning of
Section 368(a)(1)(A) of the Code, (4) no gain or loss will be recognized by
First Interim upon the transfer of its assets to the Bank, (5) no gain or loss
will be recognized by the Bank upon the receipt of the assets of First Interim,
(6) no gain or loss will be recognized by the Company upon the receipt of Bank
Common Stock solely in exchange for Common Stock, (7) no gain or loss will be
recognized by the Public Stockholders upon the receipt of Common Stock solely in
exchange for their Public Bank Shares, (8) the basis of the Common Stock to be
received by the Public Stockholders will be the same as the basis of the Public
Bank Shares surrendered in exchange therefore, before giving effect to any
payment of cash in lieu of fractional shares, (9) the holding period of the
Common Stock to be received by the Public Stockholders will include the holding
period of the Public Bank Shares, provided that the Public Bank Shares were held
as a capital asset on the date of the exchange, (10) no gain or loss will be
recognized by the Company upon the sale of shares of Conversion Stock in the
Offering, (11) the Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members will recognize gain, if any, upon the issuance to them
of withdrawable savings accounts in the Bank following the Conversion and
Reorganization, interests in the liquidation account and nontransferable
subscription rights to purchase Conversion Stock, but only to the extent of the
value, if any, of the subscription rights, and (12) the tax basis to the holders
of Conversion Stock purchased in the Offerings will be the amount paid
therefore, and the holding period for the shares of Conversion Stock will begin
on the date of consummation of the Offerings if purchased through the exercise
of subscription rights and on the day after the date of purchase if purchased in
the Community Offering or Syndicated Community Offering. Muldoon, Murphy &
Faucette has also opined that the Conversion and Reorganization will not be a
taxable transaction to the Company, the Bank, Eligible Account Holders or
Supplemental Eligible Account Holders for New Jersey income and/or franchise tax
purposes. Certain portions of both the federal and the state and local tax
opinions are based upon the assumption that the subscription rights issued in
connection with the Conversion and Reorganization will have no value.

     Unlike private rulings, an opinion of counsel is not binding on the IRS and
the IRS could disagree with conclusions reached therein. In the event of such
disagreement, there can be no assurance that the IRS would not prevail in a
judicial or administrative proceeding.

     In the opinion of FinPro, the subscription rights do not have any value,
based on the fact that such rights are acquired by the recipients without cost,
are nontransferable and of short duration, and afford the recipients the right
only to purchase the Conversion Stock at a price equal to its estimated fair
market value, which will be the same price as the Purchase Price for the
unsubscribed shares of Conversion Stock. Such valuation is not binding on the
IRS. If the subscription rights granted to Eligible Account Holders or
Supplemental Eligible Account Holders are deemed to have an ascertainable value,
receipt of such rights could be taxable to those Eligible Account Holders or
Supplemental Eligible Account Holders who receive and/or exercise the
subscription rights in an amount equal to such value and the Bank could
recognize gain on such distribution. Eligible Account Holders and Supplemental
Eligible Account Holders are encouraged to consult with their own tax advisor as
to the tax consequences in the event that such subscription rights are deemed to
have an ascertainable value.

CERTAIN RESTRICTIONS ON PURCHASE OR TRANSFER OF SHARES AFTER CONVERSION

     All shares of Conversion Stock purchased in connection with the Conversion
and Reorganization by a director or an executive officer of the Primary Parties
will be subject to a restriction that the shares not be sold for a period of one
year following the Conversion and Reorganization, except in the event of the
death of such director or executive officer. Each certificate for restricted
shares will bear a legend giving notice of this restriction on transfer, and
instructions will be issued to the effect that any transfer within such time
period of any certificate or record ownership of such shares other than as
provided above is a violation 

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<PAGE>
 
of the restriction. Any shares of Common Stock issued at a later date as a stock
dividend, stock split, or otherwise, with respect to such restricted stock will
be subject to the same restrictions. The directors and executive officers of the
Company and the Bank will also be subject to the insider trading rules
promulgated pursuant to the Exchange Act and any other applicable requirements
of the federal securities laws.

     Purchases of outstanding shares of Conversion Stock of the Company by
directors, executive officers (or any person who was an executive officer or
director of the Primary Parties after adoption of the Plan of Conversion) and
their associates during the three-year period following Conversion and
Reorganization may be made only through a broker or dealer registered with the
SEC, except with the prior written approval of the OTS. This restriction does
not apply, however, to negotiated transactions involving more than 1.0% of the
Company's outstanding Common Stock or to the purchase of stock pursuant to any
Stock-Based Incentive Plan to be established after the Conversion and
Reorganization.

     Unless approved by the OTS, the Company, pursuant to OTS regulations, will
be prohibited from repurchasing any shares of the Common Stock for three years
except: (i) for an offer to all stockholders on a pro rata basis; or (ii) for
the repurchase of qualifying shares of a director. Notwithstanding the
foregoing, beginning one year following completion of the Conversion and
Reorganization the Company may repurchase its Common Stock so long as: (i) the
repurchases within the following two years are part of an open-market program
not involving greater than 5% of its outstanding capital stock during a twelve-
month period; (ii) the repurchases do not cause the Company to become
undercapitalized; and (iii) the Company provides to the Regional Director of the
OTS no later than ten days prior to the commencement of a repurchase program
written notice containing a full description of the program to be undertaken and
such program is not disapproved by the Regional Director. In addition, under
current OTS policies, repurchases may be allowed in the first year following
Conversion and in amounts greater than 5% in the second and third years
following the Conversion, provided there are valid and compelling business
reasons for such repurchases and the OTS does not object to such repurchases.

                      COMPARISON OF STOCKHOLDERS' RIGHTS

GENERAL

     As a result of the Conversion and Reorganization, holders of the Bank
Common Stock will become stockholders of the Company. There are certain
differences in stockholder rights arising from distinctions between the Bank's
certificate of incorporation and bylaws and the Company's Certificate of
Incorporation and Bylaws and from distinctions between laws with respect to New
Jersey chartered savings associations and Delaware law.

     The discussion herein is not intended to be a complete statement of the
differences affecting the rights of stockholders, but rather summarizes the more
significant differences and certain important similarities. The discussion
herein is qualified in its entirety by reference to the Certificate of
Incorporation and Bylaws of the Company and Delaware General Corporation law.

     Authorized Capital Stock. The Company's authorized capital stock consists
of 85,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock,
both with a par value $.01 per share, whereas the Bank's authorized capital
stock consists of 10,000,000 shares of Bank Common Stock and 1,000,000 shares of
serial preferred stock, both with a par value $0.01 per share (the "Bank
Preferred Stock"). The increased authorized capitalization will provide the
Company's Board of Directors with additional flexibility to effect, among other
transactions, acquisitions, financings, stock dividends, stock splits and stock
benefit plans. However, these additional authorized shares may also be used by
the Board of Directors consistent with its fiduciary duty to deter future
attempts to gain control of the Company. The Board of Directors also has sole
   

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<PAGE>
 
authority to determine the terms of any one or more series of Preferred Stock,
including voting rights, conversion rates, and liquidation preferences. As a
result of the ability to fix voting rights for a series of Preferred Stock, the
Board has the power, to the extent consistent with its fiduciary duty, to issue
a series of Preferred Stock to persons friendly to management in order to
attempt to block a post-tender offer merger or other transaction by which a
third party seeks control, and thereby assist management to retain its position.
The Company's Board of Directors currently has no plans for the issuance of
additional shares, other than the issuance of additional shares pursuant to the
terms of the Stock-Based Incentive Plan and upon exercise of stock options to be
issued pursuant to the terms of the Stock-Based Incentive Plan, all of which are
to be established and presented to stockholders at a meeting after the
Conversion and Reorganization.

     The Company will be subject to annual franchise taxes under Delaware law
based on its authorized capitalization. As a New Jersey chartered institution,
the Bank is not subject to franchise taxes, regardless of the amount of its
authorized capitalization.

     Issuance of Capital Stock. Pursuant to applicable laws and regulations, the
Mutual Holding Company is required to own not less than a majority of the
outstanding Bank Common Stock. There will be no such restriction applicable to
the Company following consummation of the Conversion and Reorganization.

     Neither the Certificate of Incorporation of the Bank nor the Certificate of
Incorporation of the Company contains a restriction on the issuance of shares of
capital stock to directors, officers or controlling persons of the Company and
the Bank, respectively. Thus, stock-related compensation plans such as stock
option plans could be adopted by the Company and the Bank without stockholder
approval and shares of Company capital stock and Bank capital stock could be
issued directly to directors, officers or controlling persons without
stockholder approval. The Bylaws of the NASD, however, generally require
corporations with securities which are quoted on the Nasdaq National Market to
obtain stockholder approval of most stock compensation plans for directors,
officers and key employees of the corporation. Moreover, although generally not
required, stockholder approval of stock-related compensation plans may be sought
in certain instances in order to qualify such plans for favorable federal income
tax and securities law treatment under current laws and regulations.

     Voting Rights. The Bank's Bylaws and Certificate of Incorporation prohibit,
and the Company's Bylaws do not provide for, cumulative voting in elections of
directors. The prohibition on cumulative voting will help to ensure continuity
and stability of the Company's Board of Directors and the policies adopted by it
by making it more difficult for the holders of a relatively small amount of the
Common Stock to elect their nominees to the Board of Directors and possibly by
delaying, deterring or discouraging proxy contests.

     Neither the Certificate of Incorporation of the Bank nor the Certificate of
Incorporation and Bylaws of the Company provide for pre-emptive rights to
stockholders in connection with the issuance of capital stock.

     For additional information relating to voting rights, see "-General -
Limitation on Acquisitions of Voting Stock and Voting Rights" below.

     Payment of Dividends. The ability of the Bank to pay dividends on its
capital stock is restricted by federal regulations and New Jersey law and
regulations and by tax considerations related to savings associations such as
the Bank. See "Regulation - Federal Regulation of Savings Institutions --
Capital Requirements" and "Federal and State Taxation - Federal Taxation."
Although the Company is not subject to these restrictions as a Delaware
corporation, such restrictions will indirectly affect the Company because

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dividends from the Bank will be a primary source of funds of the Company for the
payment of dividends to stockholders of the Company.

     The Delaware General Corporation Law generally provides that, subject to
any restrictions in the corporation's Certificate of Incorporation, dividends
may be declared from the corporation's surplus or, if there is no surplus, from
its net profits for the fiscal year in which the dividend is declared and the
preceding fiscal year. However, if the corporation's capital (generally defined
in the Delaware General Corporation Law as the sum of the aggregate par value of
all shares of the corporation's capital stock, where all such shares have a par
value and the board of directors has not established a higher level of capital)
has been diminished to an amount less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets, dividends may not be declared and
paid out of such net profits until the deficiency in such capital has been
repaired.

     Board of Directors. The Bank's Certificate of Incorporation and the
Certificate of Incorporation and Bylaws of the Company, respectively, require
the Board of Directors of the Bank and the Company to be divided into three
classes as nearly equal in number as possible and that the members of each class
shall be elected for a term of three years and until their successors are
elected and qualified, with one class being elected annually.

     Under the Bank's Bylaws, any vacancies in the Board of Directors of the
Bank may be filled by the affirmative vote of a majority of the remaining
directors although less than a quorum of the board of directors. Persons elected
by the directors of the Bank to fill vacancies may only serve until the next
annual meeting of stockholders. However, under the Company's Certificate of
Incorporation, any vacancy occurring in the Board of Directors of the Company,
including any vacancy created by reason of an increase in the number of
directors, may be filled by the remaining directors, and any director so chosen
shall hold office for the remainder of the term to which the director has been
elected and until his successor is elected and qualified.

     Under the Bank's Bylaws, any director may be removed for cause by a two-
thirds vote of the Board of Directors or by the affirmative vote of at least 80%
of the voting power of the then outstanding shares of capital stock of the Bank
entitled to vote in an election of directors. Under the Company's Certificate of
Incorporation, a director or the entire board of directors may be removed only
for cause and only by the affirmative vote of the holders of at least 80% of the
outstanding voting shares of the Company.

     Limitations on Liability. The Company's Certificate of Incorporation
provides that the personal liability of the directors and officers of the
Company for monetary damages shall be eliminated to the fullest extent permitted
by the Delaware General Corporation Law as it exists on the effective date of
the Certificate of Incorporation or as such law may be thereafter in effect.
Section 102(b)(7) of the Delaware General Corporation Law currently provides
that directors (but not officers) of corporations that have adopted such a
provision will not be so liable, except (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) for the payment of certain unlawful dividends and the
making of certain stock purchases or redemptions, or (iv) for any transaction
from which the director derived an improper personal benefit.

     If Delaware law was amended in the future to provide for greater
limitations on the personal liability of directors or to permit corporations to
limit the personal liability of officers, the provision in the Company's
Certificate of Incorporation limiting the personal liability of directors and
officers would automatically incorporate such authorities without further action
by stockholders. Similarly, if Delaware law was amended in the future to
restrict the ability of a corporation to limit the personal liability of
directors, the Company's

                                      131
<PAGE>
 
Certificate of Incorporation would automatically incorporate such restrictions
without further action by stockholders.

     The Bank's current Certificate of Incorporation contains similar provisions
regarding the elimination of director liability consistent with New Jersey law.

     Indemnification of Directors, Officers and Employees. The Bank's
Certificate of Incorporation provides that the Bank shall indemnify its
directors, officers and employees for any costs incurred in connection with any
litigation involving any such person's activities as a director, officer or
employee. In addition, indemnification is permitted in the case of a settlement,
a final judgment against such person or final judgment other than on the merits,
if it is determined by the board of directors and the Commission that such
person was acting in good faith within the scope of his or her employment as he
or she could reasonably have perceived it under the circumstances and for a
purpose he or she could have reasonably believed under the circumstances was in
the best interest of the Bank or its stockholders.

     The Company's Certificate of Incorporation provides that the Company shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suite or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
such person is or was a director, officer or employee of the Company or any
predecessor of the Company, or is or was serving at the request of the Company
or any predecessor of the Company as a director, officer or employee of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses, liability and loss reasonably incurred or suffered by such indemnitee
in connection therewith to the fullest extent authorized by the Delaware General
Corporation Law of the State of Delaware against expenses, liability and loss
reasonably incurred or suffered by such indemnitee in connection therewith.

     The Company's Certificate of Incorporation also provides that reasonable
expenses (including attorneys' fees) incurred by a director, officer or employee
of the Company in defending any civil, criminal, administrative or investigative
action, suit or proceeding described above shall be paid by the Company in
advance of the final disposition of such action, suit or proceeding as
authorized by the Board of Directors upon receipt of an undertaking by or on
behalf of such person to repay such amount if it shall ultimately be determined
that the person is not entitled to be indemnified by the Company.

     Special Meetings of Stockholders. The Bank's Bylaws provide that special
meetings of the stockholders of the Bank may be called by the Chairman,
President, a majority of the Board of Directors or the holders of not less than
ten percent of the outstanding capital stock of the Bank entitled to vote at the
meeting. The Certificate of Incorporation and Bylaws of the Bank provide,
however, that until the fifth anniversary of the 1992 MHC Reorganization,
special meetings of stockholders relating to changes in control of the Bank or
amendments to its Certificate of Incorporation may only be called upon direction
of the Board of Directors of the Bank. The Company's Certificate of
Incorporation contains a provision pursuant to which special meetings of
stockholders of the Company only may be called by the Board of Directors of the
Company.

     Stockholder Nominations and Proposals. The Bank's Bylaws generally provide
that stockholders may submit nominations for election as director at an annual
meeting of stockholders 60 days prior to the annual meeting and any new business
to be taken up at such a meeting at least 60 days before the date of any such
meeting.

     The Company's Bylaws require a stockholder who intends to nominate a
candidate for election to the Board of Directors, or to raise new business at a
stockholder meeting to give at least 90 days advance notice to the Secretary of
the Company. The notice provision requires a stockholder who desires to raise
new

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<PAGE>
 
business to provide certain information to the Company concerning the nature of
the new business, the stockholder and the stockholder's interest in the business
matter. Similarly, a stockholder wishing to nominate any person for election as
a director must provide the Company with certain information concerning the
nominee and the proposing stockholder.

     Inspectors of Election. The Bank's Bylaws provide that the Board of
Directors may appoint one or more persons other than nominees for office as
inspectors of election at a meeting of stockholders and that if inspectors of
election are not so appointed, the Chairman of the Board or the President may,
and on the request of not less than 10% of the votes represented at the meeting
shall, make such appointment at the meeting. The Company's Bylaws provide that
the Board of Directors of the Company shall appoint one or more persons as
inspectors of election, and that the chairman of any meeting of stockholders
shall make such an appointment in the event that the inspector(s) appointed by
the Board of Directors shall be unable to act or the board shall fail to appoint
any inspector. The Bylaws of the Bank and the Company also specify the duties of
inspectors of election.

     Stockholder Action Without a Meeting. The Bylaws of the Bank provide that
any action to be taken or which may be taken at any annual or special meeting of
stockholders must be taken at such annual or special meeting and may not be
taken without a meeting. The Certificate of Incorporation and Bylaws of the
Company similarly provide that any action required by Delaware law to be taken
at any annual or special meetings of stockholders, or any action which may be
taken at any annual or special meeting of stockholders, must be taken at such
annual or special meeting, and may not be taken without a meeting.

     Limitations on Acquisitions of Voting Stock and Voting Rights. The Bank's
Certificate of Incorporation provides that no person, other than the MHC or the
Company, shall directly or indirectly offer to acquire or acquire the beneficial
ownership of more than 10% of the issued and outstanding shares of any class of
an equity security of the Bank, unless such offer to acquire or acquisition is
approved by a majority of the Board of Directors. In the event that shares are
acquired in violation of this restriction, all shares beneficially owned by any
person in excess of 10% shall be considered "Excess Shares" and shall not be
counted as shares entitled to vote and shall not be voted by any person or
counted as voting shares in connection with any matters submitted to
stockholders for a vote.

     The Certificate of Incorporation of the Company provides that in no event
shall any record owner of any outstanding Common Stock which is beneficially
owned, directly or indirectly, by a person who beneficially owns in excess of
10% of the then outstanding shares of Common Stock (the "Limit") be entitled or
permitted to any vote in respect of the shares held in excess of the Limit.
Beneficial ownership is determined pursuant to Rule 13d-3 of the General Rules
and Regulations promulgated pursuant to the Exchange Act, and includes shares
beneficially owned by such person or any of his affiliates (as defined in the
Certificate of Incorporation), shares which such person or his affiliates have
the right to acquire upon the exercise of conversion rights or options and
shares as to which such person and his affiliates have or share investment or
voting power, but shall not include shares beneficially owned by the ESOP or
directors, officers and employees of the Bank or Company or shares that are
subject to a revocable proxy and that are not otherwise beneficially owned, or
deemed by the Company to be beneficially owned, by such person and his
affiliates. The Certificate of Incorporation of the Company further provides
that this provision limiting voting rights may only be amended upon the vote of
80% of the outstanding shares of voting stock (after giving effect to the
limitation on voting rights).

     Mergers, Consolidations and Sales of Assets. The Bank's Certificate of
Incorporation and Bylaws do not impose any specific vote requirement for
stockholder approval of mergers and certain business transactions.

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<PAGE>
 
     The Delaware General Corporation Law requires the approval of the Board of
Directors and the holders of a majority of the outstanding stock of the Company
entitled to vote thereon for mergers or consolidations, and for sale, leases or
exchanges of all or substantially all of the Company's assets, unless a higher
requirement is specified in the Company's Certificate of Incorporation.

     As holder of all of the outstanding Bank Common Stock after consummation of
the Conversion and Reorganization, the Company generally will be able to
authorize a merger, consolidation or other business combination involving the
Bank without the approval of the stockholders of the Company. However, the
Company's Certificate of Incorporation requires the approval of the holders of
at least 80% of the Company's outstanding shares of voting stock to approve
certain "Business Combinations" as defined therein. See "Restrictions on
Acquisition of the Company and the Bank - Restrictions in the Company's
Certificate of Incorporation and Bylaws."

     Dissenters' Rights of Appraisal. Under New Jersey corporate law, which is
applicable to the Bank generally, a stockholder of a New Jersey corporation
which engages in a merger, consolidation or sale of all or substantially all of
its assets shall have the right to demand from such corporation payment of the
fair or appraised value of his stock in the New Jersey corporation, subject to
specified procedural requirements. This law also provides, however, that the
stockholders of a New Jersey chartered corporation with stock which is listed on
a national securities exchange or which has more than 1,000 shareholders are not
entitled to dissenters' rights in connection with a merger involving such
corporation if the stockholder is required to accept only "qualified
consideration" for his stock, which is defined to include cash, shares of stock
of any corporation which at the effective date of the merger will be listed on a
national securities exchange or quoted on the Nasdaq National Market System or
any combination of such shares of stock and cash.

     After the Conversion and Reorganization, the rights of appraisal of
dissenting stockholders of the Company will be governed by the Delaware General
Corporation Law. Pursuant thereto, a stockholder of a Delaware corporation
generally has the right to dissent from any merger or consolidation involving
the corporation or sale of all or substantially all of the corporation's assets,
subject to specified procedural requirements. However, no such appraisal rights
are available for the shares of any class or series of a corporation's capital
stock if (i) as of the record date fixed to determine the stockholders entitled
to receive notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, such shares were either listed on a
national securities exchange or held of record by more than 2,000 stockholders,
or (ii) the corporation is the surviving corporation of a merger and the merger
did not require the approval of the corporation's stockholders, unless in either
case, the holders of such stock are required by an agreement of merger or
consolidation to accept for that stock something other than: (a) shares of stock
of the corporation surviving or resulting from the merger or consolidation; (b)
shares of stock of any other corporation that, at the effective date of the
merger, will be listed on a national securities exchange or held of record by
more than 2,000 stockholders; (c) cash in lieu of fractional shares of a
corporation described in clause (a) or (b) above; or (d) any combination of the
shares of stock and cash in lieu of fractional shares described in clauses (a)
through (c) above.

     Amendment of Governing Instruments. No amendment of the Bank's Certificate
of Incorporation may be made unless it is first proposed by the Board of
Directors of the Bank, thereafter approved by the holders of a majority of the
total votes eligible to be cast at a legal meeting and submitted to the
Commissioner for action as specified by law or regulation. The Company's
Certificate of Incorporation similarly provides that no amendment of the
Company's Certificate of Incorporation may be made unless it is first approved
by the Board of Directors of the Company and thereafter is approved by the
holders of a majority of the shares of the Company entitled to vote generally in
an election of directors, voting together in a single class; provided, however,
that the affirmative vote of at least 80% of the outstanding voting stock
entitled to vote is needed for certain amendments.

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<PAGE>
 
     The Bylaws of the Bank may be amended by a majority of the full Board of
Directors of the Bank or by a majority vote of the votes cast by the
stockholders of the Bank at any legal meeting. The Bylaws of the Company may be
amended by a majority vote of the Board of Directors of the Company or by the
affirmative vote of the holders of 80% of the votes cast by stockholders of the
Company at a meeting of stockholders.

                  RESTRICTIONS ON ACQUISITION OF THE COMPANY
                                 AND THE BANK

GENERAL

     The Plan of Conversion provides for the conversion of the Mutual Holding
Company from the mutual to the stock form of organization. See "The Conversion
and Reorganization -- General." Certain provisions in the Company's Certificate
of Incorporation and Bylaws and in its management remuneration entered into in
connection with the Conversion and Reorganization, together with provisions of
Delaware corporate law, may have anti-takeover effects. In addition, regulatory
restrictions may make it difficult for persons or companies to acquire control
of either the Company or the Bank.

RESTRICTIONS IN THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS

     A number of provisions of the Company's Certificate of Incorporation and
Bylaws deal with matters of corporate governance and certain rights of
stockholders. The following discussion is a general summary of certain
provisions of the Company's Certificate of Incorporation and Bylaws and certain
other statutory and regulatory provisions relating to stock ownership and
transfers, the Board of Directors and business combinations, which might be
deemed to have a potential "anti-takeover" effect. These provisions may have the
effect of discouraging a future takeover attempt which is not approved by the
Board of Directors but which individual Company stockholders may deem to be in
their best interests or in which stockholders may receive a substantial premium
for their shares over then current market prices. As a result, stockholders who
might desire to participate in such a transaction may not have an opportunity to
do so. Such provisions will also render the removal of the current Board of
Directors or management of the Company more difficult. The following description
of certain of the provisions of the Certificate of Incorporation and Bylaws of
the Company is necessarily general and reference should be made in each case to
such Certificate of Incorporation and Bylaws, which are incorporated herein by
reference. See "Additional Information" as to how to obtain a copy of these
documents.

     Limitation on Voting Rights. The Certificate of Incorporation of the
Company provides that in no event shall any record owner of any outstanding
Common Stock which is beneficially owned, directly or indirectly, by a person
who beneficially owns in excess of 10% of the then outstanding shares of Common
Stock (the "Limit") be entitled or permitted to any vote in respect of the
shares held in excess of the Limit. Beneficial ownership is determined pursuant
to Rule 13d-3 of the General Rules and Regulations promulgated pursuant to the
Exchange Act, and includes shares beneficially owned by such person or any of
his affiliates (as defined in the Certificate of Incorporation), shares which
such person or his affiliates have the right to acquire upon the exercise of
conversion rights or options and shares as to which such person and his
affiliates have or share investment or voting power, but shall not include
shares beneficially owned by the ESOP or directors, officers and employees of
the Bank or Company or shares that are subject to a revocable proxy and that are
not otherwise beneficially owned, or deemed by the Company to be beneficially
owned, by such person and his affiliates. The Certificate of Incorporation of
the Company further provides that this provision limiting voting rights may only
be amended upon the vote of 80% of the outstanding shares of voting stock (after
giving effect to the limitation on voting rights).

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<PAGE>
 
     Board of Directors. The Board of Directors of the Company is divided into
three classes, each of which shall contain approximately one-third of the whole
number of members of the Board. Each class shall serve a staggered term, with
approximately one-third of the total number of directors being elected each
year. The Company's Certificate of Incorporation and Bylaws provide that the
size of the Board shall be determined by a majority of the directors. The
Certificate of Incorporation and the Bylaws provide that any vacancy occurring
in the Board, including a vacancy created by an increase in the number of
directors or resulting from death, resignation, retirement, disqualification,
removal from office or other cause, shall be filled for the remainder of the
unexpired term exclusively by a majority vote of the directors then in office.
The classified Board is intended to provide for continuity of the Board of
Directors and to make it more difficult and time consuming for a stockholder
group to fully use its voting power to gain control of the Board of Directors
without the consent of the incumbent Board of Directors of the Company. The
Certificate of Incorporation of the Company provides that a director may be
removed from the Board of Directors prior to the expiration of his term only for
cause, upon the vote of 80% of the outstanding shares of voting stock.

     In the absence of these provisions, the vote of the holders of a majority
of the shares could remove the entire Board, with or without cause, and replace
it with persons of such holders' choice.

     Cumulative Voting, Special Meetings and Action by Written Consent. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, special meetings of stockholders of the Company may be called
only by the Board of Directors of the Company. The Certificate of Incorporation
also provides that any action required or permitted to be taken by the
stockholders of the Company may be taken only at an annual or special meeting
and prohibits stockholder action by written consent in lieu of a meeting.

     Authorized Shares. The Certificate of Incorporation authorizes the issuance
of 85,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock.
The shares of Common Stock and Preferred Stock were authorized in an amount
greater than that to be issued in the Conversion and Reorganization to provide
the Company's Board of Directors with as much flexibility as possible to effect,
among other transactions, financings, acquisitions, stock dividends, stock
splits and employee stock options. However, these additional authorized shares
may also be used by the Board of Directors consistent with its fiduciary duty to
deter future attempts to gain control of the Company. The Board of Directors
also has sole authority to determine the terms of any one or more series of
Preferred Stock, including voting rights, conversion rates, and liquidation
preferences. As a result of the ability to fix voting rights for a series of
Preferred Stock, the Board has the power, to the extent consistent with its
fiduciary duty, to issue a series of Preferred Stock to persons friendly to
management in order to attempt to block a post-tender offer merger or other
transaction by which a third party seeks control, and thereby assist management
to retain its position. The Company's Board of Directors currently has no plans
for the issuance of additional shares, other than the issuance of additional
shares pursuant to the terms of the restricted stock awards and upon exercise of
stock options to be issued pursuant to the terms of the Stock-Based Incentive
Plan all of which are to be established and presented to stockholders no earlier
than six months after the Conversion and Reorganization.

     Stockholder Vote Required to Approve Business Combinations with Principal
Stockholders. The Certificate of Incorporation requires the approval of the
holders of at least 80% of the Company's outstanding shares of voting stock to
approve certain "Business Combinations," as defined therein, and related
transactions. Under Delaware law, absent this provision, Business Combinations,
including mergers, consolidations and sales of all or substantially all of the
assets of a corporation must, subject to certain exceptions, be approved by the
vote of the holders of only a majority of the outstanding shares of Common Stock
of the Company and any other affected class of stock. Under the Certificate of
Incorporation, at least 80% approval of stockholders is required in connection
with any transaction involving an Interested Stockholder (as defined below)
except (i) in cases where the proposed transaction has been approved in

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<PAGE>
 
advance by a majority of those members of the Company's Board of Directors who
are unaffiliated with the Interested Stockholder and were directors prior to the
time when the Interested Stockholder became an Interested Stockholder or (ii) if
the proposed transaction meets certain conditions set forth therein which are
designed to afford the stockholders a fair price in consideration for their
shares in which case, if a stockholder vote is required, approval of only a
majority of the outstanding shares of voting stock would be sufficient. The term
"Interested Stockholder" is defined to include any individual, corporation,
partnership or other entity (other than the Company or its subsidiary) which
owns beneficially or controls, directly or indirectly, 10% or more of the
outstanding shares of voting stock of the Company. This provision of the
Certificate of Incorporation applies to any "Business Combination," which is
defined to include (i) any merger or consolidation of the Company or any of its
subsidiaries with or into any Interested Stockholder or Affiliate (as defined in
the Certificate of Incorporation) of an Interested Stockholder; (ii) any sale,
lease, exchange, mortgage, pledge, transfer, or other disposition to or with any
Interested Stockholder or Affiliate of 25% or more of the assets of the Company
or combined assets of the Company and its subsidiary; (iii) the issuance or
transfer to any Interested Stockholder or its Affiliate by the Company (or any
subsidiary) of any securities of the Company in exchange for any assets, cash or
securities the value of which equals or exceeds 25% of the fair market value of
the Common Stock of the Company; (iv) the adoption of any plan for the
liquidation or dissolution of the Company proposed by or on behalf of any
Interested Stockholder or Affiliate thereof; and (v) any reclassification of
securities, recapitalization, merger or consolidation of the Company which has
the effect of increasing the proportionate share of Common Stock or any class of
equity or convertible securities of the Company owned directly or indirectly by
an Interested Stockholder or Affiliate thereof. The directors and executive
officers of the Bank are purchasing in the aggregate approximately ___% of the
shares of the Common Stock at the maximum of the Estimated Price Range. In
addition, the ESOP intends to purchase 8% of the aggregate of the Conversion
Stock sold in the Conversion. Additionally, if at a meeting of stockholders
following the Conversion and Reorganization stockholder approval of the proposed
Stock-Based Incentive Plan is received, the Company expects to acquire 4% of the
aggregate of the Conversion Stock issued in the Conversion and Reorganization
and expects to issue an amount equal to 10% of the aggregate of the Conversion
Stock issued in the Conversion and Reorganization to directors and executive
officers. As a result, assuming the Stock-Based Incentive Plan is approved by
stockholders, directors, executive officers and employees have the potential to
control the voting of approximately 25% of the Company's Common Stock, thereby
enabling them to prevent the approval of the transactions requiring the approval
of at least 80% of the Company's outstanding shares of voting stock described
hereinabove.

     Evaluation of Offers. The Certificate of Incorporation of the Company
further provides that the Board of Directors of the Company, when evaluating any
offer of another "Person" (as defined therein) to (i) make a tender or exchange
offer for any equity security of the Company, (ii) merge or consolidate the
Company with another corporation or entity, or (iii) purchase or otherwise
acquire all or substantially all of the properties and assets of the Company,
may, in connection with the exercise of its judgment in determining what is in
the best interest of the Company, the Bank and the stockholders of the Company,
give due consideration to all relevant factors, including, without limitation,
the social and economic effects of acceptance of such offer on the Company's
customers and the Bank's present and future account holders, borrowers and
employees; on the communities in which the Company and the Bank operate or are
located; and on the ability of the Company to fulfill its corporate objectives
as a savings and loan holding company and on the ability of the Bank to fulfill
the objectives of a federally-chartered stock savings association under
applicable statutes and regulations. By having these standards in the
Certificate of Incorporation of the Company, the Board of Directors may be in a
stronger position to oppose such a transaction if the Board concludes that the
transaction would not be in the best interest of the Company, even if the price
offered is significantly greater than the then market price of any equity
security of the Company.

     Amendment of Certificate of Incorporation and Bylaws. Amendments to the
Company's Certificate of Incorporation must be approved by a majority vote of
its Board of Directors and also by a majority of the

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<PAGE>
 
outstanding shares of its voting stock; provided, however, that an affirmative
vote of at least 80% of the outstanding voting stock entitled to vote (after
giving effect to the provision limiting voting rights) is required to amend or
repeal certain provisions of the Certificate of Incorporation, including the
provision limiting voting rights, the provisions relating to approval of certain
business combinations, calling special meetings, the number and classification
of directors, director and officer indemnification by the Company and amendment
of the Company's Bylaws and Certificate of Incorporation. The Company's Bylaws
may be amended by its Board of Directors, or by a vote of 80% of the total votes
eligible to be voted at a duly constituted meeting of stockholders.

     Certain Bylaw Provisions. The Bylaws of the Company also require a
stockholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at a stockholder meeting to give at least 90
days advance notice to the Secretary of the Company. The notice provision
requires a stockholder who desires to raise new business to provide certain
information to the Company concerning the nature of the new business, the
stockholder and the stockholder's interest in the business matter. Similarly, a
stockholder wishing to nominate any person for election as a director must
provide the Company with certain information concerning the nominee and the
proposing stockholder.

ANTI-TAKEOVER EFFECTS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
AND MANAGEMENT REMUNERATION ADOPTED IN CONVERSION

     The provisions described above are intended to reduce the Company's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by members of its Board of Directors. The
provisions of the employment agreements, CIC Agreements, Severance Plan, and the
Stock-Based Incentive Plan to be established may also discourage takeover
attempts by increasing the costs to be incurred by the Bank and the Company in
the event of a takeover. See "Management of the Bank - Employment Agreements"
and "- New Benefits Resulting from the Conversion and Reorganization - Stock
Option Plans."

     The Company's Board of Directors believes that the provisions of the
Certificate of Incorporation, Bylaws and management remuneration plans to be
established are in the best interest of the Company and its stockholders. An
unsolicited non-negotiated proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Accordingly, the Board
of Directors believes it is in the best interests of the Company and its
stockholders to encourage potential acquirors to negotiate directly with
management and that these provisions will encourage such negotiations and
discourage non-negotiated takeover attempts. It is also the Board of Directors'
view that these provisions should not discourage persons from proposing a merger
or other transaction at a price that reflects the true value of the Company and
that otherwise is in the best interest of all stockholders.

DELAWARE CORPORATE LAW

     The state of Delaware has a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The takeover
statute, which is codified in Section 203 of the Delaware General Corporate Law
("Section 203"), is intended to discourage certain takeover practices by
impeding the ability of a hostile acquiror to engage in certain transactions
with the target company.

     In general, Section 203 provides that a "Person" (as defined therein) who
owns 15% or more of the outstanding voting stock of a Delaware corporation (an
"Interested Stockholder") may not consummate a merger or other business
combination transaction with such corporation at any time during the three-year
period following the date such "Person" became an Interested Stockholder. The
term "business combination"

                                      138
<PAGE>
 
is defined broadly to cover a wide range of corporate transactions including
mergers, sales of assets, issuances of stock, transactions with subsidiaries and
the receipt of disproportionate financial benefits.

     The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person became
an Interested Stockholder, the Board of Directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
Interested Stockholder; (ii) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he became an Interested Stockholder, with the number of shares outstanding
calculated without regard to those shares owned by the corporation's directors
who are also officers and by certain employee stock plans; (iii) any business
combination with an Interested Stockholder that is approved by the Board of
Directors and by a two-thirds vote of the outstanding voting stock not owned by
the Interested Stockholder; and (iv) certain business combinations that are
proposed after the corporation had received other acquisition proposals and
which are approved or not opposed by a majority of certain continuing members of
the Board of Directors. A corporation may exempt itself from the requirements of
the statute by adopting an amendment to its Certificate of Incorporation or
Bylaws electing not to be governed by Section 203. At the present time, the
Board of Directors does not intend to propose any such amendment.

RESTRICTIONS IN THE BANK'S CERTIFICATE OF INCORPORATION AND BYLAWS

     Although the Board of Directors of the Bank is not aware of any effort that
might be made to obtain control of the Bank after the Conversion and
Reorganization, the Board of Directors believes that it is appropriate to retain
certain provisions permitted by New Jersey law and to adopt certain new
provisions to protect the interests of the Bank and its stockholders from any
hostile takeover. Such provisions may, indirectly, inhibit a change in control
of the Company, as the Bank's sole stockholder. See "Risk Factors -- Certain
Anti-Takeover Provisions Which May Discourage Takeover Attempts."

     The Bank's Certificate of Incorporation will continue to contain a
provision whereby the acquisition of or offer to acquire beneficial ownership of
more than 10% of the issued and outstanding shares of any class of equity
securities of the Bank by any person (i.e., any individual, corporation, group
acting in concert, trust, partnership, joint stock company or similar
organization), either directly or through an affiliate thereof, will be
prohibited for a period of five years following the date of completion of the
Conversion and Reorganization. Any stock in excess of 10% acquired in violation
of the Certificate of Incorporation provision will not be counted as outstanding
for voting purposes. This limitation shall not apply to any transaction in which
the Bank forms a holding company without a change in the respective beneficial
ownership interests of its stockholders other than pursuant to the exercise of
any dissenter or appraisal rights. In the event that holders of revocable
proxies for more than 10% of the shares of the Common Stock of the Company seek,
among other things, to elect one-third or more of the Company's Board of
Directors, to cause the Company's stockholders to approve the acquisition or
corporate reorganization of the Company or to exert a continuing influence on a
material aspect of the business operations of the Company, which actions could
indirectly result in a change in control of the Bank, the Board of Directors of
the Bank will be able to assert this provision of the Bank's Certificate of
Incorporation against such holders. Although the Board of Directors of the Bank
is not currently able to determine when and if it would assert this provision of
the Bank's Certificate of Incorporation, the Board of Directors, in exercising
its fiduciary duty, may assert this provision if it were deemed to be in the
best interests of the Bank, the Company and its stockholders. It is unclear,
however, whether this provision, if asserted, would be successful against such
persons in a proxy contest which could result in a change in control of the Bank
indirectly through a change in control of the Company. Finally, stockholders
will not be permitted to call a special meeting of stockholders relating to a
change of control of the Bank or a charter amendment or to cumulate their votes
in the election of directors. Furthermore, the staggered terms of the Board of
Directors could have an anti-takeover effect by making it

                                      139
<PAGE>
 
more difficult for a majority of shares to force an immediate change in the
Board of Directors since only one-third of the Board is elected each year. The
purpose of these provisions is to assure stability and continuity of management
of the Bank in the years immediately following the Conversion and
Reorganization.

     Although the Bank has no arrangements, understandings or plans at the
present time, except as described in "Description of Capital Stock of the
Company - Preferred Stock," for the issuance or use of the shares of Bank
Preferred Stock proposed to be authorized, the Board of Directors believes that
the availability of such shares will provide the Bank with increased flexibility
in structuring possible future financings and acquisitions and in meeting other
corporate needs which may arise. In the event of a proposed merger, tender offer
or other attempt to gain control of the Bank of which management does not
approve, it might be possible for the Board of Directors to authorize the
issuance of one or more series of Bank Preferred Stock with rights and
preferences which could impede the completion of such a transaction. An effect
of the possible issuance of such Bank Preferred Stock, therefore, may be to
deter a future takeover attempt. The Board of Directors does not intend to issue
any Bank Preferred Stock except on terms which the Board deems to be in the best
interest of the Bank and its then existing stockholders.

REGULATORY RESTRICTIONS

     The Plan of Conversion prohibits any person, prior to the completion of the
Conversion and Reorganization, from transferring, or from entering into any
agreement or understanding to transfer, to the account of another, legal or
beneficial ownership of the subscription rights issued under the Plan or the
Conversion Stock to be issued upon their exercise. The Plan also prohibits any
person, prior to the completion of the Conversion and Reorganization, from
offering, or making an announcement of an offer or intent to make an offer, to
purchase such subscription rights or Conversion Stock.

     For three years following the Conversion and Reorganization, OTS
regulations prohibit any person from acquiring or making an offer to acquire
more than 10% of the stock of any converted savings institution, except for: (i)
offers that, if consummated, would not result in the acquisition by such person
during the preceding 12-month period of more than 1% of such stock; (ii) offers
for up to 25% in the aggregate by the ESOP or other tax qualified plans of the
Bank or the Company; or (iii) offers which are not opposed by the Board of
Directors of the Bank and which receive the prior approval of the OTS. Such
prohibition is also applicable to the acquisition of the stock of the Company.
Such acquisition may be disapproved by the OTS if it is found, among other
things, that the proposed acquisition (a) would frustrate the purposes of the
provisions of the regulations regarding conversions; (b) would be manipulative
or deceptive; (c) would subvert the fairness of the conversion; (d) would be
likely to result in injury to the savings institution; (e) would not be
consistent with economical home financing; (f) would otherwise violate law or
regulation; or (g) would not contribute to the prudent deployment of the savings
institution's conversion proceeds. In the event that any person, directly or
indirectly, violates this regulation, the securities beneficially owned by such
person in excess of 10% shall not be counted as shares entitled to vote and
shall not be voted by any person or counted as voting shares in connection with
any matters submitted to a vote of stockholders. The definition of beneficial
ownership for this regulation extends to persons holding revocable or
irrevocable proxies for the Company's stock under circumstances that give rise
to a conclusive or rebuttable determination of control under the OTS
regulations.

     In addition, any proposal to acquire 10% of any class of equity security of
the Company generally would be subject to approval by the OTS under the Change
in Bank Control Act. The OTS requires all persons seeking control of a savings
institution and, therefore, indirectly its holding company, to obtain regulatory
approval prior to offering to obtain control. Federal law generally provides
that no "person," acting directly or indirectly or through or in concert with
one or more other persons, may acquire directly

                                      140
<PAGE>
 
or indirectly "control," as that term is defined in OTS regulations, of a
federally-insured savings institution without giving at least 60 days' written
notice to the OTS and providing the OTS an opportunity to disapprove the
proposed acquisition. Such acquisitions of control may be disapproved if it is
determined, among other things, that (i) the acquisition would substantially
lessen competition; (ii) the financial condition of the acquiring person might
jeopardize the financial stability of the savings institution or prejudice the
interests of its depositors; or (iii) the competency, experience or integrity of
the acquiring person or the proposed management personnel indicates that it
would not be in the interest of the depositors or the public to permit the
acquisition of control by such person. Such change in control restrictions on
the acquisition of holding company stock are not limited to three years after
conversion but will apply for as long as the regulations are in effect. Persons
holding revocable or irrevocable proxies may be deemed to be beneficial owners
of such securities under OTS regulations and therefore prohibited from voting
all or the portion of such proxies in excess of the 10% aggregate beneficial
ownership limit. Such regulatory restrictions may prevent or inhibit proxy
contests for control of the Company or the Bank which have not received prior
regulatory approval.

                  DESCRIPTION OF CAPITAL STOCK OF THE COMPANY

GENERAL

     The Company is authorized to issue 85,000,000 shares of Common Stock having
a par value of $.01 per share and 10,000,000 shares of preferred stock having a
par value of $.01 per share (the "Preferred Stock"). The Company currently
expects to issue up to 27,600,000 shares of Common Stock (or 31,740,000 in the
event of an increase of 15% in the Estimated Price Range) and no shares of
Preferred Stock in the Conversion. Except as discussed above in "Restriction on
Acquisition of the Company and the Bank." Each share of the Company's Common
Stock will have the same relative rights as, and will be identical in all
respects with, each other share of Common Stock. Upon payment of the Purchase
Price for the common stock, in accordance with the Plan, all such stock will be
duly authorized, fully paid and non-assessable.

     THE COMMON STOCK OF THE COMPANY WILL REPRESENT NON-WITHDRAWABLE CAPITAL,
WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT BE INSURED BY THE
FDIC.

COMMON STOCK

     Dividends. The Company can pay dividends out of statutory surplus or from
certain net profits if, as and when declared by its Board of Directors. The
payment of dividends by the Company is subject to limitations which are imposed
by law and applicable regulation. See "Dividend Policy" and "Regulation." The
holders of Common Stock of the Company will be entitled to receive and share
equally in such dividends as may be declared by the Board of Directors of the
Company out of funds legally available therefor. If the Company issues Preferred
Stock, the holders thereof may have a priority over the holders of the Common
Stock with respect to dividends.

     Voting Rights. Upon Conversion and Reorganization, the holders of Common
Stock of the Company will possess exclusive voting rights in the Company. They
will elect the Company's Board of Directors and act on such other matters as are
required to be presented to them under Delaware law or the Company's Certificate
of Incorporation or as are otherwise presented to them by the Board of
Directors. Except as discussed in "Restrictions on Acquisition of the Company
and the Bank," each holder of Common Stock will be entitled to one vote per
share and will not have any right to cumulate votes in the election of
directors. If the Company issues Preferred Stock, holders of the Preferred Stock
may also possess voting rights. Certain matters require an 80% stockholder vote.
See "Restrictions on Acquisition of the Company and the Bank."

                                      141
<PAGE>
 
     Subsequent to the Conversion and Reorganization, voting rights will be
vested exclusively in the owners of the shares of capital stock of the Bank,
which will be the Company, and voted at the direction of the Company's Board of
Directors. Consequently, the holders of the Common Stock will not have direct
control of the Bank.

     Liquidation. In the event of any liquidation, dissolution or winding up of
the Bank, the Company, as holder of the Bank's capital stock, would be entitled
to receive, after payment or provision for payment of all debts and liabilities
of the Bank (including all deposit accounts and accrued interest thereon) and
after distribution of the balance in the special liquidation account to Eligible
Account Holders and Supplemental Eligible Account Holders (see "The Conversion
and Reorganization --Liquidation Rights"), all assets of the Bank available for
distribution. In the event of liquidation, dissolution or winding up of the
Company, the holders of its Common Stock would be entitled to receive, after
payment or provision for payment of all its debts and liabilities, all of the
assets of the Company available for distribution. If Preferred Stock is issued,
the holders thereof may have a priority over the holders of the Common Stock in
the event of liquidation or dissolution.

     Preemptive Rights. Holders of the Common Stock of the Company will not be
entitled to preemptive rights with respect to any shares which may be issued.
The Common Stock is not subject to redemption.

PREFERRED STOCK

     None of the shares of the Company's authorized Preferred Stock will be
issued in the Conversion and Reorganization. Such stock may be issued with such
preferences and designations as the Board of Directors may from time to time
determine. The Board of Directors can, without stockholder approval, issue
preferred stock with voting, dividend, liquidation and conversion rights which
could dilute the voting strength of the holders of the Common Stock and may
assist management in impeding an unfriendly takeover or attempted change in
control.

                   DESCRIPTION OF CAPITAL STOCK OF THE BANK

GENERAL

     The Certificate of Incorporation of the Bank authorizes the issuance of
capital stock consisting of 10,000,000 shares of common stock, par value $0.01
per share, and 1,000,000 shares of preferred stock, par value $.01 per share,
which preferred stock may be issued in series and classes having such rights,
preferences, privileges and restrictions as the Board of Directors may
determine. Each share of Common Stock of the Bank has the same relative rights
as, and will be identical in all respects with, each other share of common
stock. After the Conversion and Reorganization, the Board of Directors will be
authorized to approve the issuance of Common Stock up to the amount authorized
by the Certificate of Incorporation without the approval of the Bank's
stockholders. Following the Conversion and Reorganization, all of the issued and
outstanding common stock of the Bank will be held by the Company as the Bank's
sole stockholder. THE CAPITAL STOCK OF THE BANK WILL REPRESENT NON-WITHDRAWABLE
CAPITAL, WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT BE INSURED BY
THE FDIC.

COMMON STOCK

     Dividends. The holders of the Bank's common stock will be entitled to
receive and to share equally in such dividends as may be declared by the Board
of Directors of the Bank out of funds legally available therefor. See "Dividend
Policy" for certain restrictions on the payment of dividends and "Federal and
State Taxation - Federal Taxation" for a discussion of the consequences of the
payment of cash dividends from income appropriated to bad debt reserves.

                                      142
<PAGE>
 
     Voting Rights. Immediately after the Conversion and Reorganization, the
holders of the Bank's common stock will possess exclusive voting rights in the
Bank. Each holder of shares of common stock will be entitled to one vote for
each share held, provided that cumulation of votes will not be permitted. See
"Restrictions on Acquisition of the Company and the Bank - Anti-Takeover Effects
of the Company's Certificate of Incorporation and Bylaws and Management
Remuneration Adopted in Conversion."

     Liquidation. In the event of any liquidation, dissolution, or winding up of
the Bank, the holders of common stock will be entitled to receive, after payment
of all debts and liabilities of the Bank (including all deposit accounts and
accrued interest thereon), and distribution of the balance in the special
liquidation account to Eligible Account Holders and Supplemental Eligible
Account Holders, all assets of the Bank available for distribution in cash or in
kind. If additional preferred stock is issued subsequent to the Conversion and
Reorganization, the holders thereof may also have priority over the holders of
common stock in the event of liquidation or dissolution.

     Preemptive Rights; Redemption. Holders of the common stock of the Bank will
not be entitled to preemptive rights with respect to any shares of the Bank
which may be issued. The common stock will not be subject to redemption. Upon
receipt by the Bank of the full specified purchase price therefor, the common
stock will be fully paid and non-assessable.

                         TRANSFER AGENT AND REGISTRAR

     The transfer agent and registrar for the Common Stock is Registrar and
Transfer Company, Cranford, New Jersey.

                                    EXPERTS

     The consolidated financial statements of the Bank and its subsidiaries as
of December 31, 1996 and for each of the years in the three year period ended
December 31, 1996 have been included herein, in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.

     FinPro has consented to the publication herein of the summary of its report
to the Bank and Company setting forth its opinion as to the estimated pro forma
market value of the Common Stock upon Conversion and its valuation with respect
to subscription rights.

                            LEGAL AND TAX OPINIONS

     The legality of the Common Stock will be passed upon for the Bank and the
Company by Muldoon, Murphy & Faucette, Washington, D.C., special counsel to the
Bank and the Company. Muldoon, Murphy & Faucette will rely as to certain matters
of Delaware law on the opinion of Morris, Nichols, Arsht & Tunnell. The federal
income and New Jersey tax consequences of the Conversion and Reorganization will
be passed upon for the Bank and the Company by Muldoon, Murphy & Faucette.
Certain legal matters will be passed upon for Sandler O'Neill by Breyer &
Aguggia, Washington, D.C.

                            ADDITIONAL INFORMATION

     The Company has filed with the SEC a registration statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information, including
the Conversion Valuation Appraisal Report which is an exhibit to the
Registration Statement, can be examined without charge at the public reference
facilities of the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of such material can be obtained from the SEC at prescribed rates. In
addition, the

                                      143
<PAGE>
 
SEC maintains a web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC, including the Company. This Prospectus contains a
description of the material terms and features of all material contracts,
reports or exhibits to the Registration Statement required to be described,
however, the statements contained in this Prospectus as to the contents of any
contract or other document filed as an exhibit to the registration statement
are, of necessity, brief descriptions thereof and are not necessarily complete;
each such statement is qualified by reference to such contract or document.

     The Mutual Holding Company has filed an application for conversion with the
OTS with respect to the Conversion and Reorganization. Pursuant to the rules and
regulations of the OTS, this Prospectus omits certain information contained in
that application. The application may be examined at the principal office of the
OTS, 1700 G Street, N.W., Washington, D.C. 20552 and at the Office of the
Regional Director of the OTS located at 10 Exchange Place, 18th Floor, Jersey
City, New Jersey 07302.

     In connection with the Conversion and Reorganization, the Company will
register its Common Stock with the SEC under Section 12(b) of the Exchange Act
and, upon such registration, the Company and the holders of its stock will
become subject to the proxy solicitation rules, reporting requirements and
restrictions on stock purchases and sales by directors, officers and greater
than 10% stockholders, the annual and periodic reporting and certain other
requirements of the Exchange Act. Under the Plan, the Company has undertaken
that it will not terminate such registration for a period of at least three
years following the Conversion and Reorganization.

     A copy of the Certificate of Incorporation and the Bylaws of the Company
and the Stock Certificate of Incorporation and Bylaws of the Bank are available
without charge from the Bank.

                                      144
<PAGE>
 
                    FIRST SAVINGS BANK, SLA AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                        PAGE
                                                                    -----------
<S>                                                                 <C>
Independent Auditors' Report........................................     F-2

Consolidated Statements of Financial Condition as of September
30, 1997 (unaudited) and December 31, 1996 and 1995.................     F-3

Consolidated Statements of Income for the Nine Months Ended
September 30, 1997 and 1996 (unaudited) and for the Years
Ended December 31, 1996, 1995 and 1994..............................     37

Consolidated Statements of Stockholders' Equity for the Nine
Months Ended September 30, 1997 (unaudited) and for the Years
Ended December 31, 1996, 1995 and 1994..............................     F-4

Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1996 (unaudited) and for the Years
Ended December 31, 1996, 1995 and 1994..............................     F-5

Notes to Consolidated Financial Statements.......................... F-7 to F-33
</TABLE>

     All schedules are omitted because they are not required or applicable, or
the required information is shown in the financial statements or notes thereto.

     The financial statements of First Source Bancorp, Inc. have been omitted
because First Source Bancorp, Inc. has not yet issued any stock, has no assets
and no liabilities, and has not conducted any business other than of an
organizational nature.

                                      F-1
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT



The Board of Directors
First Savings Bank, SLA:
 

We have audited the consolidated financial statements of First Savings Bank,
SLA, and Subsidiaries as listed in the accompanying index.  These consolidated
financial statements are the responsibility of the Bank's management.  Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First Savings Bank,
SLA, and Subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996 in conformity with generally accepted accounting
principles.



                                    KPMG Peat Marwick LLP


Short Hills, New Jersey
January 27, 1997

                                      F-2
<PAGE>
 
FIRST SAVINGS BANK SLA, AND SUBSIDIARIES
--------------------------------------------------------------------------------
Consolidated Statements of Financial Condition
(Dollars in thousands, except per share data)                         

<TABLE> 
<CAPTION>                                                               
                                                                                  SEPTEMBER 30,          DECEMBER 31,          
                                                                                                    ----------------------     
                                                                                       1997            1996         1995       
                                                                                ---------------     ---------     --------     
                                                                                   (UNAUDITED)                                 
<S>                                                                             <C>                 <C>           <C>          
ASSETS
Cash and due from banks.......................................................       $    5,873     $   7,192     $   8,674
Federal funds sold............................................................           17,925         1,850        17,875
                                                                                     ----------     ---------     ---------
     Total cash and cash equivalents..........................................           23,798         9,042        26,549
Federal Home Loan Bank of New York (FHLB-NY) stock,
     at cost, (note 10).......................................................            8,045         7,428         6,276
Investment securities, at amortized cost (estimated fair value
     of $41,108, $38,980 and $39,617 at 9/30/97, 12/31/96
     and 12/31/95, respectively) (notes 4 and 10).............................           40,959        38,955        39,003
Investment securities available for sale (notes 4 and 10).....................           18,024        14,831         2,058
Mortgage-backed securities (estimated fair value of
     $231,667, $255,052 and $291,689 at 9/30/97,
    12/31/96 and 12/31/95, respectively) (notes 5 and 10).....................          228,158       252,383       288,143
Mortgage-backed securities available for sale (notes 5 and 10)................          122,371       120,797        89,339
Loans receivable, net (notes 6 and 10)........................................          567,197       509,627       457,756
Loans available for sale (notes 6 and 10).....................................               --           287           424
Interest and dividends receivable, net (note 7)...............................            7,719         7,415         6,793
Premises and equipment, net (note 8)..........................................           13,283        10,356         9,347
Excess of cost over fair value of net assets acquired.........................            9,018        10,950        12,299
Other assets (note 12)........................................................            5,941         5,044         7,025
                                                                                     ----------     ---------     ---------
     Total assets.............................................................       $1,044,513     $ 987,115     $ 945,012
                                                                                     ==========     =========     =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (note 9).............................................................       $  809,449      $794,595     $ 806,338
Borrowed funds (note 10)......................................................          123,894        87,994        38,750
Employee Stock Ownership Plan (ESOP) debt (note 11)...........................              571           646           746
Advances by borrowers for taxes and insurance.................................            5,382         4,600         3,813
Other liabilities (note 12 and 13)............................................            6,004         6,417         5,652
                                                                                     ----------      --------     ---------
  Total liabilities...........................................................          945,300       894,252       855,299
                                                                                     ----------      --------     ---------

Commitments and contingencies (note 14).......................................

STOCKHOLDERS' EQUITY
Preferred Stock, 1,000,000 shares authorized; issued and
     outstanding - none.......................................................
Common Stock, $0.01 par value, 10,000,000 shares authorized;
      8,006,707, 7,903,719 and 7,872,604 shares issued and outstanding
     at 9/30/97, 12/31/96 and 12/31/95, respectively (note 13)................               73            72            65
Paid-in capital (note 13).....................................................           27,856        27,427        22,007
Retained earnings (note 12)...................................................           71,870        66,299        68,222
Net unrealized gain (loss) on securities available for sale
     (notes 4 and 5)..........................................................              193            (3)          165
Less: Common Stock acquired by the ESOP (note 13).............................             (571)         (646)         (746)
      Common Stock acquired by the Recognition and
       Retention Plan (RRP) (note 13).........................................             (208)         (286)           --
                                                                                     ----------      --------     ---------
     Total stockholders' equity (notes 2 and 3)...............................           99,213        92,863        89,713
                                                                                     ----------      --------     ---------
     Total liabilities and stockholders' equity...............................       $1,044,513      $987,115     $ 945,012
                                                                                     ==========      ========     =========
</TABLE> 
 
See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>
 
FIRST SAVINGS BANK SLA, AND SUBSIDIARIES
--------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity
(Dollars in thousands, except per share data)
 
<TABLE> 
<CAPTION> 
                                                                            NET UNREALIZED
                                                                             GAIN/(LOSS)
                                                                            ON SECURITIES     COMMON      COMMON
                                                                             AVAILABLE         STOCK       STOCK       TOTAL
                                             COMMON  PAID-IN     RETAINED     FOR SALE,       ACQUIRED    ACQUIRED   STOCKHOLDERS'
                                             STOCK   CAPITAL     EARNINGS     NET OF TAX       BY ESOP     BY RRP      EQUITY
                                             ------  -------     --------   --------------    --------    --------   -------------
<S>                                          <C>     <C>         <C>        <C>               <C>         <C>        <C> 
Balance at December 31, 1993................    $29  $11,606     $56,539          $ 1,105      $(400)       $ (70)        $68,809

Net income for the year
   ended December 31, 1994..................                       8,275                                                    8,275
Issuance of 10% stock dividend..............      3    3,100      (3,103)                                                      -
Cash dividends ($.027 per share)............                        (787)                                                    (787)
Net change in unrealized gain/(loss)........                                       (2,502)                                 (2,502)
2-for-1 stock split.........................     33      (33)                                                                   -
Amortization of RRP.........................                                                                   70              70
Principal payments on ESOP loan.............                                                     100                          100
Exercise of stock options...................              99                                                                   99
                                                ---   ------     -------          -------      -----        -----         -------

Balance at December 31, 1994................     65   14,772      60,924           (1,397)      (300)          --          74,064

Net income for the year
   ended December 31, 1995..................                       8,302                                                    8,302
Net proceeds from stock offering
   (600,000 shares).........................           7,205                                                                7,205
Stock acquired by ESOP (42,000 shares)......                                                    (546)                        (546)
Cash dividends ($0.30 per share)............                      (1,004)                                                  (1,004)
Net change in unrealized gain/(loss)........                                        1,562                                   1,562
Principal payments on ESOP loan.............                                                     100                          100
Exercise of stock options...................              30                                                                   30
                                                ---   ------      ------          -------      -----        -----         -------

Balance at December 31, 1995................     65   22,007      68,222              165       (746)          --          89,713

Net income for the year
   ended December 31, 1996..................                       4,710                                                    4,710
Issuance of 10% stock dividend..............      7    5,388      (5,395)                                                       -
Cash in lieu of fractional shares...........                          (3)                                                      (3)
Stock acquired by RRP (21,780 shares).......                                                                 (310)           (310)
Cash dividends ($0.33 per share)............                      (1,238)                                                  (1,238)
Net change in unrealized gain/(loss)........                                         (168)                                   (168)
Amortization of RRP.........................                                                                   24              24
Principal payments on ESOP loan.............                                                     100                          100
Exercise of stock options...................              35                                                                   32
                                                ---   ------     -------          -------      -----        -----         -------

Balance at December 31, 1996................     72   27,427      66,299               (3)      (646)        (286)         92,863

Net income for the nine months
   ended September 30, 1997.................                       6,760                                                    6,760
Cash dividends ($0.31 per share)............                      (1,189)                                                  (1,189)
Net change in unrealized gain/(loss)........                                          196                                     196
Amortization of RRP.........................                                                                   78              78
Principal payments on ESOP loan.............                                                      75                           75
Exercise of stock options...................      1      429                                                                  430
                                                ---  -------     -------          -------      -----        -----         -------

Balance at September 30, 1997...............    $73  $27,856     $71,870          $   193      $(571)       $(208)        $99,213
                                                ===  =======     =======          =======      =====        =====         =======
</TABLE> 

See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>
 
FIRST SAVINGS BANK SLA, AND SUBSIDIARIES
--------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
(Dollars in thousands)
  
<TABLE>
<CAPTION>
                                                                               Nine months ended
                                                                                 September 30,          Year Ended December 31,
                                                                                 -------------          -----------------------
                                                                               1997         1996      1996       1995       1994
                                                                             --------     --------  --------   --------   --------
                                                                                  (unaudited)
<S>                                                                          <C>          <C>       <C>        <C>        <C>  
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income..............................................................  $  6,760     $  2,364  $  4,710   $  8,302   $  8,275
   Adjustments to reconcile net income to net cash provided by
     operating activities:
   Depreciation of premises and equipment..................................       754          630       842      1,018      1,241
   Amortization of excess of cost over fair value of assets acquired.......     1,932        1,138     1,349      1,066        223
   Amortization of ESOP....................................................        75           75       100        100        100
   Amortization of RRP.....................................................        78           --        24         --         70
   Net accretion and amortization of deferred loan fees....................        44          (95)     (284)      (335)      (256)
   Provision for loan losses...............................................       900          375       550        310        300
   Provision for losses on real estate owned...............................        61          105       105        222        149
   Net (gain) loss on sales of investment securities available for sale....      (149)          19      (114)       104        (21)
   Net loss on market adjustment to investment securities held for trading.        29           --        --         --         --
   Net (gain) loss on sales of mortgage loans available for sale...........       (12)          41        40        (15)        77
   Net gain on sales of mortgage-backed securities available for sale......      (461)        (199)     (162)      (840)       (96)
   Net gain on sales of real estate owned..................................       (92)        (161)     (183)       (52)       (59)
   Investment securities purchased for trading.............................    (1,989)          --        --         --         --
   Proceeds from sales of investment securities held for trading...........     1,971           --        --         --         --
   Net amortization of premiums and discounts..............................       112          410       716     (1,275)       795
   Increase in interest and dividends receivable...........................      (304)        (370)     (622)    (1,552)      (629)
   (Decrease) increase in other liabilities................................      (413)       3,846       765      1,011        247
   (Decrease) increase in other assets.....................................    (1,127)        (589)        5       (461)       110
                                                                             --------     --------  --------   --------   --------
     Net cash provided by operating activities.............................     8,169        7,589     7,841      7,603     10,526
                                                                             --------     --------  --------   --------   --------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from sales of investment securities available for sale.........     8,149       10,877    20,978     25,823     47,821
   Proceeds from sales of mortgage loans available for sale................     3,048        6,157     6,892      6,358      5,310
   Proceeds from sales of mortgage-backed securities available for sale....   116,891       73,210    96,309     82,632     36,001
   Proceeds from sale of real estate owned.................................     1,035        3,495     4,351      3,299      2,681
   Purchases of investment securities available for sale...................   (11,000)     (28,807)  (31,808)    (1,016)   (23,716)
   Loans originated for sale...............................................    (2,750)      (5,923)    6,798     (6,619)    (4,701)
   Purchases of mortgage-backed securities available for sale..............  (129,974)     (87,005) (136,935)   (86,767)   (38,580)
   Purchases of investment securities......................................   (15,998)     (15,950)  (20,937)   (47,002)   (14,000)
   Maturities of investment securities.....................................    14,000       13,000    19,000     19,000     11,000
   Origination of loans....................................................  (105,179)     (97,339) (124,134)   (95,674)   (79,338)
   Purchases of loans......................................................    (4,665)      (4,631)  (10,118)    (5,181)        --
   Purchases of mortgage-backed securities.................................   (30,689)     (54,392)  (54,392)  (128,524)  (108,049)
   Principal payments on loans.............................................    51,023       59,701    80,178     54,993     77,202
   Principal payments on mortgage-backed securities........................    66,292       79,493    98,392     64,785     72,220
   (Purchase) redemption of FHLB-NY stock..................................      (617)      (1,152)   (1,152)      (585)       726
   Purchases of premises and equipment.....................................    (3,681)        (673)   (1,849)    (2,065)     2,434
   Cost in excess of fair value of assets acquired.........................        --           --        --    (12,640)        --
                                                                             --------     --------  --------   --------   --------
     Net cash used in investing activities.................................   (44,115)     (49,939)  (62,023)  (129,183)   (17,857)
                                                                             --------     --------  --------   --------   --------
</TABLE>

                                      F-5
<PAGE>
 
FIRST SAVINGS BANK SLA, AND SUBSIDIARIES
--------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
(Dollars in thousands)

<TABLE> 
<CAPTION> 
                                                                                 Nine months ended
                                                                                   September 30,          Year Ended December 31,
                                                                               -------------------    ------------------------------
                                                                                 1997       1996        1996        1995       1994
                                                                               --------   --------    --------    --------   -------
                                                                                   (unaudited)
<S>                                                                            <C>        <C>         <C>         <C>        <C> 
CASH FLOWS FROM FINANCING ACTIVITIES:
   Net proceeds from stock offering.........................................       --         --          --       7,205         --
   Proceeds from ESOP debt..................................................       --         --          --         546         --
   Cost of stock contributed to RRP.........................................       --         --        (310)         --         --
   Payment on ESOP debt.....................................................      (75)       (75)       (100)       (100)      (100)
   Purchase of ESOP shares..................................................       --         --          --        (546)        --
   Stock options exercised..................................................      430         35          35          30         99
   Cash dividends paid......................................................   (1,189)      (928)     (1,238)     (1,004)      (787)
   Proceeds from acquisition of deposits....................................       --         --          --     112,784         --
   Net increase (decrease) in deposits......................................   14,854     (5,897)    (11,743)     11,941      2,652
   Net increase in borrowed funds...........................................   35,900     30,687      49,244       4,750      8,000
   Net increase (decrease) in advances by borrowers for taxes and
    insurance...............................................................      782        684         787          80        (80)
                                                                            ---------   --------   ---------   ---------  ---------
            Net cash provided by financing activities.......................   50,702     24,506      36,675     135,686      9,784
                                                                            =========   ========   =========   =========  =========
            Net increase (decrease) in cash and cash equivalents............   14,756    (17,844)    (17,507)     14,106      2,453
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                9,042     26,549      26,549      12,443      9,990
                                                                            ---------   --------   ---------   ---------  ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                  $  23,798   $  8,705   $   9,042   $  26,549  $  12,443
                                                                            =========   ========   =========   =========  =========
Supplemental disclosures of cash flow information:
   Cash paid during the period for:
       Interest.............................................................$  30,196   $ 27,443   $  36,967   $  35,409  $  24,953
       Income taxes.........................................................    3,851      3,824       3,831       4,495      4,474
   Non cash investing and financing activities for the period:
        Transfer of loans to real estate owned..............................      885      2,105       2,535       4,960      2,365
        Transfer of investment and mortgage-backed securities from
              held to maturity to available for sale........................       --         --          --      77,549         --
        Transfer of loans available for sale to loans receivable............       --         --          --          --        596
                                                                            =========   ========   =========   =========  =========
</TABLE> 

See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>
 
FIRST SAVINGS BANK SLA, AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a description of the more significant accounting policies used
in preparation of the accompanying consolidated financial statements of First
Savings Bank, SLA, and Subsidiaries ("the Bank").

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements are comprised of the accounts of the Bank
and its wholly-owned subsidiaries, FSB Financial Corp. and 1000 Woodbridge
Center Drive, Inc.  All significant intercompany accounts and transactions have
been eliminated in consolidation.

BASIS OF FINANCIAL STATEMENT PRESENTATION

The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles.  In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period.  Actual results could
differ significantly from those estimates.

Material estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for loan losses and
the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowance for
loan losses, management generally obtains independent appraisals for significant
properties.

The accompanying unaudited consolidated financial statements as of September 30,
1997, and for the nine month periods ended September 30, 1997 and 1996, have
been prepared in accordance with generally accepted accounting principles. In
the opinion of management, all adjustments (consisting of only normal recurring
accruals) necessary for a fair presentation of such interim periods have been
made at and for the nine months ended September 30, 1997 and 1996. The results
of operations for the nine months ended September 30, 1997 are not necessarily
indicative of results that may be expected for the entire fiscal year ending
December 31, 1997.

CASH EQUIVALENTS

For purposes of the consolidated statements of cash flows, cash equivalents
consist of interest-bearing deposits in other financial institutions and loans
of federal funds.

INVESTMENT AND MORTGAGE-BACKED SECURITIES

Management determines the appropriate classification of investment and mortgage-
backed securities as either available for sale, held to maturity, or held for
trading at the purchase date. Securities available for sale include debt,
mortgage-backed, and marketable equity securities that are held for an
indefinite period of time and may be sold in response to changing market and
interest rate conditions. These securities are reported at fair value with
unrealized gains and losses, net of tax, included as a separate component of
stockholders' equity. Upon realization, such gains and losses will be included
in earnings using the specific identification method. In November, 1995, the
Financial Accounting Standards Board ("FASB") issued "Special Report - A Guide
to Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity 

                                      F-7
<PAGE>
 
Securities" within which there was offered transition guidance permitting an
enterprise to reassess the appropriateness of the classifications of all of its
securities before December 31, 1995. The Bank reassessed its classifications
and, on December 15, 1995, transferred $77.5 million in amortized cost of
investment and mortgage-backed securities to the available for sale
classification. The net unrealized loss (net of taxes) as of the date of
transfer was $40,000.

Trading account securities are adjusted to market value through earnings. Gains
and losses from adjusting trading account securities to market value and from
the sale of these securities are included in noninterest income. There were no
trading account securities outstanding at September 30, 1997, December, 31, 1996
or 1995.

Investment securities, other than those designated as available for sale or
trading, are carried at amortized historical cost and consist of those
securities for which there is a positive intent and ability to hold to maturity.
Investment securities are adjusted for amortization of premiums and accretion of
discounts using the level-yield method over the estimated lives of the
securities.

Mortgage-backed securities, other than those designated as available for sale or
trading, are carried at their outstanding principal balance, adjusted for
amortization of premiums and accretion of discounts using the level-yield method
over the estimated lives of the securities.

FEDERAL HOME LOAN BANK OF NEW YORK STOCK

The Bank, as a member of the FHLB-NY, is required to hold shares of capital
stock in the FHLB-NY in an amount equal to 1% of the Bank's outstanding balance
of residential mortgage loans or 5% of its outstanding advances from the FHLB-
NY, whichever is greater.

LOANS RECEIVABLE, NET

Loans receivable, other than loans available for sale, are stated at the unpaid
principal balance, net of premiums, unearned discounts, net deferred loan
origination and commitment fees, and the allowance for loan losses.

Loans are classified as non-accrual when they are past due 90 days or more as to
principal or interest, or where reasonable doubt exists as to timely
collectibility. However, if a loan meets the above criteria but a current
appraisal of the property indicates that the total outstanding balance is less
than 55% of the appraised value, the loan is not classified as non-accrual. At
the time a loan is place on non-accrual status, previously accrued and
uncollected interest is reversed against interest income. Interest received on
non-accrual loans is generally credited to interest income for the current
period. If principal and interest payments are brought contractually current and
future collectibility is reasonably assured, loans are returned to accrual
status. Discounts are accreted and premiums amortized to income using the level
yield method over the estimated lives of the loans. Loan fees and certain direct
loan origination costs are deferred, and the net fee or cost is recognized in
interest income using the level-yield method over the contractual life of the
individual loans, adjusted for actual prepayments.

Statement of Financial Accounting Standards ("SFAS") 114, "Accounting by
Creditors for Impairment of a Loan" and SFAS 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures" were adopted
prospectively by the Bank on January 1, 1995. These statements address the
accounting for impaired loans and specify how allowances for loan losses related
to these impaired loans should be determined. The adoption of the statements did
not effect the level of the overall allowance or the operating results. Income
recognition and charge-off policies were not changed as a result of SFAS 114 and
SFAS 118. The Bank has defined the population of impaired loans to be all non-
accrual commercial real 

                                      F-8
<PAGE>
 
estate, multi-family and land loans. Impaired loans are individually assessed to
determine that the loan's carrying value is not in excess of the fair value of
the collateral or the present value of the loan's expected future cash flows.
Smaller balance homogeneous loans that are collectively evaluated for
impairment, such as residential mortgage loans and installment loans are
specifically excluded for the impaired loan portfolio. There were no impaired
loans at September 30, 1997, nor at December 31, 1996 and 1995, as defined by
SFAS 114 and SFAS 118.

Loans available for sale are carried at the lower of cost or market using the
aggregate method. Valuation adjustments, if applicable, are reflected in current
operations. Gains and losses on sales are recorded using the specific
identification method. Management determines the appropriate classification of
loans as either held to maturity or available for sale at origination, in
conjunction with the Bank's overall asset/liability management strategy.

Effective January 1, 1996, SFAS 122, "Accounting for Mortgage Servicing Rights,"
was adopted on a prospective basis. SFAS 122 requires capitalization of the
rights to service mortgage loans for others, whether those rights are acquired
through purchase or origination. The Bank determines the value of servicing
rights through an evaluation of prepayment trends, the market for purchased
servicing and underlying interest rate of the loans. All capitalized mortgage
servicing rights, both originated and purchased, will be evaluated for
impairment on a quarterly basis with any adjustments recognized through a
valuation allowance. The Bank amortizes mortgage servicing rights over the
estimated life of the loans on a straight line basis. Certain provisions of SFAS
122 were amended by SFAS 125. See Note 16, "Recent Accounting Pronouncements,"
for a description of SFAS 125.

A substantial portion of the Bank's loans are secured by real estate in the
State of New Jersey. Accordingly, as with most financial institutions in the
market area, the collectibility of a substantial portion of the carrying value
of the Bank's loan portfolio and real estate owned is susceptible to changes in
market conditions.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is based on management's evaluation of the
adequacy of the allowance, including an assessment of known and inherent risks
in the portfolio, review of individual loans for adverse situations that may
affect the borrower's ability to repay, the estimated value of any underlying
collateral, and consideration of current economic conditions.

Additions to the allowance arise from charges to operations through the
provision for loan losses or from the recovery of amounts previously charged
off. The allowance is reduced by loan charge-offs.

Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions in the Bank's market area. In addition, various regulatory agencies,
as an integral part of their examination process, periodically review the Bank's
allowance for loan losses. Such agencies may require the Bank to recognize
additions to the allowance based on their judgments about information available
to them at the time of their examination.

REAL ESTATE OWNED, NET

Real estate owned is recorded at the fair value at the date of acquisition, with
a charge to the allowance for loan losses for any excess of cost over fair
value. Subsequently, real estate owned is carried at the lower of cost or fair
value, less estimated selling costs. Certain costs incurred in preparing
properties for sale are capitalized, and expenses of holding foreclosed
properties are charged to operations as incurred. There was 

                                      F-9
<PAGE>
 
$1.4 million, $1.5 million, and $3.1 million in real estate owned included in
Other Assets at September 30, 1997, December 31, 1996 and 1995, respectively.

EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED

The excess of cost over fair value of net assets acquired from the acquisition
of deposits is amortized to expense over the expected life of the acquired
deposit base (7 to 15 years) using the straight-line method. During 1995, the
Bank acquired the deposits and former branch locations of two offices of the
former Carteret Savings for a premium of $12.6 million. Core deposit studies
regarding the retention of the deposits acquired are performed by the Bank on an
annual basis. After reviewing the results of the core deposit studies, a
writedown of the core deposit premium may be recognized if the current balance
of the core deposit premium is considered impaired. The Bank recognized
writedowns of $1.3 million and $334,000 for the nine months ended September 30,
1997, and for the year ended December 31, 1996, respectively.

PREMISES AND EQUIPMENT

Premises and equipment, including leasehold improvements, are stated at cost,
less accumulated amortization and depreciation. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the assets or leases. Repair and maintenance items are expensed and improvements
are capitalized. Upon retirement or sale, any gain or loss is charged to
operations.

STOCK-BASED COMPENSATION

In October 1995, SFAS 123, "Accounting for Stock-Based Compensation" was issued.
SFAS 123 encourages recording in current period earnings compensation expense
related to the fair value of certain stock-based compensation. Companies may
choose to continue to follow the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), where
compensation expense is not recorded for certain stock-based compensation plans.
However, companies are required to disclose pro forma net income and earnings
per share as if they adopted the fair value based method of accounting. The Bank
has elected to continue to account for stock-based compensation under APB 25 and
the pro forma disclosures required by SFAS 123 have been included in Note 13,
"Stock Option Plans." The adoption of SFAS 123 had no impact on the Bank's
consolidated financial statements.

RECOGNITION AND RETENTION PLAN (RRP)

RRP awards are granted in the form of shares of common stock held by the RRP,
and are payable over a three year vesting period at a rate of 33.3% per year,
commencing on the date of the award grant. Compensation expense is recorded at
the fair market value of the shares at the grant date ratably over the vesting
period.

INCOME TAXES

The Bank accounts for income taxes according to SFAS 109, "Accounting for Income
Taxes." Under the asset and liability method of SFAS 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using the enacted tax rates applicable to taxable
income for the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.

                                      F-10
<PAGE>
 
PENSION PLAN

Pension plan costs based on actuarial computation of current and future benefits
for employees are charged to expense and are funded based on the maximum amount
that can be deducted for Federal income tax purposes.

POST-RETIREMENT BENEFITS

The Bank accounts for post-retirement benefits under SFAS 106 "Employers'
Accounting for Post-Retirement Benefits Other than Pensions." SFAS 106 requires
the accrual of the expected cost of providing health care and other benefits to
employees subsequent to their retirement during the service periods of the
employees.

NET INCOME PER SHARE AND PER SHARE DATA

Net income per share is computed by dividing net income by the weighted average
number of shares of common stock and common stock equivalents outstanding. See
Note 16, "Recent Accounting Prouncements."

Per share data reflects 10% stock dividends paid on April 1, 1994, and December
16, 1996, and declared on September 24, 1997, respectively, and a 2-for-1 stock
split on December 1, 1994, all applied retroactively.

RECLASSIFICATIONS

Certain reclassifications have been made to the 1996 and 1995 amounts to conform
to the 1997 presentation.

(2)  REORGANIZATION AND STOCK ISSUANCE

On July 10, 1992, the Office of Thrift Supervision ("OTS") approved the Plan of
Reorganization adopted by the Board ("the Reorganization"), whereby the Bank was
reorganized into a federal mutual holding company. At that time, First Savings
Bank, SLA, reorganized from a New Jersey-chartered mutual savings association
into a federal mutual holding company, First Savings Bancshares, MHC ("Holding
Company"). The Bank has continued to operate under the mutual holding company
regulations as proscribed by the OTS.

As part of the Reorganization, a minority stock offering was completed on July
10, 1992, whereby 1,000,000 shares were sold at a price of $10 per share, for
gross proceeds of $10.0 million, which represented a minority ownership of 37.6%
of the Bank. On July 11, 1995, the Bank completed a secondary stock offering of
600,000 shares of common stock at $13 per share for gross proceeds of $7.8
million, offset by offering-related expenses totaling $595,000. The net proceeds
were used to purchase investment and mortgage-backed securities. The total
minority ownership, after the secondary stock offering, totaled 47.5% at
December 31, 1995. At September 30, 1997, the total minority ownership was
48.4%.

On October 24, 1997, the Boards of Directors for First Savings Bank and First
Savings Bancshares, MHC, the mutual holding company of the Bank, announced that
a Plan of Conversion was adopted to convert First Savings Bancshares, MHC to
stock form and to reorganize First Savings Bancshares, MHC and First Savings
Bank into the stock holding company structure by forming a new stock Delaware
corporation to become the parent holding company for the Bank. Pursuant to the
Plan, the new Delaware corporation will exchange certain shares of its common
stock for the outstanding common stock of the Bank and will issue and offer for
sale certain additional shares of its common stock. The Plan of Conversion must
receive regulatory approval from the Office of Thrift Supervision, along with
approval from the members of First Savings Bancshares, MHC, and the Bank's
stockholders. The transaction is expected to be completed during the second
quarter of 1998.

                                      F-11
<PAGE>
 
(3)  REGULATORY MATTERS

Capital distributions, in the form of any dividend paid or other distribution in
cash or in kind, are limited by the OTS. A "Tier 1" association, which is
defined as an association that has capital immediately prior to a proposed
capital distribution that is equal to or greater than the amount of its fully
phased-in capital requirement, is authorized to make capital distributions
during a calendar year up to the higher of 100% of its net income to date during
the calendar year plus the amount that would reduce by one-half its surplus
capital ratio at the beginning of the calendar year, or 75% of its net income
over the most recent four-quarter period. The Bank is a Tier 1 association.

OTS regulations require savings institutions to maintain minimum levels of
regulatory capital. Under the regulations in effect at September 30, 1997,
December 31, 1996 and 1995, the Bank was required to maintain a minimum ratio of
tangible capital to total adjusted assets of 1.5%; a minimum ratio of Tier 1
(core) capital to total adjusted assets of 3.0%; and a minimum ratio of total
(core and supplementary) capital to risk-weighted assets of 8.0%.

Under the prompt corrective action regulations, the OTS is required to take
certain supervisory actions and may take additional discretionary actions with
respect to an undercapitalized institution. Such actions could have a direct
material effect on the institution's financial statements. The regulations
establish a framework for the classification of savings institutions into five
categories: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized. Generally, an
institution is considered well capitalized if it has a Tier 1 (core) capital
ratio of at least 5.0%; a Tier 1 risk-based capital ratio of at least 6.0%; and
a total risk-based capital ratio of at least 10.0%.

The foregoing capital ratios are based in part on specific quantitative measures
of assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. Capital amounts and classifications are also
subject to qualitative judgments by the OTS about capital components, risk
weightings and other factors.

Management believes that, as of September 30, 1997, the Bank meets all capital
adequacy requirements to which it is subject. Further, the most recent OTS
notification categorized the Bank as a well capitalized institution under the
prompt corrective action regulations. There have been no conditions or events
since that notification that management believes have changed the Bank's capital
classification.

The following is a summary of the Bank's actual capital amounts and ratios as of
September 30, 1997, December 31, 1996 and 1995, compared to the OTS minimum
capital adequacy requirements and the OTS requirements for classification as a
well-capitalized institution:

                                      F-12
<PAGE>
 
<TABLE>
<CAPTION>
                                                                                  OTS REQUIREMENTS                      
                                                                  --------------------------------------------------    
                                                                       MINIMUM CAPITAL          FOR CLASSIFICATION AS   
                                            BANK ACTUAL                    ADEQUACY                WELL-CAPITALIZED     
                                      ----------------------       -----------------------      ----------------------   
                                        AMOUNT     RATIO (%)         AMOUNT     RATIO (%)        AMOUNT     RATIO (%)   
                                      ---------  -----------       ----------  -----------      ---------  -----------    
<S>                                   <C>        <C>              <C>          <C>              <C>        <C>
                                                                  (DOLLARS IN THOUSANDS)
September 30, 1997
------------------------------
Tangible capital..............         $89,992         8.68          $15,552      1.50 
Tier 1 (core)  capital........          89,992         8.68           31,104      3.00           $51,840       5.00
Risk-based capital:
   Tier 1.....................          89,992        21.13                                       25,552       6.00
   Total......................         $95,319        22.38           $34,070     8.00           $42,587      10.00
                                       =======        =====           =======     ====           =======      =====

December 31, 1996
------------------------------
Tangible capital..............         $81,909         8.38           $14,670     1.50
Tier 1 (core) capital.........          81,909         8.38            29,340     3.00           $48,900       5.00
Risk-based  capital:                                                                                           
   Tier 1.....................          81,909        20.85                                       23,571       6.00
   Total......................         $86,822        22.10           $31,428     8.00           $39,286      10.00
                                       =======        =====           =======     ====           =======      =====

December 31, 1995
------------------------------
Tangible capital..............         $77,249         8.28           $13,995    1.50
Tier 1 (core) capital.........          77,751         8.33            28,005    3.00            $46,675       5.00
Risk-based capital:
    Tier 1....................          77,751        20.85                                       22,371       6.00
    Total.....................         $80,680        21.64           $29,828    8.00            $37,285      10.00
                                       =======        =====           =======    ====            =======      =====
</TABLE>

                                     F-13
<PAGE>
 
(4) INVESTMENT SECURITIES

A summary of investment securities at September 30, 1997, December 31, 1996 and
1995, is as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                     SEPTEMBER 30, 1997                      
                                                                  --------------------------------------------------------   
                                                                                   GROSS           GROSS        ESTIMATED    
                                                                                 UNREALIZED     UNREALIZED        MARKET     
                                                                      COST         GAINS          LOSSES          VALUE      
                                                                  ----------   ------------   ------------    ------------   
<S>                                                               <C>          <C>            <C>             <C>            
INVESTMENTS HELD TO MATURITY
  U.S. Government and Agency obligations.......................     $40,959         $193          $(44)          $41,108   
                                                                    =======         ====          ====           =======   
INVESTMENTS AVAILABLE FOR SALE                                                                                             
  U.S. Government and Agency obligations.......................     $13,972         $ 26          $(55)          $13,943   
  Corporate obligations........................................       4,079            3            (1)            4,081   
                                                                    -------         ----          ----           -------   
  Total investment securities available for sale...............     $18,051         $ 29          $(56)          $18,024   
                                                                    =======         ====          ====           =======   
</TABLE>

<TABLE>
<CAPTION>
                                                                                            DECEMBER 31, 1996
                                                                        --------------------------------------------------------
                                                                                         GROSS           GROSS        ESTIMATED
                                                                                       UNREALIZED     UNREALIZED        MARKET
                                                                            COST         GAINS          LOSSES          VALUE
                                                                        ----------   ------------   ------------    ------------
<S>                                                                     <C>          <C>            <C>             <C>
INVESTMENTS HELD TO MATURITY
  U.S. Government and Agency obligations.......................           $38,955         $247          $(222)         $38,980   
                                                                                                                                 
INVESTMENTS AVAILABLE FOR SALE                                                                                                   
  U.S. Government and Agency obligations.......................           $12,964         $  4          $(132)         $12,836   
  Corporate obligations........................................             2,000           --             (5)           1,995   
                                                                          -------         ----          -----          -------   
  Total investment securities available for sale...............           $14,964         $  4          $(137)         $14,831   
                                                                          =======         ====          =====          =======   
</TABLE>

<TABLE>
<CAPTION>
                                                                                            DECEMBER 31, 1995
                                                                       ---------------------------------------------------------
                                                                                        GROSS          GROSS        ESTIMATED
                                                                                      UNREALIZED     UNREALIZED       MARKET
                                                                          COST          GAINS         LOSSES          VALUE
                                                                       ----------   ------------   ------------    -------------
<S>                                                                    <C>          <C>            <C>              <C>  
INVESTMENTS HELD TO MATURITY
  U.S. Government and Agency obligations.......................          $39,003         $621           $(7)          $39,617   
                                                                         =======         ====           ===           =======   
INVESTMENTS AVAILABLE FOR SALE                                                                                                  
  U.S. Government and Agency obligations.......................          $ 1,000         $ --           $(4)          $   996   
  Corporate obligations........................................            1,041           21            --             1,062   
                                                                         -------         ----           ---           -------   
  Total investment securities available for sale...............          $ 2,041         $ 21           $(4)          $ 2,058   
                                                                         =======         ====           ===           =======   
</TABLE>

The cost and estimated fair value of investment securities at September 30, 1997
and December 31, 1996, by contractual maturity, are shown below (in thousands).
Expected maturities may differ from contractual maturities because borrowers may
have the right to call or repay obligations at par value without prepayment
penalties.

                                     F-14
<PAGE>
 
<TABLE>
<CAPTION>
                                                             SEPTEMBER 30, 1997                   DECEMBER 31, 1996   
                                                        ------------------------------------------------------------------  
                                                                           ESTIMATED                           ESTIMATED       
                                                         AMORTIZED          MARKET         AMORTIZED             MARKET         
INVESTMENTS HELD TO MATURITY                               COST             VALUE            COST                VALUE          
                                                         ----------      --------------    ------------        ------------       
<S>                                                      <C>             <C>               <C>                 <C>              
Due in:
   Less than one year.............................          $    --          $    --            $ 1,000           $ 1,002
   One to five years..............................           14,991           15,041             13,990            14,054
   Five to ten years..............................           19,972           20,022             17,970            17,953
   Ten to fifteen years...........................            5,996            6,045              5,995             5,971
                                                            -------          -------            -------           -------
                                                            $40,959          $41,108            $38,955           $38,980
                                                            =======          =======            =======           =======
</TABLE> 

<TABLE> 
<CAPTION> 
                                                                           ESTIMATED                           ESTIMATED
                                                         AMORTIZED          MARKET           AMORTIZED          MARKET
INVESTMENTS AVAILABLE FOR SALE....................         COST              VALUE             COST             VALUE
<S>                                                     -------------    -------------      ------------      ------------
Due in:                                                 <C>              <C>                <C>               <C> 
    One to five years.............................          $12,972          $12,942            $13,964           $13,856
    Five to ten years.............................            5,079            5,082              1,000               975
                                                            -------          -------            -------           -------
                                                            $18,051          $18,024            $14,964           $14,831
                                                            =======          =======            =======           =======
</TABLE>

Proceeds from sales of investment securities and the realized gross gains and
losses from those sales are as follows (in thousands):

<TABLE>
<CAPTION>
                                    NINE MONTHS ENDED                           
                                      SEPTEMBER 30,          YEAR ENDED DECEMBER 31  
                                   ------------------    -----------------------------
                                    1997        1996      1996      1995        1994
                                   -------  --------     --------  -------   ---------
<S>                                <C>      <C>          <C>       <C>       <C> 
Proceeds from sales............    $10,120   $10,877      $20,978   $25,823   $47,821
                                   =======   =======      =======   =======   =======

Gross realized gains...........    $   180   $    12      $   147   $    94   $   317
Gross realized losses..........        (60)      (31)         (33)     (198)     (296)
                                   -------   -------      -------   -------   -------
                                   $   120   $   (19)     $   114   $  (104)  $    21
                                   =======   =======      =======   =======   =======
</TABLE>

Investment securities with an amortized cost of $15.4 million and $15.0 million
at September 30, 1997 and December 31, 1996, respectively, are pledged as
collateral for other borrowings.  Pursuant to a collateral agreement with the
FHLB-NY, all unpledged, qualifying investment securities, including those
available for sale, are pledged to secure advances from the FHLB-NY (see note
10).

(5) MORTGAGE-BACKED SECURITIES

A summary of mortgage-backed securities at September 30, 1997, December 31, 1996
and 1995, is as follows (in thousands):

                                     F-15
<PAGE>
 
<TABLE>
<CAPTION>
                                                                                     SEPTEMBER 30, 1997                         
                                                              ---------------------------------------------------------------   
                                                                                  GROSS            GROSS           ESTIMATED    
                                                                AMORTIZED       UNREALIZED       UNREALIZED         MARKET      
                                                                   COST           GAINS            LOSSES            VALUE      
                                                              ------------    ------------    -------------     -------------   
<S>                                                           <C>             <C>             <C>               <C>           
MORTGAGE-BACKED SECURITIES HELD TO MATURITY
FHLMC.........................................................   $132,388         $2,988           $ (73)          $135,303   
GNMA..........................................................     18,612            536              --             19,148   
FNMA..........................................................     33,164            307             (15)            33,456   
Collateralized mortgage obligations...........................     43,994             61            (295)            43,760   
                                                                 --------         ------           -----           --------   
Total mortgage-backed securities held to maturity.............   $228,158         $3,892           $(383)          $231,667   
                                                                 ========         ======           =====           ========   

MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
FHLMC.........................................................   $ 69,272         $  537           $(238)          $ 69,571   
FNMA  ........................................................     35,009             11            (102)            34,918   
Collateralized mortgage obligations...........................     17,761            128              (7)            17,882   
                                                                 --------         ------           -----           --------   
Total mortgage-backed securities available for sale...........   $122,042         $  676           $(347)          $122,371   
                                                                 ========         ======           =====           ========   
</TABLE>

<TABLE>
<CAPTION>
                                                                                           DECEMBER 31, 1996
                                                                  -----------------------------------------------------------------
                                                                                       GROSS            GROSS           ESTIMATED
                                                                     AMORTIZED       UNREALIZED       UNREALIZED          MARKET
                                                                       COST            GAINS           LOSSES             VALUE
                                                                   -------------    ------------    -------------     -------------
<S>                                                                <C>              <C>             <C>               <C>
MORTGAGE-BACKED SECURITIES HELD TO MATURITY
FHLMC.........................................................       $161,180          $2,663           $(187)           $163,656   
GNMA..........................................................         20,851             398              --              21,249   
FNMA..........................................................         32,225             217            (115)             32,327   
Collateralized mortgage obligations...........................         38,127              75            (382)             37,820   
                                                                     --------          ------           -----            --------   
Total mortgage-backed securities held to maturity.............       $252,383          $3,353           $(684)           $255,052   
                                                                     ========          ======           =====            ========   
                                                                                                                                    
MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE                                                                                       
FHLMC.........................................................       $ 88,818          $  505           $(343)           $ 88,980   
GNMA..........................................................          7,320              17             (23)              7,314   
FNMA..........................................................         22,528              53             (73)             22,508   
Collateralized mortgage obligations...........................          2,004              --              (9)              1,995   
                                                                     --------          ------           -----            --------   
Total mortgage-backed securities available for sale...........       $120,670          $  575           $(448)           $120,797   
                                                                     ========          ======           =====            ========   
</TABLE>

<TABLE>
<CAPTION>
                                                                                           DECEMBER 31, 1995
                                                                  ------------------------------------------------------------------
                                                                                       GROSS            GROSS           ESTIMATED
                                                                     AMORTIZED       UNREALIZED       UNREALIZED          MARKET
                                                                       COST            GAINS             GAINS            VALUE
                                                                  ---------------  --------------  ----------------  ---------------
<S>                                                               <C>              <C>             <C>               <C>
MORTGAGE-BACKED SECURITIES HELD TO MATURITY
FHLMC.........................................................       $199,320         $3,241           $ (48)          $202,513   
GNMA..........................................................         19,690            588              --             20,278   
FNMA..........................................................         12,474            181              (9)            12,646   
Collateralized mortgage obligations...........................         56,659            139            (546)            56,252   
                                                                     --------         ------           -----           --------   
Total mortgage-backed securities held to maturity.............       $288,143         $4,149           $(603)          $291,689   
                                                                     ========         ======           =====           ========   
                                                                                                                                  
MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE                                                                                     
FHLMC.........................................................       $ 62,029         $  334           $ (81)          $ 62,282   
GNMA..........................................................         12,059             13              --             12,072   
FNMA..........................................................          6,206             90             (10)             6,286   
Collateralized mortgage obligations...........................          8,805             21            (127)             8,699   
                                                                     --------         ------           -----           --------   
Total mortgage-backed securities available for sale...........       $ 89,099         $  458            (218)          $ 89,339   
                                                                     ========         ======           =====           ========   
</TABLE>

                                     F-16
<PAGE>
 
Proceeds from sales of mortgage-backed securities and the realized gross gains
and losses from those sales are as follows (in thousands):

<TABLE>
<CAPTION>
                                       SEPTEMBER 30,                            DECEMBER 31,                   
                              ----------------------------------    ---------------------------------          
                                  1997                1996             1996         1995       1994            
                              -------------     ----------------    -----------  ----------  --------          
<S>                           <C>               <C>                 <C>          <C>         <C>               
Proceeds from sales               $116,891           $73,210           $96,309     $82,632    $36,001          
                                  ========           =======           =======     =======    =======          
                                                                                                               
Gross realized gains              $    513           $   243           $   324     $   986    $   217          
Gross realized losses                  (52)              (44)             (162)       (146)      (121)         
                                  --------           -------           -------     -------    -------          
                                  $    461           $   199           $   162     $   840    $    96          
                                  ========           =======           =======     =======    =======           
</TABLE>

Mortgage-backed securities with an amortized cost of $301,000, $338,000 and
$444,000 at September 30, 1997, December 31, 1996 and 1995, respectively, were
pledged as collateral to secure deposits held for municipalities within the
State of New Jersey.  Mortgage-backed securities with an amortized cost of $87.8
million, $48.7 million and $21.8 million at September 30, 1997, December 31,
1996 and 1995, respectively, were pledged as collateral for other borrowings.
Pursuant to a collateral agreement with the FHLB-NY, all unpledged, qualifying
mortgage-backed securities are pledged to secure advances from the FHLB-NY (see
note 10).  Expected maturities of mortgage-backed securities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without penalties.

________________________________________________________________________________


(6)   LOANS RECEIVABLE, NET

A summary of loans receivable at September 30, 1997, December 31, 1996 and 1995,
is as follows (in thousands):

<TABLE>
<CAPTION>
                                                SEPTEMBER 30,                DECEMBER 31,
                                                                  -------------------------------
                                                    1997               1996              1995
                                              ---------------     -------------     -------------
<S>                                           <C>                 <C>               <C>
LOANS RECEIVABLE
 Real estate mortgages:
   One- to four-family...........................    $466,257          $425,175          $386,458
   Multi-family and commercial...................      37,794            29,085            26,997
   Home equity...................................      41,895            39,139            33,456
   FHA-insured and VA-guaranteed.................       2,572             3,002             3,759
   AID housing loan..............................          --                --               165
                                                     --------          --------          --------
                                                      548,518           496,401           450,835
 Real estate construction........................      44,469            25,124            11,412
 Consumer........................................       6,208             5,772             5,055
                                                     --------          --------          --------
          Total Loans............................     599,195           527,297           467,302
                                                     --------          --------          --------
 Loans in process................................     (26,214)          (12,253)           (3,800)
 Deferred (fees) expenses........................         255                19              (265)
 Net unearned discount...........................         (57)             (114)             (234)
 Allowance for loan losses.......................      (5,982)           (5,322)           (5,247)
                                                     --------          --------          --------
                                                      (31,998)          (17,670)           (9,546)
                                                     --------          --------          --------
          Loans receivable, net..................    $567,197          $509,627          $457,756
                                                     ========          ========          ========
 
LOANS AVAILABLE FOR SALE
Real estate mortgages - one-to-four family.......    $     --          $    287          $    424
                                                     ========          ========          ========
</TABLE>

                                     F-17
<PAGE>
 
The Bank serviced loans for others in the amount of $94.5 million and $103.4
million at September 30, 1997 and 1996, respectively, and $101.2 million, $106.9
million and $112.4 million at December 31, 1996, 1995 and 1994, respectively.
Related servicing income earned on loans serviced for others totaled $218,000
and $246,000 for the nine months ended September 30, 1997 and 1996,
respectively, and $325,000, $350,000 and $386,000 for the years ended December
31, 1996, 1995 and 1994, respectively.

Loans in the amount of $1.7 million, $1.9 million and $2.1 million were
outstanding to directors and executive officers of the Bank at September 30,
1997, and December 31, 1996 and 1995, respectively.  The loans consist primarily
of loans secured by mortgages on residential properties.

The Bank has pledged, under a blanket assignment, its unpledged and qualifying
mortgage portfolio to secure advances from the FHLB-NY (see note 10).

A summary of nonperforming assets at September 30, 1997, December 31, 1996 and
1995, is as follows (in thousands):

<TABLE>
<CAPTION>
                                                      SEPTEMBER 30,             DECEMBER 31,
                                                                           ----------------------
                                                          1997               1996          1995
                                                     --------------        --------      --------
<S>                                                  <C>                   <C>           <C>
Nonaccrual loans.....................................     $3,561            $4,720        $5,838
Loans 90 days or more delinquent and still accruing..        379                93           200
    Total nonperforming loans........................      3,940             4,813         6,038
Real estate owned (included in other assets).........      1,398             1,517         3,131
                                                          ------            ------        ------
    Total nonperforming assets.......................     $5,338            $6,330        $9,169
                                                          ======            ======        ======
</TABLE>

If interest income on nonaccrual loans had been current in accordance with their
original terms, approximately $253,000 and $274,000 of interest income for the
nine months ended September 30, 1997 and 1996, respectively, and $364,000,
$579,000 and $805,000 of interest income for the years ended December 31, 1996,
1995, and 1994, respectively, would have been recorded.  Interest income
recognized on non-accrual loans totaled $55,000 and $84,000 for the nine months
ended September 30, 1997 and 1996, respectively, and $105,000, $114,000 and
$71,000 for the years ended December 31, 1996, 1995 and 1994, respectively.  At
September 30, 1997, there were no commitments to lend additional funds to
borrowers whose loans are classified as nonperforming.

An analysis of the allowance for loan losses for the nine months ended September
30, 1997 and 1996 and for the years ended December 31, 1996, 1995 and 1994, is
as follows (in thousands):

<TABLE>
<CAPTION>
                                          SEPTEMBER 30,                        DECEMBER 31,
                                     --------------------------        ---------------------------
                                         1997           1996             1996       1995     1994
                                     ------------    ----------        --------   --------  ------
<S>                                    <C>              <C>          <C>          <C>        <C>
Balance at beginning of period.......  $5,322           $5,247       $5,247       $5,745     $5,899
Provision charged to operations......     900              375          550          310        300
                                       ------           ------       ------       ------      -----
                                        6,222            5,622        5,797        6,055      6,199
Loans charged off, net of recoveries.    (240)            (531)        (475)        (808)      (454)
                                       ------            ------      ------       ------      -----
Balance at end of period.............  $5,982           $5,091       $5,322       $5,247     $5,745
                                       ======           ======       ======       ======      =====
</TABLE>

                                     F-18
<PAGE>
 
________________________________________________________________________________

(7)   INTEREST AND DIVIDENDS RECEIVABLE, NET

A summary of interest and dividends receivable, net of allowance for uncollected
interest of $407,000, $440,000, and $1.1 million at September 30, 1997, December
31, 1996 and 1995, respectively, is as follows (in thousands):

<TABLE>
<CAPTION>
                                                               SEPTEMBER 30,              DECEMBER 31,         
                                                                                   -------------------------   
                                                                   1997               1996            1995     
                                                               -------------       ---------       ----------  
<S>                                                            <C>                 <C>             <C>         
Loans..................................................            $3,339            $2,868          $2,841    
Investment securities..................................               851               908             810    
Mortgage-backed securities.............................             3,529             3,639           3,142    
                                                                   ------            ------          ------    
                                                                   $7,719            $7,415          $6,793    
                                                                   ======            ======          ======     
</TABLE>

________________________________________________________________________________

(8)  PREMISES AND EQUIPMENT, NET

Premises and equipment at September 30, 1997, December 31, 1996 and 1995, are
summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                               SEPTEMBER 30,               DECEMBER 31,          
                                                                                 ----------------------------  
                                                                   1997             1996              1995     
                                                              -------------      ----------        ----------  
<S>                                                           <C>                <C>               <C>         
Land...................................................           $ 2,235         $ 1,423            $ 1,423   
Buildings and improvements.............................            10,902           7,977              7,670   
Leasehold improvements.................................             2,127           1,967              1,915   
Furnishings, equipment and automobiles.................             4,705           3,265              4,953   
Construction in progress...............................               120           1,788              1,043   
                                                                  -------         -------            -------   
     Total.............................................            20,089           16,420            17,004   
 Accumulated depreciation and amortization.............            (6,806)          (6,064)           (7,657)  
                                                                  -------          -------           -------   
                                                                  $13,283         $ 10,356           $ 9,347   
                                                                  =======          =======           =======    
</TABLE>

________________________________________________________________________________

(9)   DEPOSITS

Deposits at September 30, 1997, December 31, 1996 and 1995, are summarized as
follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                  SEPTEMBER 30, 1997                                    DECEMBER 31, 1996    
                                     ------------------------------------------------      -----------------------------------------
                                                     INTEREST          WEIGHTED                             INTEREST     WEIGHTED  
                                                       RATE            AVERAGE                                RATE        AVERAGE  
                                                      RANGES             RATE                                RANGES        RATE   
                                       AMOUNT          (%)               (%)                 AMOUNT           (%)          (%)     
                                     -----------   ------------     ----------------       -----------   ----------   -------------
<S>                                  <C>            <C>             <C>                    <C>           <C>          <C>
Non-interest bearing demand........  $ 26,410              --               --              $ 19,888             --            --
NOW and money market...............   195,003          0-3.39             2.93               181,499         0-5.43          2.90
Savings............................   123,384          0-5.84             2.54               131,427         0-2.50          2.50
Certificates of deposit............   464,652       3.45-9.34             5.54               461,781      3.69-9.34          5.38
                                     --------                             ----              --------                         ----
                                     $809,449                             4.27              $794,595                         4.20
                                     ========                             ====              ========                         ====
<CAPTION> 

                                                           DECEMBER 31, 1995             
                                                ---------------------------------------
                                                              INTEREST     WEIGHTED    
                                                                RATE        AVERAGE   
                                                               RANGES        RATE     
                                                 Amount         (%)           (%)     
                                                ----------   ----------   ------------ 
<S>                                             <C>          <C>          <C>         
Non-interest bearing demand........              $ 18,515           --          --    
NOW and money market...............               173,597       0-3.70         2.88   
Savings............................               140,919       0-4.11         2.50   
Certificate of deposit.............                473,307   3.69-9.34         5.60   
                                                 --------                      ----   
                                                 $806,338                      4.34   
                                                 ========                      ====    
</TABLE> 

                                     F-19
<PAGE>
 
The scheduled maturities of certificates of deposit at September 30, 1997 and as
follows (in thousands):

<TABLE> 
<CAPTION>   
                                                                     SEPTEMBER 30,      DECEMBER 31,
                                                                         1997               1996
                                                                    -------------      ------------
          <S>                                                       <C>                <C> 
          One year or less.....................................        $348,304          $358,098
          After one to two years...............................          44,579            39,366
          After two to three years.............................          22,886            17,533
          After three to four years............................          11,035            15,889
          After four to five years.............................          15,186            11,738
          After five years.....................................          22,662            19,157
                                                                       --------          --------
                                                                       $464,652          $461,781
                                                                       ========          ======== 
</TABLE> 

Included in deposits at September 30, 1997, December 31, 1996 and 1995, are
$76.5 million, $62.5 million and $60.3 million of deposits of $100,000 and over,
and $342,000, $331,000 and $357,000, respectively, of accrued interest payable
on deposits.

________________________________________________________________________________

(10)  BORROWED FUNDS

FEDERAL HOME LOAN BANK-NEW YORK ADVANCES

Advances from the FHLB-NY at September 30, 1997, December 31, 1996 and 1995, are
summarized as follows (dollars in thousands):

<TABLE>
<CAPTION>
                             SEPTEMBER 30, 1997      DECEMBER 31, 1996    DECEMBER 31, 1995 
                             ------------------      -----------------    -----------------
                                       WEIGHTED               WEIGHTED             WEIGHTED
                             AMOUNT   AVG. RATE      AMOUNT  AVG. RATE    AMOUNT  AVG. RATE
                             ------   ---------      ------  ---------    ------  ---------
         <S>                <C>       <C>           <C>      <C>         <C>      <C>       
         1996..........     $    --        --%      $    --       --%    $ 4,000      5.18%
         1997..........       5,000      6.09        12,000     5.80       7,000      5.94
         1998..........      15,000      6.26        10,000     6.56       5,000      7.42
         1999..........       6,000      5.87         6,000     5.87       1,000      5.58
         2000..........       2,000      5.76         2,000     5.76       2,000      5.76
         2002..........       5,000      5.76            --       --          --        --
                            -------                 -------              -------
                            $33,000      6.06%      $30,000     6.06%    $19,000      6.13%
                            =======      ====       =======     ====     =======      ====
</TABLE>

The Bank has entered into FHLB-NY advances that have call features that may be
exercised by the FHLB-NY at predetermined dates.  The total of such advances at
September 30, 1997 and December 31, 1996, totaled $10.0 million for both
periods. The maximum amount of FHLB-NY advances outstanding at any month-end
during the nine months ended September 30, 1997 and for the years ended December
31, 1996 and 1995 was $40.0 million, $30.0 million and $34.0 million,
respectively.  At September 30, 1997 and December 31, 1996, $10.0 million and
$5.0 million of FHLB-NY advances had adjustable rates.

Advances from the FHLB-NY are secured by pledges of FHLB-NY stock of $8.0
million, $7.4 million and $6.3 million at September 30, 1997, December 31, 1996
and 1995, respectively, and a blanket assignment of the Bank's unpledged,
qualifying mortgage loans, mortgage-backed securities and investment securities.

The Bank has an available overnight line of credit with the FHLB-NY for a
maximum of $48.9 million at September 30, 1997.

                                     F-20
<PAGE>
 
OTHER BORROWINGS

The following is a summary of Other Borrowings at September 30, 1997, December
31, 1996 and 1995 (dollars in thousands):

<TABLE>
<CAPTION>
                                           SEPTEMBER 30, 1997             DECEMBER 31, 1996            DECEMBER 31, 1995
                                       --------------------------    -------------------------   --------------------------
                                                         WEIGHTED                     WEIGHTED                     WEIGHTED
                                                         AVERAGE                      AVERAGE                       AVERAGE
CONTRACTUAL MATURITY                   AMOUNT           INTEREST     AMOUNT           INTEREST   AMOUNT            INTEREST
--------------------                   ------           --------     ------           --------   ------            --------
<S>                                   <C>               <C>         <C>               <C>       <C>                <C> 
1996..............................    $    --               --%     $    --               --%   $ 1,000              5.95%
1997..............................     15,000             5.62       13,750             5.93      8,750              6.12
1998..............................     25,894             6.32       24,244             6.35     10,000              6.15
1999..............................     15,000             5.71       15,000             5.71         --                --
2000..............................     20,000             6.07           --               --         --                --
2001..............................      5,000             5.55        5,000             5.55         --                --
2002..............................     10,000             5.75           --               --         --                --
                                      -------                       -------                    --------
                                      $90,894             5.94%     $57,994             6.02%   $19,750               6.13%
                                      =======             ====      =======             ====   ========               ====
</TABLE>

The maximum amount of other borrowings outstanding at any month-end during the
nine months ended September 30, 1997 and for the years ended December 31, 1996
and 1995 was $90.9 million, $58.0 million and $24.9 million, respectively.
Securities underlying other borrowings included mortgage-backed and investment
securities, which had an amortized cost of $103.3 million, $63.7 million and
$21.8 million, and market values of $103.7 million, $63.8 million and $22.0
million at September 30, 1997, December 31, 1996 and 1995, respectively.  At
September 30, 1997 and December 31, 1996, $50.0 million and $20.0 million,
respectively, of other borrowings are callable at defined dates and at the
lender's discretion prior to the contractual maturity of the borrowings.

________________________________________________________________________________

(11) EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP") DEBT

The ESOP debt as of September 30, 1997, December 31, 1996 and 1995, was
$571,000, $646,000 and $746,000, respectively, and bears an interest rate equal
to the prime rate less 1.50%, as published in the Wall Street Journal, with
                                                  ---- ------ -------      
principal and interest payable in quarterly installments over a ten-year period.
During the nine months ended September 30, 1997, and the year ended December 31,
1996, $25,000 and $25,000 of dividends paid on ESOP shares were used to pay down
ESOP debt.  Total interest paid on ESOP debt for the nine months ended September
30, 1997 and 1996, was $33,000 and $37,000, respectively, and for the years
ended December 31, 1996, 1995 and 1994 was $48,000, $41,000, and $26,000,
respectively.  In July, 1995, the Bank completed a secondary stock offering,
whereby the ESOP purchased an additional 42,000 shares of common stock at $13
per share, totaling $546,000.  The funds to purchase the shares were obtained
from the parent company.  The maturity date of the loan is September 30, 2005.
The borrowing is secured by 80,102 shares of the Bank's common stock (as
restated for the 10% stock dividend declared on September 24, 1997).

                                     F-21
<PAGE>
 
________________________________________________________________________________

(12)    INCOME TAXES

Under tax law that existed prior to 1996, the Bank was generally allowed a
special bad debt deduction in determining income for tax purposes.  The
deduction was based on either a specified experience formula or a percentage of
taxable income before such deduction.  The percentage of taxable income method
was used in preparing the income tax returns for 1995 and 1994.  Legislation was
enacted in August 1996, which repealed for tax purposes the percentage of
taxable income bad debt reserve method.  As a result, the Bank must instead use
the direct charge-off method to compute its bad debt deduction.  The legislation
also requires the Bank to recapture its post-1987 net additions to the tax bad
debt reserves.  The Bank has previously provided for this liability in the
financial statements.  The Bank's federal tax returns have been audited through
December 31, 1984.

Retained earnings at September 30, 1997 and December 31, 1996 includes
approximately $12.7 million for which no provision for income tax has been made.
This amount represents an allocation of income to bad debt deductions for tax
purposes only.  Events that would result in taxation of these reserves include
failure to qualify as a bank for tax purposes, distributions in complete or
partial liquidation, stock redemptions and excess distributions to shareholders.
At September 30, 1997 and December 31, 1996, the Bank had an unrecognized tax
liability of $4.6 million with respect to this reserve.

Income tax expense applicable to income for the periods ended September 30, 1997
and 1996, and for the years ended December 31, 1996, 1995 and 1994, consists of
the following (in thousands):

<TABLE>
<CAPTION>
                                       SEPTEMBER 30,                        DECEMBER 31,
                                ------------------------       -------------------------------------
                                  1997            1996           1996           1995          1994
                                --------       ---------       --------       --------      --------
<S>                               <C>            <C>             <C>            <C>           <C>
FEDERAL:
   Current.....................   $4,159         $ 3,854         $3,183         $3,671        $4,624
   Deferred....................     (501)         (2,595)          (603)           545          (114)
                                  ------         -------         ------         ------        ------
                                   3,658           1,259          2,580          4,216         4,510
STATE:
   Current.....................      376             346            282            365           409
   Deferred....................      (44)           (229)           (53)            30            (7)
                                  ------         -------         ------         ------        ------
                                     332             117            229            395           402
                                  ------         -------         ------         ------        ------
                                  $3,990         $ 1,376         $2,809         $4,611        $4,912
                                  ======         =======         ======         ======        ======
</TABLE>


The effective tax rates for the nine month periods ended September 30, 1997 and
1996 are 37.1% and 36.8% and for the years ended December 31, 1996, 1995 and
1994, the rates were 37.4%, 35.7% and 37.2%, respectively.

                                     F-22
<PAGE>
 
A reconciliation between the effective income tax expense and the amount
computed by multiplying the applicable statutory federal income tax rate for the
periods ended September 30, 1997 and 1996, and for the years ended December 31,
1996, 1995 and 1994, is as follows (in thousands):

<TABLE>
<CAPTION>
                                               SEPTEMBER 30,                        DECEMBER 31,
                                        --------------------------    -----------------------------------------
                                            1997           1996           1996           1995          1994
                                        -----------    -----------    -----------    -----------    -----------
 <S>                                    <C>            <C>            <C>            <C>            <C>
Income before income taxes............     $10,750         $3,740         $7,519        $12,913        $13,187
Applicable statutory federal tax                35%            35%            35%            35%            35%
 rate..................................    -------         ------         ------        -------        -------
Computed "expected" federal income tax       
  expense...............................     3,763          1,309          2,632          4,520          4,615
Increase in federal income tax expense
  resulting from:
  State income taxes, net of federal          
  benefit...............................       216             76            151            257            261
  Other items, net .....................        11             (9)            26           (166)            36
                                           -------         ------         ------        -------        -------
                                           $ 3,990         $1,376         $2,809        $ 4,611        $ 4,912
                                           =======         ======         ======        =======        =======
</TABLE>


The tax effects of temporary differences that give rise to a significant portion
of deferred tax assets and liabilities at September 30, 1997, December 31, 1996
and 1995, are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                   1997            1996            1995
                                                               -----------     -----------     -----------
DEFERRED TAX ASSETS:
<S>                                                            <C>             <C>             <C>
Provision for loan losses - book..............................    $2,231          $1,980          $1,984
Postretirement benefits.......................................       376             350             293
Cash to accrual adjustment....................................        --               1             164
Excess pension expense........................................       448             670             204
Deferred directors' fees......................................        87              63              20
Unrealized loss on securities available for sale..............        --               2              --
Excess of cost over fair value of net assets acquired.........       479              --              --
Other.........................................................        87               2               8
                                                                  ------          ------          ------
   Total gross deferred tax assets (included in Other Assets).     3,708           3,068           2,673
                                                                   -----          ------          ------
DEFERRED TAX LIABILITIES:
Provision for loan losses - tax...............................     1,161           1,161           1,136
Unrealized gain on securities available for sale..............       109              --              94
Tax depreciation less than book depreciation..................         2             179             148
Excess sum-of-year discount over straight line................       215              90             181
Amortization of core deposit premium .........................        --              55              93
Net mortgage premium accretion................................        66              66              85
Prepaid expense...............................................        16              --             171
Deferred points...............................................       152              --              --
Other.........................................................        36              --              --
                                                                  ------          ------          ------
   Total gross deferred tax liabilities (included in
     Other Liabilities).......................................     1,757           1,551           1,908
                                                                  ------          ------          ------
Net deferred tax asset........................................    $1,951          $1,517          $  765
                                                                  ======          ======          ======
</TABLE>


Management has determined that it is more likely than not that it will realize
the deferred tax assets based upon the nature and timing of the items listed
above.  There can be no assurances, however, that there will be no significant
differences in the future between taxable income and pre-tax book income if
circumstances change.  In order to fully realize the net deferred tax asset, the
Bank will need to generate future taxable income.  Management has projected that
the Bank will generate sufficient taxable income to utilize the net deferred tax
asset, however, there can be no assurance as to such levels of taxable income
generated.

                                     F-23
<PAGE>
 
Included in Stockholders' Equity are income tax expenses (benefits) attributable
to net unrealized gains (losses) on securities available for sale in the amounts
of $111,000 for the nine months ended September 30, 1997 and $(96,000) and
$887,000 for the years ended December 31, 1996 and 1995, respectively.

________________________________________________________________________________

(13)   EMPLOYEE BENEFIT PLANS

The Bank is a participant in the Financial Institutions Retirement Fund, a
multi-employer defined benefit plan.  All employees who attain the age of 21
years and complete one year of service are eligible to participate in this plan.
Retirement benefits are based upon a formula utilizing years of service and
average compensation, as defined.  Participants are vested 100% upon the
completion of five years of service.  Pension expense was $143,000, $240,000,
$320,000, $330,000 and $330,000 for the nine months ended September 30, 1997 and
1996, and for the years ended December 31, 1996, 1995 and 1994, respectively.

Financial Institutions Retirement Fund does not segregate its assets,
liabilities or costs by participating employer.  Therefore, disclosure of the
accumulated benefit obligations, plan assets and the components of annual
pension expense attributable to the Bank cannot be ascertained.

The Bank has a Supplemental Executive Retirement Plan ("SERP"), which provides a
post-employment supplemental retirement benefit equal to seventy-five percent of
the participant's base salary during the twelve months prior to retirement less
the amount of the participant's Pension Plan Annual Benefit and primary Social
Security Benefit due at the participant's normal retirement age.  The SERP is
non-qualified employee benefit plan.  SERP expenses due to normal accruals were
$635,000 and $488,000 for the periods ended September 30, 1997 and 1996,
respectively, and $550,000, $200,000, and $72,000 for the years ended December
31, 1996, 1995 and 1994, respectively.  Due to the sudden death of the Bank's
President, an additional one-time expense of $600,000 was incurred in 1996 to
fund the related SERP liability.

The Bank also maintains an incentive savings plan for eligible employees.
Employees may make contributions to the plan of 2% to 12% of their compensation.
For the first 6% of the employee's contribution, the Bank will contribute 50% of
that amount to the employee's account.  At the end of the plan year, the Bank
may make an additional contribution to the plan.  The contributions under this
plan were $98,000 and $106,000 for the periods ended September 30, 1997 and
1996, respectively, and $135,000, $119,000 and $107,000, for the years ended
December 31, 1996, 1995 and 1994, respectively.

POSTRETIREMENT BENEFITS

The Bank accounts for postretirement benefits in accordance with SFAS 106.  The
expense for the periods ended September 30, 1997 and 1996 were $70,000 and
$63,000, respectively, and for the years ended December 31, 1996 and 1994 was
$157,000 and $3,000, respectively.  There was no expense for the year ended
December 31, 1995.  The accumulated postretirement benefit obligation for fully
eligible active plan participants and retirees was $1.0 million, $948,000 and
$791,000 as of September 30, 1997, December 31, 1996 and 1995, respectively.
The plan is unfunded as of September 30, 1997, and the obligation is included in
Other liabilities as an accrued postretirement benefit cost.

The following assumptions were used in determining the accumulated
postretirement benefit obligation for 1997, 1996 and 1995, respectively: a
discount rate of 8.0% and a health care cost rate of 5.0% per year for 1997, a
discount rate of 8.0% and a health care cost trend rate of 5.0% grading down to
0.0% per year for 1996, and a discount rate of 8.0% and a health care cost trend
rate of 7.5% grading down to 5.0% at 0.5% per year for 1995.  As the plan is
currently unfunded, no assumption was needed as to the long-term rate of return
on assets.

                                     F-24
<PAGE>
 
BANK RECOGNITION AND RETENTION PLAN AND TRUST

In 1992, the Bank adopted a Recognition and Retention Plan and Trust (RRP) for
the benefit of directors, officers and key employees of the Bank.  During 1995,
the Board of Directors amended the RRP in order to increase the number of shares
available for grants under the plan by 21,780 shares (adjusted for the 10% stock
dividend declared on September 24, 1997), as approved by the OTS and
stockholders.

Under the RRP, awards are granted in the form of shares of common stock held by
the RRP, and are payable over a three year period at a rate of 33.3% per year,
commencing on the date of the award grant.  The market value of shares issued
and granted under the RRP in August and November, 1996 was $310,000.
Amortization of the RRP for the nine month period ended September 30, 1997 and
for the year ended December 31, 1996 was $78,000 and $24,000, respectively.

EMPLOYEE STOCK OWNERSHIP PLAN

On July 10, 1992, the Bank established an ESOP for eligible employees who have
completed a twelve-month period of employment with the Bank.  The ESOP acquired
70,000 shares of common stock.  On July 11, 1995, the Bank completed a secondary
offering of common stock, and the ESOP purchased 42,000 shares of common stock
at $13.00 per share.  Funds for the purchase of the additional shares were
borrowed from the Bank's parent.  Shares purchased by the ESOP are held by a
trustee for allocation among participants as the loan is repaid.  The Bank, at
its discretion, contributes funds, in cash, to pay principal and interest on the
ESOP loan.  The number of shares of common stock released each year is
proportional to the amount of principal and interest repaid on the loan for the
year.  The Bank recognizes compensation expense when debt payments are made.

The Bank accounts for the allocation of ESOP shares purchased prior to 1995 at
their original issue price.  The Bank accounts for the shares purchased in the
secondary offering in accordance with American Institute of Certified Public
Accountants ("AICPA") Statement of Position ("SOP") 93-6.  Those shares have a
fair value of $1.8 million at September 30, 1997.  The ESOP allocated 21,962,
29,282, 26,620 and 26,620 shares for the period ended September 30, 1997 and the
years ended December 31, 1996, 1995 and 1994, respectively, inclusive of four
10% stock dividends, and a 2-for-1 stock split. The compensation expense for
payments made to the ESOP totaled $50,000 and $50,000 for the periods ended
September 30, 1997 and 1996, respectively, and $75,000, $75,000 and $100,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.

STOCK OPTION PLANS

The Bank maintains stock option plans ("the Plans") for the benefit of
directors, officers, and other key employees of the Bank.  Options granted under
the Plans are exercisable over a period not to exceed ten years from the date of
grant.  Under the Plans, the exercise price of each option equals the market
price of the Bank's stock on the date of grant.  During 1995, the Board of
Directors amended the Plans, in conjunction with the secondary offering, to
increase the number of shares available for grants by 60,000 shares, as approved
by the OTS and stockholders.  The following table summarizes the options granted
and exercised under the Plans during the periods indicated and their respective
weighted average exercise price (rounded to the nearest tenth decimal place),
reflective of four 10% stock dividends and a 2-for-1 stock split:

                                     F-25
<PAGE>
 
<TABLE>
<CAPTION>
                                SEPTEMBER 30, 1997          DECEMBER 31,1996        DECEMBER 31, 1995       DECEMBER 31,1994
                              ----------------------  -------------------------  ----------------------  ----------------------
                                           WEIGHTED                  WEIGHTED                 WEIGHTED                WEIGHTED
                                NUMBER     AVERAGE       NUMBER      AVERAGE       NUMBER     AVERAGE      NUMBER     AVERAGE
                                  OF       EXERCISE        OF        EXERCISE        OF       EXERCISE       OF       EXERCISE
                                SHARES      PRICE        SHARES       PRICE        SHARES      PRICE       SHARES      PRICE
                              ---------- -----------  ------------- -----------  ----------  ----------  ----------- ----------
<S>                           <C>        <C>          <C>           <C>          <C>          <C>        <C>         <C>
Outstanding at beginning of                    
 period......................   271,958       $6.306      209,627     $ 3.413      218,451     $3.413      247,366     $3.413
 Granted.....................        --          --        72,600      14.245           --         --           --         --
Exercised....................  (119,774)       3.413      (10,269)      3.413       (8,824)     3.413      (28,915)     3.413
                                -------       ------      -------     -------      -------     ------      -------     ------
Outstanding at end of period.   152,184       $8.582      271,958     $ 6.306      209,627     $3.413      218,451     $3.413
                                =======       ======      =======     =======      =======     ======      =======     ======
Options exercisable at end of
period.......................    86,844                   199,356                  180,343                 159,884
                                =======                   =======                  =======                 =======
Weighted average fair value                 
 of options granted during                  
 the period..................                    N/A                  $14.103                     N/A                     N/A
                                              ======                  =======                  ======                  ======
</TABLE> 


The following table summarizes information about the stock options outstanding
at September 30, 1997, and December 31, 1996, as adjusted for the effect of
stock dividends:

<TABLE>
<CAPTION>
                                             AT SEPTEMBER 30, 1997
---------------------------------------------------------------------------------------------------------------
                            OPTIONS OUTSTANDING                                       OPTIONS EXERCISABLE
---------------------------------------------------------------------------    --------------------------------
                                            WEIGHTED
                                             AVERAGE            WEIGHTED          NUMBER OF         WEIGHTED
     RANGE OF             NUMBER            REMAINING            AVERAGE           SHARES            AVERAGE
     EXERCISE            OF SHARES         CONTRACTUAL          EXERCISE         EXERCISABLE        EXERCISE
      PRICES            OUTSTANDING       LIFE IN YEARS           PRICE           AT PERIOD           PRICE
                                                                                     END
------------------    -------------    -----------------    ---------------    -------------    ---------------
<S>                     <C>               <C>                  <C>               <C>               <C> 
$         3.413            79,584               4.6             $ 3.413            79,584            $ 3.413
  13.017-14.773            72,600               9.0              14.245             7,260             13.017
---------------           -------               ---             -------            ------            -------
$  3.413-14.773           152,184               6.7             $ 8.582            86,844            $ 4.216
===============           =======               ===             =======            ======            =======
</TABLE>


<TABLE>
<CAPTION>
                                             AT DECEMBER 31, 1996
--------------------------------------------------------------------------------------------------------------
                            OPTIONS OUTSTANDING                                      OPTIONS EXERCISABLE
---------------------------------------------------------------------------    -------------------------------
                                            WEIGHTED
                                             AVERAGE            WEIGHTED          NUMBER OF        WEIGHTED
     RANGE OF             NUMBER            REMAINING            AVERAGE           SHARES          AVERAGE
     EXERCISE            OF SHARES         CONTRACTUAL          EXERCISE         EXERCISABLE       EXERCISE
      PRICES            OUTSTANDING       LIFE IN YEARS           PRICE           AT PERIOD          PRICE
                                                                                     END
------------------    -------------    -----------------    ---------------    -------------    --------------
<S>                     <C>               <C>                  <C>               <C>               <C>

$            3.413        199,358               5.5              $ 3.413           199,356            $3.413  
     13.017-14.773         72,600               9.8               14.245                --                --
------------------        -------               ---              -------           -------           -------
$     3.413-14.773        271,958               6.7              $ 6,305           199,356            $3,413
==================        =======               ===              =======           =======           =======
</TABLE>

                                     F-26
<PAGE>
 
The Bank applies APB 25 in accounting for the Plans.  Consistent with SFAS 123,
if compensation cost for the Plans was included, the Bank's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below (as restated for the 10% stock dividend declared on September 24, 1997).
There were no options granted in 1997. (in thousands, except per share data) :

<TABLE>
<CAPTION>
                                              AT SEPTEMBER 30,                     AT DECEMBER 31,           
                                         ------------------------      --------------------------------------     
                                            1997           1996           1996           1995          1994       
                                         ---------      ---------      ---------      ---------     ---------     
<S>                                         <C>            <C>            <C>            <C>           <C>         
Net Income:                                                                                                       
     As Reported.......................     $6,760         $2,364         $4,710         $8,302        $8,275     
     Pro forma.........................      6,760          2,364          4,649          8,302         8,275     
                                                                                                                  
Earnings per share:                                                                                               
     As Reported.......................     $ 0.84         $ 0.29         $ 0.59         $ 1.04        $ 1.03     
     Pro forma.........................     $ 0.84         $ 0.29         $ 0.58         $ 1.04        $ 1.03     
                                                                                                                  
Weighted average fair value                                                                                       
of options granted during the year             N/A            N/A         $ 4.38            N/A           N/A          
</TABLE>

The fair value of stock options (or their equivalents) granted by the Bank was
estimated through the use of the Black-Scholes option-pricing model that takes
into account the following factors as of the grant dates: the exercise price and
expected life of the option, the market price of the underlying stock at the
grant date and its expected volatility, and the risk-free interest rate for the
expected term of the option.  In deriving the fair value of a stock option, the
stock price at the grant date is reduced by the value of the dividends to be
paid during the life of the option.  The following assumptions were used for
grants in 1996: dividend yield of 2.50%, an expected volatility of 28.6% and a
risk-free interest rate of 6.05%.  There were no options granted in 1997, 1995
and 1994 that required disclosure in accordance with SFAS 123.  The effects of
applying SFAS 123 on the pro forma net income may not be representative of the
effects on pro forma net income for future years.

_______________________________________________________________________________

(14) COMMITMENTS AND CONTINGENCIES

COMMITMENTS

FINANCIAL TRANSACTIONS WITH OFF-BALANCE-SHEET RISK
AND CONCENTRATIONS OF CREDIT

The Bank, in the normal course of conducting its business, extends credit to
meet the financing needs of its customers through commitments and letters of
credit.

The following commitments and contingent liabilities existed at September 30,
1997, December 31, 1996 and 1995, which are not reflected in the accompanying
consolidated financial statements (in thousands):

                                     F-27
<PAGE>
 
<TABLE>
<CAPTION>
                                                                                                 
                                                                                    DECEMBER 31, 
                                                   SEPTEMBER 30,         ---------------------------------
                                                       1997                   1996                 1995
                                                   -------------         ------------         ------------
<S>                                                <C>                   <C>                  <C> 
ORIGINATION OF MORTGAGE LOANS:
  Fixed rate...................................    $   8,809               $  6,477            $    6,168
  Variable rate................................       14,505                 22,813                 3,583
Purchase of mortgage loans - variable rate.....        2,428                  2,773                 6,393
Undisbursed home equity credit lines...........       14,333                 15,210                14,575
Purchase of investment and mortgage-backed.....       16,936                 21,268                 4,000
Undisbursed construction credit lines..........       26,214                 12,243                 3,800
Undisbursed consumer lines of credit...........        1,544                     --                    --
Participations in Thrift Institutions
 Community Investment Corp.....................          100                    650                 2,300
  of New Jersey
Unused credit card lines.......................          911                    964                   966
Standby letters of credit......................        2,143                  1,322                   977
Sale of mortgage-backed securities.............    $     --                $(21,364)           $       --
                                                   =========               ========            ==========
</TABLE>

These instruments involve elements of credit and interest rate risk in excess of
the amount recognized in the consolidated financial statements.  The Bank uses
the same credit policies and collateral requirements in making commitments and
conditional obligations as it does for on-balance-sheet loans.  Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee.  Since the commitments may expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements.  The Bank evaluates each customer's creditworthiness on a case-by-
case basis.  The amount of collateral obtained is based on management's credit
evaluation of the borrower.

The Bank grants one- to four-family first mortgage real estate loans, multi-
family, and nonresidential first mortgage real estate loans to borrowers
throughout New Jersey.  Its borrowers' abilities to repay their obligations are
dependent upon various factors, including the borrowers' income and net worth,
cash flows generated by the underlying collateral, value of the underlying
collateral and priority of the Bank's lien on the property.  Such factors are
dependent upon various economic conditions and individual circumstances beyond
the Bank's control; the Bank is therefore subject to risk of loss.  The Bank
believes its lending policies and procedures adequately minimize the potential
exposure to such risks and that adequate provisions for loan losses are provided
for all known and inherent risks.  Collateral and/or guarantees are required for
virtually all loans.

LEASE OBLIGATIONS

At September 30, 1997, and December 31, 1996, the Bank was obligated under
noncancellable operating leases for premises and equipment.  Rental expense
under these leases aggregated approximately $518,000 and $536,000 for the nine
months ended September 30, 1997 and 1996, respectively, and $711,000, $714,000
and $644,000 for the years ended December 31, 1996, 1995 and 1994, respectively.

                                     F-28
<PAGE>
 
The projected minimum rental commitments are as follows (in thousands):


<TABLE>
<CAPTION>
                                     SEPTEMBER 30,           DECEMBER 31, 
                                         1997                    1996
                                     -------------           -------------
     <S>                             <C>                     <C>
     1997..........................     $  115                   $  420
     1998..........................        336                      273
     1999..........................        336                      273
     2000..........................        197                      140
     2001..........................        123                       70
     Thereafter....................        205                      155
                                        ------                   ------    
                                        $1,312                   $1,331    
                                        ======                   ======    
</TABLE>

CONTINGENCIES

The Bank is a defendant in certain claims and legal actions arising in the
ordinary course of business.  Management is of the opinion that the ultimate
disposition of these matters will not have a material adverse effect on the
Bank's consolidated financial condition or results of operations.

________________________________________________________________________________

(15)  SPECIAL SAIF ASSESSMENT

The Deposit Insurance Funds Act of 1996 (the "Act") was signed into law on
September 30, 1996.  Among other things, the Act required depository
institutions to pay a one-time special assessment of 65.7 basis points on their
SAIF (Savings Association Insurance Fund)-assessable deposits, in order to
recapitalize the SAIF to the reserve level required by law.  The Bank's
financial statements for the period ended September 30, 1996 and year ended
December 31, 1996 reflect a charge of $5.2 million for this special SAIF
assessment.  As a result of the Act, the Bank's annual SAIF insurance premium
has been reduced to 6.4 basis points.  In addition to this special SAIF
assessment, the Bank paid federal deposit insurance premiums of $285,000 and
$1.4 million in for the nine months ended September 30, 1997, and 1996,
respectively and $1.9 million, $1.7 million and $1.6 million for the years ended
December 31, 1997, 1996 and 1995, respectively.

________________________________________________________________________________

(16)  RECENT ACCOUNTING PRONOUNCEMENTS

In June, 1996, the FASB issued SFAS 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities."  SFAS 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities.  These standards are based on a
consistent application of a financial components approach that focuses on
control.  Under this approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished.  SFAS 125 is effective for
transfers that occur after December 31, 1996 and will be applied prospectively
except for certain provisions that were deferred until January 1, 1998, by
Statement 127  "Deferral of the Effective date of Certain Provisions of FASB No.
125" issued in December 1996.  The adoption of SFAS 125 did not have a material
effect on the Bank's financial position or results of operations.

                                     F-29
<PAGE>
 
In February 1997, the FASB issued Statement 128, "Earnings Per Share."  SFAS 128
supersedes APB Opinion No. 15, "Earnings per Share" and specifies the
computation, presentation and disclosure requirements for earnings per share
(EPS) for entities with publicly held common stock or potential common stock.
SFAS 128 replaces Primary EPS and Fully Diluted EPS with Basic EPS and Diluted
EPS, respectively.  SFAS 128 requires dual presentation of Basic and Diluted EPS
on the face of the income statement for entities with complex capital structures
and a reconciliation of information utilized to calculate Basic EPS to that used
to calculate Fully Diluted EPS.  SFAS 128 is effective for financial statement
periods ending after December 15, 1997.  Earlier application is not permitted.
After adoption, all prior EPS are required to be restated to conform with SFAS
128.  If the Bank had adopted SFAS 128, Basic EPS would have been $0.85 and
$0.30 for the nine months ended September 30, 1997 and 1996 and $0.60, $1.06 and
$1.05 for the years ended December 31, 1996, 1995 and 1994, respectively.
Diluted EPS would have been the same as earnings per share reported.

In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income." SFAS
130 established standards for reporting and display of comprehensive income and
its components in a full set of general purpose financial statements.  Under
SFAS 130, comprehensive income is divided into net income and other
comprehensive income.  Other comprehensive income includes items previously
recorded directly in equity, such as unrealized gains or losses on securities
available for sale.  SFAS 130 is effective for interim periods and annual
periods beginning after December 15, 1997.  Comparative financial statements for
earlier period are required to be reclassified to reflect application of the
provisions of SFAS 130.  The Bank has not determined the impact, if any, SFAS
130 will have on the Bank's financial statement presentation.

In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information."  SFAS 131 establishes standards for the way
public business enterprises are to report information about operating segments
in annual financial statements and requires those enterprises to report selected
financial information about operating segments in interim financial reports to
shareholders.  SFAS 131 is effective for financial statements for periods
beginning after December 15, 1997.  The Bank has not determined the impact, if
any, SFAS 131 will have on the Bank's financial statement presentation.

                                     F-30
<PAGE>
 
________________________________________________________________________________

(17)  FAIR VALUE OF FINANCIAL INSTRUMENTS

The following fair value estimates, methods and assumptions were used to measure
the fair value of each class of financial instrument for which it is practical
to estimate that value.

CASH AND CASH EQUIVALENTS

For such short-term investments, the carrying amount was considered to be a
reasonable estimate of fair value.

FEDERAL HOME LOAN BANK-NY STOCK

Federal Home Loan Bank-NY stock is valued at cost.

INVESTMENT AND MORTGAGE-BACKED SECURITIES

For investment and mortgage-backed securities, fair values were based on quoted
market prices or dealer quotes.  If a quoted market price was not available,
fair values were estimated using quoted market prices for similar securities.

LOANS RECEIVABLE, NET

Fair values were estimated for portfolios of performing and nonperforming loans
with similar financial characteristics.  For certain analogous categories of
loans, such as residential mortgages, home equity loans, non-residential
mortgages, and consumer loans, fair value was estimated using the quoted market
prices for securities backed by similar loans, adjusted for differences in loan
characteristics.  The fair value of other performing loan types was estimated by
discounting the future cash flows using market discount rates that reflect the
credit, collateral, and interest rate risk inherent in the loan.

DEPOSITS

The fair value of demand deposits, savings deposits and money market accounts
were the amounts payable on demand at September 30, 1997, December 31, 1996 and
1995.  The fair values of certificates of deposit were based on the discounted
value of contractual cash flows.  The discount rate was estimated utilizing the
rate currently offered for deposits of similar remaining maturities.

BORROWED FUNDS

For short-term borrowings, the carrying amount was considered to be a reasonable
estimate of fair value.  For long-term borrowings, the fair value was based upon
the discounted value of the cash flows.  The discount rates utilized were based
on rates currently available with similar terms and maturities.

OFF-BALANCE SHEET INSTRUMENTS

For commitments to extend credit and letters of credit, the fair value would
approximate fees currently charged to enter into similar agreements.

                                     F-31
<PAGE>
 
The estimated fair values of the Bank's financial instruments at September 30,
1997, December 31, 1996 and December 31, 1995, were as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                                                          
                                           SEPTEMBER 30, 1997            DECEMBER  31, 1996           DECEMBER  31, 1995   
                                        -------------------------     -------------------------    -------------------------
                                           BOOK          FAIR            BOOK          FAIR           BOOK          FAIR  
                                           VALUE         VALUE           VALUE         VALUE          VALUE         VALUE 
                                        -----------   -----------     -----------   ------------   -----------   ----------- 
<S>                                     <C>           <C>             <C>           <C>            <C>           <C>         
FINANCIAL ASSETS:
Cash and cash equivalents..............    $ 23,798      $ 23,798        $  9,042       $  9,042      $ 26,549      $ 26,549
FHLB-NY stock..........................       8,045         8,045           7,428          7,428         6,276         6,276
Investment securities..................      40,959        41,108          38,955         38,980        39,003        39,617
Investment securities available for....      18,024        18,024          14,831         14,831         2,058         2,058
  sale
Mortgage-backed securities.............     228,158       231,667         252,383        255,052       288,143       291,689
Mortgage-backed securities.............     122,371       122,371         120,797        120,797        89,339        89,339
  available for sale
Loans receivable, net..................     567,197       586,475         509,627        514,084       457,756       470,269
Loans available for sale...............          --           ---             287            290           424           428

FINANCIAL LIABILITIES:
Deposits...............................     809,449       810,060         794,595        795,545       806,338       808,639
Borrowed funds.........................     124,465       124,172          88,640         88,648        39,496        39,671

OFF-BALANCE SHEET INSTRUMENTS:
Loan commitments.......................                       138              --            393            --            39
Standby letters of credit..............          --            21              --             13            --            10
                                           ========      ========        ========       ========      ========      ========
</TABLE>

LIMITATIONS:

The foregoing fair value estimates were made at September 30, 1997, December 31,
1996 and 1995, based on pertinent market data and relevant information on the
financial instrument.   These estimates do not include any premium or discount
that could result from an offer to sell, at one time, the Bank's entire holdings
of a particular financial instrument or category thereof.  Since no market
exists for a substantial portion of the Bank's financial instruments, fair value
estimates were necessarily based on judgments with respect to future expected
loss experience, current economic conditions, risk assessments of various
financial instruments involving a myriad of individual borrowers, and other
factors.  Given the innately subjective nature of these estimates, the
uncertainties surrounding them and the matters of significant judgment that must
be applied, these fair value estimations cannot be calculated with precision.
Modifications in such assumptions could meaningfully alter these estimates.

Since these fair value approximations were made solely for on- and off-balance
sheet financial instruments at September 30, 1997, December 31, 1996 and 1995,
no attempt was made to estimate the value of anticipated future business of the
value of nonfinancial statement assets and liabilities.  Other important
elements which are not deemed to be financial assets or liabilities include the
value of the Bank's retail branch delivery system, its existing core deposit
base, premises and equipment, and goodwill.  Further, certain tax implications
related to the realization of the unrealized gains and losses could have a
substantial impact on these fair value estimates and have not been incorporated
into any of the estimates.

                                     F-32
<PAGE>
 
________________________________________________________________________________

(18)  QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table contains quarterly financial data for the nine months ended
September 30, 1997 and years ended December 31, 1996 and 1995 (dollars in
thousands, except per share data, which includes four 10% stock dividends and a
2-for-1 stock split):

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997                                 FIRST           SECOND           THIRD                   
                                                                    QUARTER          QUARTER         QUARTER                  
                                                                    --------         -------         -------                 
<S>                                                                 <C>              <C>             <C>             
Interest income...............................................       $17,791         $18,263         $18,582
Interest expense..............................................         9,828          10,262          10,501
                                                                     -------         -------         -------
Net interest income before provision for loan losses..........         7,963           8,001           8,081
Provision for loan losses.....................................           300             300             300
                                                                     -------         -------         -------
Net interest income after provision for loan losses...........         7,663           7,701           7,781
Other operating income........................................           525             526           1,135
Operating expenses............................................         4,124           4,417           6,040
                                                                     -------         -------         -------
Income before income tax expense..............................         4,064           3,810           2,876
Income tax expense............................................         1,563           1,356           1,071
Net income....................................................       $ 2,501         $ 2,454         $ 1,805
                                                                     =======         =======         =======
Net income per share..........................................         $0.31           $0.30           $0.22
                                                                     =======         =======         =======
</TABLE> 

<TABLE> 
<CAPTION> 
YEAR ENDED DECEMBER 31, 1996                                          FIRST          SECOND           THIRD           FOURTH
                                                                     QUARTER         QUARTER         QUARTER          QUARTER
                                                                     -------         -------         -------          -------
<S>                                                                  <C>             <C>             <C>              <C> 
Interest income...............................................       $16,788         $16,811         $16,900          $17,540
Interest expense..............................................         9,227           9,168           9,249            9,620
                                                                     -------         -------         -------          -------
Net interest income before provision for losses...............         7,561           7,643           7,651            7,920
Provision for loan losses.....................................           100             125             150              175
                                                                     -------         -------         -------          -------
Net interest income after provision for loan losses...........         7,461           7,518           7,501            7,745
Other operating income........................................           485             395             502              613
Operating expenses............................................         4,510           5,218          10,394            4,579
                                                                     -------         -------         -------          -------
Income (loss) before income tax expense (benefit).............         3,436           2,695          (2,391)           3,779
Income tax expense (benefit)..................................         1,244           1,005            (873)           1,433
                                                                     -------         -------         -------          -------
Net income (loss).............................................       $ 2,192         $ 1,690         $(1,518)         $ 2,346
                                                                     =======         =======         =======          =======
Net income (loss) per share...................................         $0.27           $0.21          $(0.19)           $0.29
                                                                     =======         =======         =======          =======
</TABLE> 

<TABLE> 
<CAPTION> 
YEAR ENDED DECEMBER 31, 1995                                          FIRST          SECOND           THIRD           FOURTH
                                                                     QUARTER         QUARTER         QUARTER          QUARTER
                                                                     -------         -------         -------          -------
<S>                                                                  <C>             <C>             <C>              <C> 
Interest income...............................................       $15,111         $15,983         $16,635          $16,844
Interest expense..............................................         7,865           8,970           9,407            9,449
                                                                     -------         -------         -------          -------
Net interest income before provision for loan losses..........         7,246           7,013           7,228            7,395
Provision for loan losses.....................................            75              75              75               85
                                                                     -------         -------         -------          -------
Net interest income after provision for loan losses...........         7,171           6,938           7,153            7,310
Other operating income........................................           713             652             286              520
Operating expenses............................................         4,397           4,589           4,422            4,422
                                                                     -------         -------         -------          -------
Income before income tax expense..............................         3,487           3,001           3,017            3,408
Income tax expense............................................         1,098           1,252           1,003            1,258
                                                                     -------         -------         -------          -------
Net income....................................................       $ 2,389         $ 1,749         $ 2,014          $ 2,150
                                                                     =======         =======         =======          =======
Net income per share..........................................         $0.30           $0.22           $0.25            $0.27
                                                                     =======         =======         =======          =======
</TABLE>

                                     F-33
<PAGE>
 
================================================================================

     No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
Prospectus in connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon as having been
authorized by First Source Bancorp, Inc., the Bank or Sandler O'Neill. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any of the securities offered hereby to any person in any jurisdiction in
which such offer or solicitation is not authorized or in which the person making
such offer or solicitation is not qualified to do so, or to any person to whom
it is unlawful to make such offer or solicitation in such jurisdiction. Neither
the delivery of this Prospectus nor any sale hereunder shall under any
circumstances create any implication that there has been no change in the
affairs of First Source Bancorp, Inc. or the Bank since any of the dates as of
which information is furnished herein or since the date hereof.

                        ______________________________
                                                   
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
<S>                                                                        <C>
Summary...................................................................   
Selected Financial and Other Data.........................................   
Risk Factors..............................................................   
First Source Bancorp, Inc.................................................   
First Savings Bancshares, MHC.............................................   
First Savings Bank, SLA...................................................   
Regulatory Capital Compliance.............................................   
Use of Proceeds...........................................................   
Dividend Policy...........................................................   
Market for the Common Stock...............................................   
Capitalization............................................................   
Pro Forma Data............................................................   
First Savings Bank, SLA and Subsidiaries Consolidated Statements             
  of Operations...........................................................   
Management's Discussion and Analysis of Financial.........................   
   Condition and Results of Operations....................................   
Business of the Bank......................................................   
Federal and State Taxation................................................   
Regulation................................................................   
Management of the Company.................................................   
Management of the Bank....................................................   
Beneficial Ownership of Capital Stock.....................................   
The Conversion and Reorganization.........................................   
Comparison of Stockholders' Rights........................................   
Restrictions on Acquisition of the Company and the Bank...................   
Description of Capital Stock of the Company...............................   
Description of Capital Stock of the Bank..................................   
Transfer Agent and Registrar..............................................   
Experts...................................................................   
Legal and Tax Opinions....................................................   
Additional Information....................................................   
Index of Consolidated Financial Statements................................   
</TABLE>

                        ______________________________
 
     UNTIL _________, 1998 OR 25 DAYS AFTER COMMENCEMENT OF THE SYNDICATED
COMMUNITY OFFERING, IF ANY, WHICHEVER IS LATER, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.


                               27,600,000 Shares

                                                       
                                                       
                                                       
                                                       
                                                       
                                                       
                          FIRST SOURCE BANCORP, INC.
                                                       
                         (Proposed Holding Company for
                           First Savings Bank, SLA)
                                                       
                                                       
                                                       
                                                       
                                 COMMON STOCK
                                                       
                                                       
                                                       
                                  __________
                                                       
                                  PROSPECTUS
                                  __________
                                                       
                                                       
                                                       
                                                       
                                ________, 1998
                                                       
                                                       
                                                       
                                                       
                                                       
                                                       
                                                       
                       SANDLER O'NEILL & PARTNERS, L.P.

================================================================================
<PAGE>
 
                                    PART II
                    INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.(1)

<TABLE>
<S>                                               <C>
OTS filing fee............................................       $    8,400
SEC filing fee(1).........................................           93,633
NASD filing fee(1)........................................           30,500
Exchange listing fee(1)...................................           36,740
Printing, postage and mailing.............................           75,000
Legal fees and expenses...................................          100,000
Accounting fees and expenses..............................          100,000
Appraiser's fees and expenses (including                                   
  business plan)..........................................           25,000
Marketing fees and selling commissions (1)................        1,726,000
Underwriter's expenses (including underwriter's                             
  counsel fees)(1).......................................                --
Proxy solicitation and record management                                   
  fees and  expenses......................................           10,000
Transfer agent fees and expenses..........................           15,000
Certificate printing......................................            5,000
Telephone, temporary help and other                                        
  equipment...............................................           25,000
Blue Sky fees and expenses................................           10,000
Miscellaneous.............................................           65,727
                                                                 ----------
                                                                           
TOTAL.....................................................       $2,326,000
                                                                 ========== 
</TABLE>

____________________
(1)  Actual expenses based upon the registration of 31,740,000 shares at $10.00
     per share.  All other expenses are estimated.

ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.

In accordance with the General Corporation Law of the State of Delaware (being
Chapter 1 of Title 8 of the Delaware Code), Articles 10 and 11 of the
Registrant's Certificate of Incorporation provide as follows:
 
TENTH:

A.  Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent, or in any other capacity while serving as a Director,
Officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader 
<PAGE>
 
indemnification rights than such law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) reasonably incurred or suffered by such indemnitee in
connection therewith; provided, however, that, except as provided in Section C
hereof with respect to proceedings to enforce rights to indemnification, the
Corporation shall indemnify any such indemnitee in connection with a proceeding
(or part thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation.

B.  The right to indemnification conferred in Section A of this Article TENTH
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a Director or Officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, services to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise.  The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article TENTH shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
Director, Officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.

C.  If a claim under Section A or B of this Article TENTH is not paid in full by
the Corporation within sixty days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim.  If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit.  In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law.  Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit.  In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses under this
Article TENTH or otherwise shall be on the Corporation.

D.  The rights to indemnification and to the advancement of expenses conferred
in this Article TENTH shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, the Corporation's Certificate
of Incorporation, Bylaws, agreement, vote of stockholders or Disinterested
Directors or otherwise.

E.  The Corporation may maintain insurance, at its expense, to protect itself
and any Director, Officer, employee or agent of the Corporation or subsidiary or
Affiliate or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.

F.  The Corporation may, to the extent authorized from time to time by the Board
of Directors, grant rights to indemnification and to the advancement of expenses
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
<PAGE>
 
ELEVENTH:
---------

A Director of this Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
Director, except for liability:  (i) for any breach of the Director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the Director derived an improper personal
benefit.  If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
Directors, then the liability of a Director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.

Any repeal or modification of the foregoing paragraph by the stockholders of the
Corporation shall not adversely affect any right or protection of a Director of
the Corporation existing at the time of such repeal or modification.

ITEM 15.  RECENT SALES OF UNREGISTERED SECURITIES

Not applicable.
<PAGE>
 
ITEM 16.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The exhibits and financial statement schedules filed as a part of this 
Registration Statement are as follows:

(a) List of Exhibits (Filed herewith unless otherwise noted)

<TABLE> 
<CAPTION> 
<S>       <C> 
1.1       Engagement Letter between First Savings Bank, SLA and Sandler O'Neill & Partners, L.P. 
1.2       Draft Form of Agency Agreement*                                       
2.1       Amended Plan of Conversion and Agreement and Plan of Reorganization   
3.1       Certificate of Incorporation of First Source Bancorp, Inc.            
3.2       Bylaws of First Source Bancorp, Inc.                                  
3.3       Certificate of Incorporation and Bylaws of First Savings Bank, SLA    
4.0       Draft Stock Certificate of First Source Bancorp, Inc.                 
5.0       Draft Opinion of Muldoon, Murphy & Faucette re: legality       
5.1       Draft Opinion of Morris, Nichols, Arsht & Tunnell re: legality    
8.0       Draft Opinion of Muldoon, Murphy & Faucette re:  Federal and State Tax Matters* 
10.1      First Savings Bank, SLA 1992 Incentive Stock Option Plan                      
10.2      First Savings Bank, SLA 1992 Stock Option Plan for Outside Directors          
10.3      First Savings Bank, SLA 1996 Omnibus Incentive Plan                           
10.4      First Savings Bank, SLA 1992 Employee Stock Ownership Plan                    
10.5      Draft ESOP Loan Commitment Letter and ESOP Loan Documents*                    
10.6      First Savings Bank, SLA Directors' Deferred Fee Stock Unit Plan               
10.7      First Savings Bank, SLA Supplemental Executive Retirement Plan                
10.8      Draft First Savings Bank, SLA Supplemental Executive Retirement Plan II             
10.9      First Savings Bank, SLA Director Retirement Plan                              
10.10     Employment Agreements between First Savings Bank, SLA and certain executive officers   
10.11     Form of Employment Agreement between First Source Bancorp, Inc. and certain executive officers  
10.12     Form of Change in Control Agreement between First Savings Bank, SLA and certain executive officers    
10.13     Form of Change in Control Agreement between First Source Bancorp, Inc. and certain executive officers    
10.14     Form of First Savings Bank, SLA Employee Severance Compensation Plan        
23.1      Consent of KPMG Peat Marwick LLP                                              
23.2      Consent of Muldoon, Murphy & Faucette                                         
23.3      Consent of Morris, Nichols, Arsht & Tunnell                                    
23.4      Consent and Subscription Rights Opinion of FinPro, Inc.                
24.1      Powers of Attorney                                                     
27.0      Financial Data Schedule                                                
99.1      Appraisal Report of FinPro, Inc. (P)                                   
99.2      Agreement Regarding Listing on a Securities Exchange*                  
99.3      Proxy Materials and Form of Revocable Proxy for First Savings Bank, SLA Stockholders 
</TABLE> 
          
__________________________________
*To be filed by amendment

                                       4
<PAGE>
 
(b)  Financial Statement Schedules

All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.

ITEM 17.  UNDERTAKINGS.

     The undersigned Registrant hereby undertakes:

     (1)  To file, during any period in which offers or sales are being made, a
          post-effective amendment to this Registration Statement:

          (i)    To include any Prospectus required by Section 10(a)(3) of the
                 Securities Act of 1933;

          (ii)   To reflect in the Prospectus any facts or events arising after
                 the effective date of the Registration Statement (or the most
                 recent post-effective amendment thereof) which, individually or
                 in the aggregate, represent a fundamental change in the 
                 information set forth in the Registration Statement.
                 Notwithstanding the foregoing, any increase or decrease in 
                 volume of securities offered (if the total dollar value of
                 securities offered would not exceed that which was registered) 
                 and any deviation from the low or high end of the estimated
                 maximum offering range may be reflected in the form of 
                 prospectus filed with the Commission pursuant to Rule 424(b) 
                 if, in the aggregate, the changes in volume and price 
                 represent no more than a 20 percent change in the maximum 
                 aggregate offering price set forth in the "Calculation of 
                 Registration Fee" table in the effective registration 
                 statement;

          (iii)  To include any material information with respect to the plan of
                 distribution not previously disclosed in the Registration
                 Statement or any material change to such information in the
                 Registration Statement;

     (2)  That, for the purpose of determining any liability under the         
          Securities Act of 1933, each such post-effective amendment shall be
          deemed to be a new Registration Statement relating to the securities
          offered therein, and the offering of such securities at that time
          shall be deemed to be the initial bona fide offering thereof.

     (3)  To remove from registration by means of a post-effective amendment any
          of the securities being registered which remain unsold at the
          termination of the Offering.

     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
 
CONFORMED

                                  SIGNATURES

          Pursuant to the requirements of the Securities Act of 1933, the 
Registrant has duly caused this Registration Statement to be signed on its 
behalf by the undersigned, thereunto duly authorized, in the City of Woodbridge,
State of New Jersey, on December 19, 1997.

FIRST SOURCE BANCORP, INC.

By:       /s/ John P. Mulkerin
          ---------------------------------------
          John P. Mulkerin
          President and Chief Executive Officer

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

<TABLE> 
<CAPTION> 
     Name                                              Date
     ----                                              ----
<S>                                                    <C> 
/s/ Walter K. Timpson                                  December 19, 1997
----------------------------------------
Walter K. Timpson
Chairman of the Board

/s/ John P. Mulkerin                                   December 19, 1997
----------------------------------------
President, Chief Executive Officer and
Director (principal executive officer)

/s/ Christopher P. Martin                              December 19, 1997
----------------------------------------
Christopher P. Martin
Executive Vice President,
Chief Operating Officer and
Chief Financial Officer
(principal accounting and financial officer)

/s/ Donald T. Akey, M.D.                               December 19, 1997
----------------------------------------
Donald T. Akey, M.D.
Director

/s/ Harry F. Burke                                     December 19, 1997
----------------------------------------
Harry F. Burke
Director

/s/ Keith H. McLaughlin                                December 19, 1997
----------------------------------------
Keith H. McLaughlin
Director

/s/ Philip T. Ruegger, Jr.                             December 19, 1997
----------------------------------------
Philip T. Ruegger, Jr.
Director

/s/ Jeffries Shein                                     December 19, 1997
----------------------------------------
Jeffries Shein
Director
</TABLE>
[{"type": "S-1", "sequence": "1", "description": "S&L CONVERSION", "secsgml_size_bytes": 924316}]
{"company-data": {"conformed-name": "FIRST SOURCE BANCORP INC", "cik": "0001051092", "assigned-sic": "", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-42757", "film-number": "97741511"}, "business-address": {"street1": "1000 WOODBRIDGE CENTER DRIVE", "city": "WOODBRIDGE", "state": "NJ", "zip": "07095", "phone": "7327268700"}, "mail-address": {"street1": "1000 WOODBRIDGE CENTER DRIVE", "city": "WOODBRIDGE", "state": "NJ", "zip": "07095"}}
As filed with the Securities and Exchange Commission on December 19, 1997

                                                    Registration No. 33-________

================================================================================

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549
 
                                   FORM S-1

                            REGISTRATION STATEMENT
                       UNDER THE SECURITIES ACT OF 1933
                          FIRST SOURCE BANCORP, INC.
  (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CERTIFICATE OF INCORPORATION)

DELAWARE
(state or other jurisdiction of                BEING APPLIED FOR
incorporation or organization)                 (IRS Employer Identification No.)
                               (Primary Standard
                          Classification Code Number)

                         1000 WOODBRIDGE CENTER DRIVE 
                         WOODBRIDGE, NEW JERSEY 07095 
                                (732) 726-9700 
              (Address, including zip code, and telephone number,
      including area code, of registrant's principal executive offices) 

                               JOHN P. MULKERIN 
                    PRESIDENT AND CHIEF EXECUTIVE OFFICER 
                           FIRST SAVINGS BANK, SLA 
                         1000 WOODBRIDGE CENTER DRIVE 
                         WOODBRIDGE, NEW JERSEY 07095 
                             (732) 726-9700 
               (Name, address, including zip code, and telephone
              number, including area code, of agent for service) 

                                  Copies to: 
                       JOSEPH G. PASSAIC, JR., ESQUIRE 
                            ANN COX CLANCY, ESQUIRE
                          THOMAS W. FRANCE, ESQUIRE 
                          MULDOON, MURPHY & FAUCETTE 
                          5101 WISCONSIN AVENUE, N.W.
                            WASHINGTON, D.C. 20016 
                                (202) 362-0840

     APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:  As soon as
practicable after this Registration Statement becomes effective.

     If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / X /
                               ---- 

     If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.  /   /
                                                         ---- 

     If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering.   /   /
            ---- 
 
     If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /   /
                                ----
=================================================================================================================
        Title of each Class of         Amount to       Purchase Price     Aggregate Offering    Registration
     Securities to be Registered     be Registered        Per Share            Price(1)              Fee    
-----------------------------------------------------------------------------------------------------------------
Common Stock               31,740,000
           $.01 par Value                Shares            $10.00            $317,400,000         $93,633
=================================================================================================================
           Participation                           
             Interests                    (2)              _______           $  9,890,490            (3) 
                                                                              ------------
=================================================================================================================
(1)  Estimated solely for the purpose of calculating the registration fee.
(2)  In addition, this registration statement also covers an indeterminate
     amount of interests to be offered or sold pursuant to The Incentive Savings
     Plan for Employees of First Savings Bank, SLA.
(3)  The securities of First Source Bancorp, Inc. to be purchased by First
     Savings Bank, SLA 401(k) Savings Plan are included in the amount shown for
     Common Stock. Accordingly, no separate fee is required for the
     participation interests. In accordance with Rule 457(h) of the Securities
     Act, as amended, the registration fee has been calculated on the basis of
     the number of shares of Common Stock that may be purchased with the current
     assets of such Plan.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
FIRST SOURCE BANCORP, INC.

  Cross Reference Sheet Showing Location in the Subscription and Community
Offering Prospectus ("Prospectus") of Information Required by Items of Form S-l:

 
     Registration Statement Item and Caption     Prospectus Headings
     ---------------------------------------     -------------------
 
l.   Forepart of the Registration                Front Cover Page
     Statement and Outside Front Cover
     Page of Prospectus
 
2.   Inside Front and Outside Back Cover         Inside Front and Outside Back 
     Page of Prospectus                          Cover Pages
 
3.   Summary Information, Risk Factors and       Summary; Risk Factors
     Ratio of Earnings to Fixed Charges
 
4.   Use of Proceeds                             Use of Proceeds
 
5.   Determination of Offering Price             The Conversion and 
                                                 Reorganization-- Stock Pricing
                                                 and Exchange Ratio
 
6.   Dilution                                    Not Applicable
 
7.   Selling Security Holders                    Not Applicable
 
8.   Plan of Distribution                        Front Cover Page; The
                                                 Conversion and Reorganization--
                                                 Subscription Offering and
                                                 Subscription Rights; --
                                                 Community Offering;--Syndicated
                                                 Community Offering
 
9.   Description of Securities to be             The Conversion and
     Registered                                  Reorganization -- Certain
                                                 Restrictions on Purchase or
                                                 Transfer of Shares After
                                                 Conversion; Restrictions on
                                                 Acquisition of the Company and
                                                 the Bank; Description of
                                                 Capital Stock of the Company;
                                                 Description of Capital Stock of
                                                 the Bank

10.  Interests of Named Experts and Counsel      Not Applicable
 
11.  Information with Respect to the             Front Cover Page; First Source
     Registrant                                  Bancorp, Inc.; First Savings
                                                 Bank, SLA; First Savings
                                                 Bancshares, MHC; Dividend
                                                 Policy; Consolidated Statements
                                                 of Income; Management's
                                                 Discussion and Analysis of
                                                 Financial Condition and Results
                                                 of Operations of the Bank;
                                                 Business of the Bank;
                                                 Regulation; Management of the
                                                 Company; Management of the
                                                 Bank; The Conversion and
                                                 Reorganization; Description of
                                                 Capital Stock of the Company;
                                                 Description of Capital Stock of
                                                 Bank; Financial Statements

12.  Disclosure of Commission Position on        Not Applicable
     Indemnification for Securities Act
     Liabilities
[To be used in connection with sales to Participants in the Incentive Savings
Plan for the Employees of First Savings Bank, SLA]
 

PROSPECTUS SUPPLEMENT
---------------------

                          FIRST SOURCE BANCORP, INC.
                            FIRST SAVINGS BANK, SLA

                            PARTICIPATION INTERESTS

                  THE INCENTIVE SAVINGS PLAN FOR EMPLOYEES OF
                            FIRST SAVINGS BANK, SLA

     This Prospectus Supplement relates to the offer and sale to participants
(the "Participants") in The Incentive Savings Plan for Employees of First
Savings Bank, SLA (the "Plan") of participation interests and shares of common
stock, par value $.01 per share of First Source Bancorp, Inc. (the "Common
Stock"), as set forth herein.

     In connection with the offering of Common Stock by First Source Bancorp,
Inc. (the "Holding Company") Participants will be permitted to direct the
trustee of the Plan (the "Trustee") to  invest in Common Stock with amounts in
the Plan attributable to such Participants.  Such investments in Common Stock
would be made by means of the First Source Bancorp, Inc. Stock Fund, formerly
the First Savings Stock Fund (the "Employer Stock Fund" or the "First Source
Bancorp, Inc. Stock Fund").  Based upon the value of the Plan assets at
September 30, 1997, 893,399 shares of Common Stock could be purchased with Plan
assets (assuming a purchase price of $10.00 per share).  This Prospectus
Supplement relates to the initial election of Participants to direct that all or
a portion of their accounts be invested in the Employer Stock Fund in connection
with the Offering and also to elections by Participants to direct that all or a
portion of their accounts be invested in the Employer Stock Fund after the close
of the Offering.

     The prospectus dated _______________________________, 1998 of the Holding
Company (the "Prospectus"), which is attached to this Prospectus Supplement,
includes detailed information with respect to the Offering, the Common Stock and
the financial condition, results of operations and business of the Bank.  This
Prospectus Supplement, which provides detailed information with respect to the
Plan, should be read only in conjunction with the Prospectus and should be
retained for future reference.

     FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PARTICIPANT, SEE "RISK FACTORS."

      THE DATE OF THIS PROSPECTUS SUPPLEMENT IS ____________________, 1997.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, THE NEW JERSEY
DEPARTMENT OF BANKING, OR ANY OTHER FEDERAL AGENCY OR ANY STATE SECURITIES
COMMISSION, NOR HAS SUCH COMMISSION, OFFICE OR OTHER AGENCY OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

     THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT FEDERALLY INSURED OR GUARANTEED, NOR ARE THE SHARES OF
COMMON STOCK GUARANTEED BY THE COMPANY OR THE BANK.  THE ENTIRE AMOUNT OF A
PURCHASER'S PRINCIPAL IS SUBJECT TO LOSS.

     No person has been authorized to give any information or to make any
representations other than those contained in the Prospectus or this Prospectus
Supplement, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Bank or the Plan.  This
Prospectus Supplement does not constitute an offer to sell or solicitation of an
offer to buy any securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction.  Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Bank or the Plan since the date hereof, or
that the information herein contained or incorporated by reference is correct as
of any time subsequent to the date hereof.
TABLE OF CONTENTS
THE OFFERING.................................................   1
     Securities Offered......................................   1
     Election to Purchase Common Stock in the Offering.......   1
     Value of Participation Interests........................   1
     Method of Directing Transfer............................   2
     Time for Directing Transfer.............................   2
     Irrevocability of Transfer Direction....................   2
     Direction to Purchase Common Stock After the Offering...   2
     Purchase Price of Common Stock..........................   2
     Nature of a Participant's Interest in the Common Stock..   3
     Voting and Tender Rights of Common Stock................   3
 
DESCRIPTION OF THE PLAN......................................   4
     Introduction............................................   4
     Eligibility and Participation...........................   5
     Contributions Under the Plan............................   5
     Limitations on Contributions............................   6
     Investment of Contributions.............................   8
     Benefits Under the Plan.................................  12
     Withdrawals and Distributions From the Plan.............  12
     Administration of the Plan..............................  13
     Reports to Plan Participants............................  13
     Plan Administrator......................................  14
     Amendment and Termination...............................  14
     Merger, Consolidation or Transfer.......................  14
     Federal Income Tax Consequences.........................  14
     ERISA and Other Qualification...........................  16
     Restrictions on Resale..................................  17
     SEC Reporting and Short-Swing Profit Liability..........  17

EXPERTS......................................................  18
LEGAL OPINION................................................  18
INVESTMENT FORM
THE OFFERING

SECURITIES OFFERED

     The securities offered hereby are participation interests in the Plan. Up
to 893,399 shares (assuming the actual purchase price is $10.00 per share) of
Common Stock may be acquired by the Plan to be held in the Employer Stock Fund.
The Holding Company is the issuer of the Common Stock. Only employees of the
Bank who have completed 1,000 hours of service and attained age 21 (hereinafter
referred to as the "Employer") may participate in the Plan. The Common Stock to
be issued hereby is conditioned on the consummation of the Offering. A
Participant's investment in units in the Employer Stock Fund in the Offering is
subject to the priority set forth in the Plan of Conversion and Reorganization.

     Information with regard to the Plan is contained in this Prospectus
Supplement and information with regard to the Offering and the financial
condition, results of operations and business of the Bank is contained in the
attached Prospectus.  The address of the principal executive office of the Bank
is 1000 Woodbridge Center Drive, Woodbridge, New Jersey 07095.  The Bank's
telephone number is (732) 726-9700.

ELECTION TO PURCHASE COMMON STOCK IN THE OFFERING

     In connection with First Source Bancorp, Inc.'s offering of Common Stock
(the "Offering"), the Plan permits each Participant to direct that all or part
of the funds which represent his or her beneficial interest in the assets of the
Plan may be transferred to the Employer Stock Fund, an investment fund in the
Plan that will invest in Common Stock.  If there is not enough Common Stock in
the Offering to fill all subscriptions, the Common Stock would be apportioned
and the Plan may not be able to purchase all of the Common Stock requested by
the Participants. In such case, the Trustee will purchase shares in the open
market after the close of the Offering to fulfill Participants' requests.  Such
purchases may be at prices higher than the purchase price in the Offering.  The
ability of each Participant to  invest in the Employer Stock Fund  in the
Offering pursuant to directions to transfer all or a portion of their beneficial
assets in the Plan will be based on such Participant's status as an Eligible
Account Holder or Supplemental Eligible Account Holder pursuant to the Plan of
Conversion and Reorganization, the subscription priorities set forth in the Plan
of Conversion and Reorganization and the availability of Common Stock.

VALUE OF PARTICIPATION INTERESTS

     The market value of the assets of the Plan, as of September 30, 1997, was
$8,933,992 and each Participant was informed of the value of his or her
beneficial interest in the Plan. This value represented the past contributions
to the Plan by the Employers and the Participants and any earnings or losses
thereon, less previous withdrawals.

                                       1
METHOD OF DIRECTING TRANSFER

     The last page of this Prospectus Supplement is a form to direct a transfer
to the Employer Stock Fund (the "Investment Form").  If a Participant wishes to
transfer all or part of his or her beneficial interest in the assets of the Plan
to the Employer Stock Fund, he or she should indicate that decision in Part 2 of
the Investment Form.  If a Participant does not wish to make such an election,
he or she does not need to take any action.

TIME FOR DIRECTING TRANSFER

     The deadline for submitting a direction to transfer amounts to the Employer
Stock Fund  which will purchase Common Stock issued in connection with the
Offering is ten days prior to ____________________(the "Expiration Date") of the
Offering.  The Investment Form should be returned to the Bank's Human Resources
Department by 4:00 p.m. on such date.

IRREVOCABILITY OF TRANSFER DIRECTION

     A Participant's direction to transfer amounts credited to his or her
account in the Plan to the Employer Stock Fund  in connection with the Offering
shall be irrevocable.  Participants, however, will be able to direct the
investment of their accounts ("Accounts") after the Offering under the Plan as
explained below.

DIRECTION TO PURCHASE COMMON STOCK AFTER THE OFFERING

     A Participant shall be able to direct that a certain percentage of the net
value of such Participant's interests in the trust fund established for the Plan
(the "Trust Fund") be transferred to the Employer Stock Fund and invested in
Common Stock, or to the other investment funds available under the Plan.
Alternatively, a Participant may direct that a certain percentage of such
Participant's interest in the Employer Stock Fund be transferred to the Trust
Fund to be invested by the Trustee.  Participants will be permitted to direct
that future contributions made to the Plan by or on their behalf will be
invested in Common Stock.  Following the initial election, the allocation of a
Participant's interest in the First Source Bancorp, Inc. Stock Fund and the
First Savings CD Fund may be made only during a 10 day window period prior to
the beginning of each quarter; other investment funds may be re-allocated on a
daily basis using the Plan's administrative phone system.  Special restrictions
apply to transfers directed by those Participants who are officers, directors
and principal shareholders of the Bank who are subject to the provisions of
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "1934
Act").

PURCHASE PRICE OF COMMON STOCK

     The funds transferred to the First Source Bancorp, Inc. Stock Fund for the
purchase of Common Stock in connection with the Offering will be used by the
Trustee to purchase shares of Common Stock.  The price to be paid by the Trust
Fund  for such shares of Common Stock will be the same price as is paid by all
persons who purchase shares of Common Stock in the Offering.

                                       2
Common Stock purchased by the Trustee after the Offering will be acquired
in open market transactions.  The prices paid by the Trustee for shares of
Common Stock will not exceed "adequate consideration" as defined in Section
3(18) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA").

NATURE OF A PARTICIPANT'S INTEREST IN THE COMMON STOCK

     The Common Stock will be held in the name of the Trustee for the Plan, as
trustee.  Each Participant has an allocable interest in the investment funds of
the Plan but not in any particular assets of the Plan.  Accordingly, a specific
number of shares of Common Stock will not be directly attributable to the
account of any Participant.  Earnings, e.g., gains and losses, are allocated to
the Account of a Participant based on units in the Employer Stock Fund held by
the Participants.  Therefore, earnings with respect to a Participant's Account
should not be affected by the investment designations (including investments in
Common Stock) of other Participants.

VOTING AND TENDER RIGHTS OF COMMON STOCK

     The Trustee generally will exercise voting and tender rights attributable
to all Common Stock held by the Trust Fund as directed by Participants with
interests in the Employer Stock Fund.  With respect to each matter as to which
holders of Common Stock have a right to vote, each Participant will be allocated
a number of voting instruction rights reflecting such Participant's
proportionate interest in the Employer Stock Fund.  The number of shares of
Common Stock held in the Employer Stock Fund that are voted in the affirmative
and negative on each matter shall be proportionate to the number of voting
instruction rights exercised in the affirmative and negative, respectively.  In
the event of a tender offer for Common Stock, the Plan provides that each
Participant will be allotted a number of tender instruction rights reflecting
such Participant's proportionate interest in the Employer Stock Fund.  The
percentage of shares of Common Stock held in the Employer Stock Fund that will
be tendered will be the same as the percentage of the total number of tender
instruction rights that are exercised in favor of tendering.  The remaining
shares of Common Stock held in the Employer Stock Fund will not be tendered.
The Plan makes provision for Participants to exercise their voting instruction
rights and tender instruction rights on a confidential basis.

                                       3
DESCRIPTION OF THE PLAN

I.   INTRODUCTION

     The Incentive Savings Plan for Employees of First Savings Bank, SLA (the
"Plan") became effective January 1, 1981 as a cash or deferred arrangement
pursuant to Section 401(a) and Section 401(k) of the Internal Revenue Code of
1954 as amended (the "1954 Code").  The Plan was subsequently amended and
restated in its entirety effective July 1, 1984, in order to comply with
statutorily required changes and to implement administrative changes.  The
Internal Revenue Service (the "IRS") issued a determination letter confirming
that the Plan, amended and restated as of July 1, 1984, was qualified under
Section 401(a) of the 1954 Code, and the trust pursuant to which the assets of
the Plan are held by the Bank, as trustee, was exempt from tax under Section
501(a) of the 1954 Code.

     At the time of the Bank's reorganization from a mutual savings association
to a mutual holding company, the Bank amended the Plan to implement the First
Savings Stock Fund.  The Plan as amended was submitted to the IRS for a
determination that the Plan, as amended, qualifies under Section 401(a) of the
Internal Revenue code of 1986 as amended (the "Code") and that it satisfies the
requirements for a qualified cash or deferred arrangement under Section 401(k)
of the Code.  A determination letter was received from the IRS on July 20, 1995.
In connection with the current reorganization of the Bank and the conversion of
the mutual holding company to the stock form of organization, the First Savings
Stock Fund will be converted to the First Source Bancorp, Inc. Stock Fund.

     Employee Retirement Income Security Act.  The Plan is an "individual
     ---------------------------------------                             
account plan" other than a "money purchase pension plan" within the meaning of
ERISA.  As such, the Plan is subject to all of the provisions of Title I
(Protection of Employee Benefit Rights) and Title II (Amendments to the Internal
Revenue Code Relating to Retirement Plans) of ERISA, except the funding
requirements contained in Part 3 of Title I of ERISA which by their terms do not
apply to an individual account plan (other than a money purchase pension plan).
The Plan is not subject to Title IV (Plan Termination Insurance) of ERISA.
Neither the funding requirements contained in Part 3 of Title I of ERISA nor the
plan termination insurance provisions contained in Title IV of ERISA will be
extended to Participants (as defined below) or beneficiaries under the Plan.

     APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS BENEFIT
UNDER THE PLAN PRIOR TO THE PARTICIPANT'S TERMINATION OF EMPLOYMENT WITH THE
BANK. A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE IMPOSED ON WITHDRAWALS MADE
PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59-1/2, REGARDLESS OF WHETHER SUCH
A WITHDRAWAL OCCURS DURING HIS EMPLOYMENT WITH THE BANK OR AFTER TERMINATION OF
EMPLOYMENT.

                                       4
Reference to Full Text of Plan.  The following statements are summaries of
     ------------------------------                                            
certain provisions of the Plan.  They are not complete and are qualified in
their entirety by the full text of the Plan.  Copies of the Plan are available
to all employees by filing a request with the Plan Administrator, John Mulkerin,
First Savings Bank, SLA, 1000 Woodbridge Drive, Woodbridge, New Jersey.  The
Plan Administrator's telephone number is (732) 726-9700.  Each employee is urged
to read carefully the full text of the Plan.

II.  ELIGIBILITY AND PARTICIPATION

     All employees of the Employer who have attained age 21 are eligible to
participate in the Plan on the first day of January following one year of
service with the Employer.  An eligible employee will become a participant on
the first day of January after the employee completes an Elective Deferral
Agreement.

     As of September 30, 1997, there were approximately 168 employees eligible
to participate in the Plan, and 153 employees had elected to participate in the
Plan.

III. CONTRIBUTIONS UNDER THE PLAN

     401(k) Plan Contributions.  Subject to certain limitations on
     -------------------------                                    
contributions, each Participant in the Plan is permitted to elect to reduce such
Participant's Compensation (as defined below) pursuant to an "Elective Deferral
Agreement" by an amount not less than 2% and not more than 12% and have that
amount contributed to the Plan on such Participant's behalf.  Such amounts are
credited to the Participant's " Elective Deferral Account."  See "Section IV
Limitations on Contributions" below.  For purposes of the Plan, "Compensation"
means a Participant's compensation from the Employer, including amounts subject
to an Elective Deferral Agreement, but excluding bonuses, overtime, commissions,
expense allowance, profit sharing or any other extra compensation in any form.
As of January 1, 1998, the annual compensation of each Participant taken into
account under the Plan is limited to $160,000 (adjusted for increases in the
cost of living as permitted by the Code).  Generally, a Participant may elect to
modify the amount contributed to the Plan under such Participant's Elective
Deferral Agreement not more often than twice a year by providing notice to the
Plan Administrator.  However, special restrictions apply to persons subject to
Section 16 of the 1934 Act. Elective deferrals are transferred by the Employer
to the Trustee of the Plan.

     Notwithstanding the preceding, a Participant who receives a hardship
distribution under the terms of the Plan may not be eligible to make additional
contributions under a Elective Deferral Agreement or have matching contributions
made on his behalf for a period of twelve (12) months after the receipt of the
hardship distribution.

                                       5
Employer Contributions.  The Employer contributes to the Plan for each Plan
     ----------------------                                                     
Year 50% of the Participant's elective deferrals, up to 3% of the Participant's
Compensation for the Plan Year.  Such amounts are credited to the Participant's
"Employer Contribution Account."

IV.  LIMITATIONS ON CONTRIBUTIONS

     Limitations on Annual Additions and Benefits.  Pursuant to the requirements
     --------------------------------------------                               
of the Code, the Plan provides that the amount of contributions  allocated to
each Participant's Elective Deferral Account and Employer Contribution Account
during any Plan Year may not exceed the lesser of 25% of the Participant's
(S)415 Compensation for the Plan Year or $30,000 (adjusted for increases in the
cost of living as permitted by the Code).  A Participant's (S)415 Compensation
is a Participant's Compensation, excluding any Employer contribution to the Plan
or to any other plan of deferred compensation or any distributions from a plan
of deferred compensation.  In addition, annual additions shall be limited to the
extent necessary to prevent the limitations set forth in the Code for all of the
qualified defined benefit plans and defined contribution plans maintained by the
Bank from being exceeded.  To the extent that these limitations would be
exceeded by reason of excess annual additions with respect to a Participant,
such excess will be disposed of as follows:

     (i)    Any non-deductible voluntary employee contributions, to the extent
that would reduce the excess amount, will be returned to the Participant;

     (ii)   If, after the application of (i) above, an excess still exists and
the Participant is covered by the Plan at the end of the Limitation Year, the
excess amount in the Participant's Account will be used to reduce the Employer
contributions for such Participant in the next Limitation Year, and each
succeeding Limitation Year if necessary;

     (iii)  If, after the application of (i) above, an excess amount still
exists, and the Participant is not covered by the Plan at the end of the
                               ---                                      
Limitation Year, the excess amount will be held unallocated in a suspense
account which will then be applied to reduce future Employer contributions for
al remaining Participants in the next Limitation Year, and each succeeding
Limitation Year if necessary;

     (iv)   If a suspense account is in existence at any time during the
Limitation Year, it will not participate in the allocation of investment gains
and losses.

     Limitation on 401(k) Plan Contributions.  The annual amount of deferred
     ---------------------------------------                                
Compensation under a Elective Deferral Agreement of a Participant (when
aggregated with any elective deferrals of the Participant under a simplified
employee pension plan or a tax-deferred annuity) may not exceed $7,000 adjusted
for increases in the cost of living as permitted by the Code (the limitation for
1998 is $10,000). Contributions in excess of this limitation ("excess
deferrals") will be included in the Participant's gross income for federal
income tax purposes in the year they are made. In addition, any such excess
deferral will again be subject to federal income tax when distributed by the
Plan to the Participant, unless the excess deferral (together with any income
allocable thereto) is distributed to the Participant not later than the first
April 15th following the close of the taxable

                                       6
year in which the excess deferral is made.  Any income on the excess
deferral that is distributed not later than such date shall be treated, for
federal income tax purposes, as earned and received by the Participant in the
taxable year in which the excess deferral is made.

     Limitation on Plan Contributions for Highly Compensated Employees.
     -----------------------------------------------------------------  
Sections 401(k) and 401(m) of the Code limit the amount of deferred compensation
that may be made to the Plan in any Plan Year on behalf of Highly Compensated
Employees (defined below) in relation to the amount of deferred compensation
made by or on behalf of all other employees eligible to participate in the Plan.
Specifically, the actual deferral percentage (i.e., the average of the ratios,
calculated separately for each eligible employee in each group, by dividing the
amount of deferred compensation credited to the Elective Deferral Account of
such eligible employee by such eligible employee's compensation for the Plan
Year) of the Highly Compensated Employees may not exceed the greater of (i) 125%
of the actual deferral percentage of all other eligible employees, or (ii) the
lesser of (x) 200% of the actual deferral percentage of all other eligible
employees, or (y) the actual deferral percentage of all other eligible employees
plus two percentage points.  In addition, the actual contribution percentage for
such Plan Years (i.e., the average of the ratios calculated separately for each
eligible employee in each group, by dividing the amount of voluntary employee
and employer matching contributions credited to the Employer Contribution
Account of such eligible employee by such eligible employee's compensation for
the Plan Year) of the Highly Compensated Employees may not exceed the greater of
(i) 125% of the actual contribution percentage of all other eligible employees,
or (ii) the lesser of (x) 200% of the actual contribution percentage of all
other eligible employees, or (y) the actual contribution percentage of all other
eligible employees plus two percentage points.

     In general, a Highly Compensated Employee includes any employee who, (1)
was a five percent owner of the Employer at any time during the year or
preceding year; or (2) had compensation for the preceding year in excess of
$80,000 and, if the Employer so elects, was in the top 20% of employees by
compensation for such year.  The dollar amounts in the foregoing sentence are
for 1998.  Such amounts are adjusted annually to reflect increases in the cost
of living.

     In addition, the compensation of an employee who is a family member of a 5%
owner, or one of the ten most highly compensated employees during the relevant
period is aggregated with that of the Highly Compensated Employee. All such
family members are treated as a single employee with respect to the application
of the limitations on Highly Compensated Employees.

     In order to prevent the disqualification of the Plan, any amount
contributed by Highly Compensated Employees that exceed the average deferral
limitation in any Plan Year ("excess contributions"), together with any income
allocable thereto, must be distributed to such Highly Compensated Employees
before the close of the following Plan Year. However, the Employer will be
subject to a 10% excise tax on any excess contributions unless such excess
contributions, together with any income allocable thereto, either are
recharacterized or are distributed before the close of the first 2 1/2 months
following the Plan Year to which such excess contributions relate.

                                       7
Top-Heavy Plan Requirements.  If for any Plan Year the Plan is a Top-Heavy
     ---------------------------                                               
Plan (as defined below), then (i) the Bank may be required to make certain
minimum contributions to the Plan on behalf of non-key employees (as defined
below), and (ii) certain additional restrictions would apply with respect to the
combination of annual additions to the Plan and projected annual benefits under
any defined benefit plan maintained by the Bank.

     In general, the Plan will be regarded as a "Top-Heavy Plan" for any Plan
Year if, as of the last day of the preceding Plan Year, the aggregate balance of
the Accounts of Participants who are Key Employees (as defined below) exceeds
60% of the aggregate balance of the Accounts of all Participants.  Key Employees
generally include any employee who, at any time during the Plan Year or any of
the four preceding Plan Years, is (1) an officer of the Bank having annual
compensation in excess of $60,000 who is in an administrative or policy-making
capacity, (2) one of the ten employees having annual compensation in excess of
$30,000 and owning, directly or indirectly, the largest interests in the Bank,
(3) a 5% owner of the Bank, (i.e., owns directly or indirectly more than 5% of
the stock of the Bank, or stock possessing more than 5% of the total combined
voting power of all stock of the Bank) or (4) a 1% owner of the Bank having
annual compensation in excess of $150,000.  The dollar amounts in the foregoing
sentence are for 1998.

V.   INVESTMENT OF CONTRIBUTIONS

     All amounts credited to Participants' Accounts under the Plan are held in
the Plan Trust (the "Trust") which is administered by the Trustee appointed by
the Bank's Board of Directors.

     Prior to [insert date of Prospectus here], the Participant Accounts have
been invested by the Trustee, at the direction of the Participants, in the
following funds:

     Fidelity Magellan Fund
     Fidelity Puritan Fund
     Nationwide Bond Fund
     Nationwide Money Market Fund
     Twentieth Century U.S. Government Bond
     First Savings Stock Fund
     First Savings CD Fund
 
     Effective _______, 1998, the First Savings Stock Fund will be converted
into the First Source Bancorp, Inc. Stock Fund.

                                       8
Each fund has unique investment goals and methodologies

(i)   Fidelity Magellan Fund:
 .     invests primarily in common stocks and convertible securities;

 .     may invest up to 20% of its assets in debt securities of all types and
      qualities;

 .     features domestic corporations operating primarily in the United States,
      domestic corporations that have significant activities and interests
      outside the U.S., and foreign companies;

 .     has no limitation on total foreign investment, but no more than 40% of
      fund assets will be invested in companies operating exclusively in one
      foreign country;

 .     is managed by Fidelity Management & Research Company.

(ii)  Fidelity Puritan Fund:

 .     seeks as much income as possible, consistent with the preservation and
      conservation of capital;

 .     invests in common stocks, and bonds, seeking to diversify in terms of both
      companies and industries;

 .     has historically used income-producing securities as the principal
      holding;

 .     is managed by Fidelity Management & Research Company.

(iii) Nationwide Bond Fund:

 .     seeks as high a level of income as is consistent with capital
      preservation;

 .     invests in high quality bonds and other fixed income securities;

 .     may include investments such as corporate bonds rated A or better, U.S.
      Government obligations, Canadian government bonds, and the highest
      investment grades of commercial paper;

 .     is managed by Nationwide Financial Services.

(iv)  Nationwide Money Market Fund:

 .     provides as high a level of current income as is consistent with the
      preservation of capital and maintenance of liquidity;

                                       9
.     invests in a diversified portfolio of high-quality money market
      instruments maturing in 397 days or less;

 .     accomplishes is objectives by investing mainly in debt, but retains
      maximum flexibility in the management of its portfolio;

 .     is managed by Nationwide Financial Services.

(v)   Twentieth Century U.S. Gov't Bond:

 .     may invest in direct obligations of the United States, which are supported
      by the full faith and credit of the United States, and in obligations of
      agencies and instrumentalities of the U.S. government that are established
      under authority of an act of Congress;

 .     maintains an average weighted maturity of four years or less;

 .     is managed by Investors Research Corporation.

(vi)  First Savings Stock Fund invests primarily in the Common Stock of First
      Savings Bank, SLA.

(vii) First Savings CD Fund holds funds in insured deposits at First Savings
      Bank, SLA at market rates and other conditions equal to those provided
      other customers of First Savings Bank, SLA.

      The net gain (or loss) of the Funds from investments (including interest
payments, dividends, realized and unrealized gains and losses on securities, and
expenses paid from the Trust will be determined as of the first day of each June
and December during the Plan Year (the "Valuation Dates") and will be allocated
among the Accounts of Participants according to the balance of such Accounts as
of each Valuation Date.

      Any amounts credited to a Participant's Accounts for which investment
directions are not given will be invested in the Nationwide Money Market Fund by
the Trustee.

                                       10
A.   Previous Funds.
          -------------- 

     Prior to _________________________, contributions under the Plan were
invested in the following funds.  The annual percentage return on these funds
for the prior three years was:
1996  1995   1994
Fidelity Magellan Fund                             (1.8)%
 
Fidelity Puritan Fund                               1.8
 
Nationwide Bond Fund                               (8.1)
 
Nationwide Money Market Fund                        3.7
 
Twentieth Century U.S. Government                  (0.5)
Bond Fund
 
First Savings CD Fund                               7.0
 
First Savings Stock Fund                           11.7
B.   The First Source Bancorp, Inc. Stock Fund.
          ----------------------------------------- 

          The First Source Bancorp, Inc. Stock Fund will consist of investments
in Common Stock made on and after the effective date of the Offering.   Each
Participant's proportionate undivided beneficial interest in the First Source
Bancorp, Inc. Stock Fund is measured by units.  Each day a unit value will be
calculated by determining the market value of the Common Stock actually held and
adding to that any cash held by the Trustee.  This total will be divided by the
number of units outstanding to determine the unit value of the First Source
Bancorp, Inc. Stock Fund.

     On the occasion of the payment of a cash dividend, the unit value will be
determined before the dividend is distributed.  The Trustee may use the dividend
to purchase additional shares of Common Stock, thereby increasing the total
value of the First Source Bancorp, Inc. Stock Fund, and the value of each unit.
The Board of Directors of the Holding Company may consider a policy of paying
cash dividends on the Common Stock in the future; however, no decision as to the
amount or timing of cash dividends, if any, has been made.  The Trustee will, to
the extent practicable, use all amounts held by it in the First Source Bancorp,
Inc. Stock Fund  to purchase shares of Common Stock of the Holding Company.  It
is expected that all purchases will be made at prevailing market prices.  Under
certain circumstances, the Trustee may be required to limit the daily volume of
shares purchased. Pending investment in Common Stock, assets held in the First
Source Bancorp, Inc. Stock Fund will be placed in bank deposits and other short-
term investments.

     Any brokerage commissions, transfer fees and other expenses incurred in the
sale and purchase of Common Stock for the First Source Bancorp, Inc. Stock Fund
will be paid out of a cash

                                       11
account managed by the Trustee. Therefore, although Participants' Accounts will
not be directly adjusted for such fees, the market value of their accounts will
be reduced.

     As of the date of this Prospectus Supplement, none of the shares of Common
Stock have been issued or are outstanding and there is no established market for
the Common Stock.  Accordingly, there is no record of the historical performance
of the First Source Bancorp, Inc. Stock Fund.  Performance will be dependent
upon a number of factors, including the financial condition and profitability of
the Holding Company and the Bank and market conditions for the Common Stock
generally.  See "Market for the Common Stock" in the Prospectus.

     INVESTMENTS IN THE FIRST SOURCE BANCORP, INC. STOCK FUND MAY INVOLVE
CERTAIN SPECIAL RISKS IN INVESTMENTS IN COMMON STOCK OF THE COMPANY.  FOR A
DISCUSSION OF THESE RISK FACTORS, SEE "RISK FACTORS" IN THE PROSPECTUS.

VI.  BENEFITS UNDER THE PLAN

     A Participant, at all times, has a fully vested, nonforfeitable interest in
his or her Accounts and the earnings thereon under the Plan.

VII. WITHDRAWALS AND DISTRIBUTIONS FROM THE PLAN

     Withdrawals Prior to Termination of Employment.  Subject to the hardship
     ----------------------------------------------                          
distribution rules under the Plan, a Participant may withdraw all or a portion
of his or her Accounts under the Plan.  The hardship distribution requirements
ensure that Participants have a true financial need before a withdrawal may be
made.

     A Participant may make a withdrawal from his Employer Contribution Account
following five years of participation in the Plan.  However, if a Participant
makes such a withdrawal, he or she is precluded from making any further
withdrawals from his Employer Contribution Account for a twelve-month period.

     Distribution Upon Retirement, Disability or Termination of Employment.
     ---------------------------------------------------------------------  
Payment of benefits to a Participant who retires, incurs a disability, or
otherwise terminates employment generally shall be made in a lump sum cash
payment as soon as administratively feasible after such termination of
employment if the vested value of the Participant's Account is $3,500 or less.
If the vested portion of the Participant's Account balance is greater than
$3,500, the Participant may request a distribution (subject to the minimum
distribution rules) in a lump sum payment: (a) as soon as administratively
possible after termination, (b) as of any valuation date up to 13 months after
termination or (c) as of the date the Participant attains normal retirement age.
At the request of the Participant, the distribution may include an in kind
distribution of Common Stock of the Holding Company equal to the number of
shares that can be purchased with the Participant's balance in the First Source
Bancorp, Inc. Stock Fund. Benefit payments ordinarily shall be made not later
than 60 days following the end of the Plan Year in which occurs the latest of
the Participant's: (i) termination of employment; (ii) the attainment of age 65
or (iii) 10th anniversary of commencement

                                       12
of participation in the Plan; but in no event later than the April 1 following
the calendar year in which the Participant attains age 70 1/2. However, if the
vested portion of the Participant's Account balances exceeds or has ever
exceeded $3,500, no distribution shall be made from the Plan prior to the
Participant's attaining age 65 unless the Participant elects to receive an
earlier distribution.

     Distribution upon Death.  Unless otherwise elected as above, a Participant
     -----------------------                                                   
who dies prior to the benefit commencement date for retirement, disability or
termination of employment, and who has a surviving spouse shall have his
benefits paid to the surviving spouse in a lump sum as soon as administratively
possible following the date of his death, unless the Participant elected prior
to his death or the beneficiary so elects within 90 days of the Participant's
death, to receive such distribution in a lump sum payment as of any Valuation
Date which occurs within one year of the Participant's death.  With respect to
an unmarried Participant, and in the case of a married Participant with spousal
consent to the designation of another beneficiary, payment of benefits to the
beneficiary of a deceased Participant shall be made in the form of a lump-sum
payment in cash or in Common Stock in the same manner described above as to a
Participant with a surviving spouse.

     Nonalienation of Benefits.  Except with respect to federal income tax
     -------------------------                                            
withholding and as provided with respect to a qualified domestic relations order
(as defined in the Code), benefits payable under the Plan shall not be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to
benefits payable under the Plan shall be void.

ADMINISTRATION OF THE PLAN

     The Trustee with respect to the Plan is the named fiduciary of the Plan for
purposes of Section 402 of ERISA.

     Trustees.  The Trustee is appointed by the Board of Directors of the Bank
     --------                                                                 
to serve at its pleasure. The current Trustees of the Plan are designated
members of the Board. An unaffiliated Trustee has been appointed to hold funds
invested in the First Source Bancorp, Inc. Stock Fund.

     The Trustee receives, holds and invests the contributions to the Plan in
trust and distributes them to Participants and beneficiaries in accordance with
the terms of the Plan and the directions of the Plan Administrator.  The Trustee
is responsible for investment of the assets of the Trust.

REPORTS TO PLAN PARTICIPANTS

     Once a year, the Plan Administrator furnishes to each Participant a
statement showing (i) the balance in the Participant's Account as of the end of
that period, (ii) the amount of contributions allocated to such participant's
Account for that period, and (iii) the adjustments to such participant's Account
to reflect earnings or losses (if any).

                                       13
PLAN ADMINISTRATOR

     Pursuant to the terms of the Plan, the Plan is administered by one or more
persons who are appointed by and who serve at the pleasure of the Bank.
Currently, the Plan Administrator is John Mulkerin of the Bank.  The address and
telephone number of the Plan Administrator is c/o First Savings Bank, SLA, 1000
Woodbridge Center Drive, Woodbridge, New Jersey, 07095.  The Plan Administrator
is responsible for the administration of the Plan, interpretation of the
provisions of the Plan, prescribing procedures for filing applications for
benefits, preparation and distribution of information explaining the Plan,
maintenance of Plan records, books of account and all other data necessary for
the proper administration of the Plan, and preparation and filing of all returns
and reports relating to the Plan which are required to be filed with the U.S.
Department of Labor and the IRS, and for all disclosures required to be made to
Participants, Beneficiaries and others under Sections 104 and 105 of ERISA.

AMENDMENT AND TERMINATION

     It is the intention of the Bank to continue the Plan indefinitely.
Nevertheless, the Bank may terminate the Plan at any time.  If the Plan is
terminated in whole or in part, then regardless of other provisions in the Plan,
each employee affected by such termination shall have a fully vested interest in
his Accounts.  The Bank reserves the right to make, from time to time, any
amendment or amendments to the Plan which do not cause any part of the Trust to
be used for, or diverted to, any purpose other than the exclusive benefit of
Participants or their beneficiaries; provided, however, that the Bank may make
any amendment it determines necessary or desirable, with or without retroactive
effect, to comply with ERISA.

MERGER, CONSOLIDATION OR TRANSFER

     In the event of the merger or consolidation of the Plan with another plan,
or the transfer of the Trust assets to another plan, the Plan requires that each
Participant would (if either the Plan or the other plan then terminated) receive
a benefit immediately after the merger, consolidation or transfer which is equal
to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation or transfer (if the Plan had then
terminated).

FEDERAL INCOME TAX CONSEQUENCES

     The following is only a brief summary of certain federal income tax aspects
of the Plan which are of general application under the Code and is not intended
to be a complete or definitive description of the federal income tax
consequences of participating in or receiving distributions from the Plan.  The
summary is necessarily general in nature and does not purport to be complete.
Moreover, statutory provisions are subject to change, as are their
interpretations, and their application may vary in individual circumstances.
Finally, the consequences under applicable state and local income tax laws may
not be the same as under the federal income tax laws. PARTICIPANTS ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO ANY DISTRIBUTION FROM THE PLAN AND
TRANSACTIONS INVOLVING THE PLAN.

                                       14
The Plan has received a determination that it is qualified under Section
401(a) and 401(k) of the Code, and that the related Trust is exempt from tax
under Section 501(a) of the Code.  A plan that is "qualified" under these
sections of the Code is afforded special tax treatment which include the
following:  (1) The sponsoring employer is allowed an immediate tax deduction
for the amount contributed to the Plan each year; (2) Participants pay no
current income tax on amounts contributed by the employer on their behalf; and
(3) earnings of the plan are tax-deferred thereby permitting the tax-free
accumulation of income and gains on investments.  The Plan will be administered
to comply in operation with the requirements of the Code as of the applicable
effective date of any change in the law.  The Bank expects to timely adopt any
amendments to the Plan that may be necessary to maintain the qualified status of
the Plan under the Code.

     Lump Sum Distribution.  A distribution from the Plan to a Participant or
     ---------------------                                                   
the beneficiary of a Participant will qualify as a Lump Sum Distribution if it
is made:  (i) within one taxable year of the Participant or beneficiary; (ii) on
account of the Participant's death, disability or separation from service, or
after the Participant attains age 59 1/2; and (iii) consists of the balance to
the credit of the Participant under this Plan and all other profit sharing
plans, if any, maintained by the Bank.  The portion of any Lump Sum Distribution
that is required to be included in the Participant's or beneficiary's taxable
income for federal income tax purposes (the "total taxable amount") consists of
the entire amount of such Lump Sum Distribution less the amount of after-tax
contributions, if any, made by the Participant to any other profit sharing plans
maintained by the Bank which is included in such distribution.

     Averaging Rules.  The portion of the total taxable amount of a Lump Sum
     ---------------                                                        
Distribution that is attributable to participation after 1973 in this Plan or in
any other profit-sharing plan maintained by the Bank (the "ordinary income
portion") will be taxable generally as ordinary income for federal income tax
purposes.  However, a Participant who has completed at least five years of
participation in this Plan before the taxable year in which the distribution is
made, or a beneficiary who receives a Lump Sum Distribution on account of the
Participant's death (regardless of the period of the Participant's participation
in this Plan or any other profit-sharing plan maintained by the Employers), may
elect to have the ordinary income portion of such Lump Sum Distribution taxed
according to a special averaging rule ("five-year averaging"). The election of
the special averaging rules may apply only to one Lump Sum Distribution received
by the Participant or beneficiary, provided such amount is received on or after
the Participant turns 59-1/2 and the recipient elects to have any other Lump Sum
Distribution from a qualified plan received in the same taxable year taxed under
the special averaging rule. Under a special grandfather rule, individuals who
turned 50 by 1986 may elect to have their Lump Sum Distribution taxed under
either the five-year averaging rule or under the prior law ten-year averaging
rule. Such individuals also may elect to have that portion of the Lump Sum
Distribution attributable to the participant's pre-1974 participation in the
Plan taxed at a flat 20% rate as gain from the sale of a capital asset.

     Common Stock Included in Lump Sum Distribution.  If a Lump Sum Distribution
     ----------------------------------------------                             
includes Common Stock, the distribution generally will be taxed in the manner
described above, except that the total taxable amount will be reduced by the
amount of any net unrealized appreciation with respect to such Common Stock,
i.e., the excess of the value of such Common Stock at the time of

                                       15
the distribution over its cost or other basis of the securities to the Trust.
The tax basis of such Common Stock to the Participant or beneficiary for
purposes of computing gain or loss on its subsequent sale will be the value of
the Common Stock at the time of distribution less the amount of net unrealized
appreciation. Any gain on a subsequent sale or other taxable disposition of such
Common Stock, to the extent of the amount of net unrealized appreciation at the
time of distribution, will be considered long-term capital gain regardless of
the holding period of such Common Stock. Any gain on a subsequent sale or other
taxable disposition of the Common Stock in excess of the amount of net
unrealized appreciation at the time of distribution will be considered either
short-term capital gain or long-term capital gain depending upon the length of
the holding period of the Common Stock. The recipient of a distribution may
elect to include the amount of any net unrealized appreciation in the total
taxable amount of such distribution to the extent allowed by the regulations to
be issued by the IRS.

     Distributions:  Rollovers and Direct Transfers to Another Qualified Plan or
     ---------------------------------------------------------------------------
to an IRA.  Pursuant to a change in the law, effective January 1, 1993,
----------                                                             
virtually all distributions from the Plan may be rolled over to another
qualified Plan or to an individual retirement account ("IRA") without regard to
whether the distribution is a Lump Sum Distribution or a Partial Distribution.
Effective January 1, 1993, Participants have the right to elect to have the
Trustee transfer all or any portion of an "eligible rollover distribution"
directly to another plan qualified under Section 401(a) of the Code or to an
IRA.  If the Participant does not elect to have an "eligible rollover
distribution" transferred directly to another qualified plan or to an IRA, the
distribution will be subject to an mandatory federal withholding tax equal to
20% of the taxable distribution. An "eligible rollover distribution" means any
amount distributed from the Plan except: (1) a distribution that is (a) one of a
series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the Participant or the joint
lines of the Participant and his or her designated beneficiary, or (b) for a
specified period of ten years or more; (2) any amount that is required to be
distributed under the minimum distribution rules; and (3) any other
distributions excepted under applicable federal law. The tax law change
described above did not modify the special tax treatment of Lump Sum
Distributions, that are not rolled over or transferred i.e., forward averaging,
capital gains tax treatment and the nonrecognition of net unrealized
appreciation, discussed earlier.

ERISA AND OTHER QUALIFICATION

     As noted above, the Plan is subject to certain provisions of ERISA and will
be submitted to the IRS for a determination that it is qualified under Section
401(a) of the Code.

     THE FOREGOING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX ASPECTS
OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT INTENDED
TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN.
ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT A TAX ADVISOR CONCERNING THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING
DISTRIBUTIONS FROM THE PLAN.

                                       16
RESTRICTIONS ON RESALE

     Any person receiving a distribution of shares of Common Stock under the
Plan who is an "affiliate" of the Bank as the term "affiliate" is used in Rules
144 and 405 under the Securities Act of 1933, as amended (the "Securities Act")
(e.g., directors, officers and substantial shareholders of the Bank) may reoffer
or resell such shares only pursuant to a registration statement filed under the
Securities Act assuming the availability thereof, pursuant to Rule 144 or some
other exemption of the registration requirements of the Securities Act Any
person who may be an "affiliate" of the Bank may wish to consult with counsel
before transferring any Common Stock owned by him.  In addition, Participants
are advised to consult with counsel as to the applicability of Section 16 of the
1934 Act which may restrict the sale of Common Stock where acquired under the
Plan, or other sales of Common Stock.

     Persons who are not deemed to be "affiliates" of the Bank at the time of
                     ---                                                     
resale will be free to resell any shares of Common Stock to them under the Plan,
either publicly or privately, without regard to the Registration and Prospectus
delivery requirements of the Securities Act or compliance with the restrictions
and conditions contained in the exemptive rules thereunder. An "affiliate" of
the Bank is someone who directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control, with the
Bank. Normally, a director, principal officer or major shareholder of a
corporation may be deemed to be an "affiliate" of that corporation. A person who
may be deemed an "affiliate" of the Bank at the time of a proposed resale will
be permitted to make public resales of the Bank's Common Stock only pursuant to
a "reoffer" Prospectus or in accordance with the restrictions and conditions
contained in Rule 144 under the Securities Act or some other exemption from
registration, and will not be permitted to use this Prospectus in connection
with any such resale. In general, the amount of the Bank's Common Stock which
any such affiliate may publicly resell pursuant to Rule 144 in any three-month
period may not exceed the greater of one percent of the Bank's Common Stock then
outstanding or the average weekly trading volume reported on the National
Association of Securities Dealers Automated Quotation System during the four
calendar weeks prior to the sale. Such sales may be made only through brokers
without solicitation and only at a time when the Bank is current in filing the
reports required of it under the 1934 Act.

SEC REPORTING AND SHORT-SWING PROFIT LIABILITY

     Section 16 of the 1934 Act imposes reporting and liability requirements on
officers, directors and persons beneficially owning more than ten percent of
public companies such as the Holding Company.  Section 16(a) of the 1934 Act
requires the filing of reports of beneficial ownership.  Within ten days of
becoming a person subject to the reporting requirements of Section 16(a), a Form
3 reporting initial beneficial ownership must be filed with the Securities and
Exchange Commission.  Certain changes in beneficial ownership, such as
purchases, sales, gifts and participation in savings and retirement plans must
be reported periodically, either on a Form 4 within ten days after the end of
the month in which a change occurs, or annually on a Form 5 within 45 days after
the close of the Bank's fiscal year.  Participation in the Employer Stock Fund
of the Plan by officers, directors and

                                       17
persons beneficially owning more than ten percent of Common Stock of the Holding
Company must be reported to the SEC annually on a Form 5 by such individuals.

     In addition to the reporting requirements described above, Section 16(b) of
the 1934 Act provides for the recovery by the Holding Company of profits
realized by any officer, director or any person beneficially owning more than
ten percent of the Holding Company's Common Stock ("Section 16(b) Persons")
resulting from the purchase and sale or sale and purchase of the Holding
Company's Common Stock within any six-month period.

     The SEC has adopted rules that provide exemption from the profit recovery
provisions of Section 16(b) for participant-directed employer security
transactions within an employee benefit plan, such as the Plan, provided certain
requirements are met.  These requirements generally involve restrictions upon
the timing of elections to acquire or dispose of employer securities for the
accounts of Section 16(b) Persons.

     Except for distributions of Common Stock due to death, disability,
retirement, termination of employment or under a qualified domestic relations
order, Section 16(b) Persons are required to hold shares of Common Stock
distributed from the Plan for six months following such distribution.

                                    EXPERTS

     The financial statements and schedules of the Incentive Savings Plan for
the Employees of First Savings, SLA as of December 31, 1996 and 1995 and for the
years then ended have been included in reliance upon the report of KPMG Peat
Marwick, independent certified public accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.

                                 LEGAL OPINION

     The validity of the issuance of the Common Stock will be passed upon by
Muldoon, Murphy & Faucette, Washington, D.C., which firm acted as special
counsel for the Holding Company in connection with the Holding Company's
Offering. 

                                       18
INDEPENDENT AUDITORS' REPORT
                                        

The Board of Directors
First Savings Bank, SLA:

We have audited the accompanying statements of net assets available for plan
benefits (with fund information) of the Incentive Savings Plan for Employees of
First Savings Bank, SLA as of December 31, 1996 and 1995, and the related
statements of changes in net assets available for plan benefits (with fund
information) for the years then ended.  These financial statements are the
responsibility of the Plan's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of the
Incentive Savings Plan for Employees of First Savings Bank, SLA as of December
31, 1996 and 1995, and the changes in net assets available for plan benefits for
the years then ended in conformity with generally accepted accounting
principles.

Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole.  The supplemental schedules of assets
held for investment purposes, and reportable transactions are presented for the
purpose of additional analysis and are not a required part of the basic
financial statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974.  The fund information in
the statements of net assets available for plan benefits (with fund information)
and the statements of changes in net assets available for plan benefits (with
fund information) is presented for purposes of additional analysis rather than
to present the net assets available for plan benefits and changes in net assets
available for plan benefits of each fund.  The supplemental schedules and fund
information have been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
2

The schedule of assets held for investment purposes that accompanies the Plan's
financial statements does not disclose the historical cost of certain plan
assets held by the Plan trustee.  Disclosure of this information is required by
the Department of Labor's Rules and Regulations for Reporting and Disclosure
under the Employee Retirement Income Security Act of 1974.

June 6, 1997
INCENTIVE SAVINGS PLAN FOR EMPLOYEES
                          OF FIRST SAVINGS BANK, SLA

                      Statements of Net Assets Available
                   for Plan Benefits (With Fund Information)

                          December 31, 1996 and 1995

                                (In Thousands)
1996                                     1995
                                        -----------------------------------     ------------------------------------
                                                  Employer                                Employer
                                        General    stock    Mutual              General    stock    Mutual
                                          fund      fund     funds   Total        fund      fund     funds    Total
                                        -------   --------  ------  -------     -------   --------  ------   -------
Assets - investments (note 3):          
  Money market fund (plan sponsor)      $    25         --      --       25           9         --      --         9
  Certificates of deposit                 1,367         98      --    1,465       1,299         95      --     1,394
  Mutual funds                               --         --   1,344    1,344          --         --     812       812
  Common stock                               --      2,841      --    2,841          --      3,191      --     3,191
  Members' loans                            233         --      --      233         154         --      --       154
                                        -------   --------  ------  -------     -------   --------  ------   -------

        Net asets available for
         plan benefits                  $ 1,625      2,939   1,344    5,908       1,462      3,286     812     5,560
                                        =======   ========  ======  =======     =======   ========  ======   =======
See accompanying notes to financial statements.
INCENTIVE SAVINGS PLAN FOR EMPLOYEES
                          OF FIRST SAVINGS BANK, SLA

                 Statements of Changes in Net Assets Available
                   for Plan Benefits (With Fund Information)

                    Years ended December 31, 1996 and 1995

                                (In Thousands)
1996                              1995                 
                                                             --------------------------------  ---------------------------------
                                                                      Employer                          Employer                
                                                             General   stock   Mutual          General   stock   Mutual         
                                                               fund     fund    funds  Total     fund     fund    funds   Total 
                                                             -------  -------- ------ -------  -------  -------- ------  -------
Additions to net assets attributed to:                                                                                  
  Interest and dividend income                               $   111       110     --     221      101        71     --      172
                                                             -------  -------- ------ -------  -------  -------- ------  -------
  Contributions:                                              
    Employer                                                      50        --     85     135       49        --     66      115
    Employee                                                     219        --    211     430      122        --    155      277
                                                             -------  -------- ------ -------  -------  -------- ------  ------- 

        Total contributions                                      269        --    296     565      171        --    221      392
                                                             -------  -------- ------ -------  -------  -------- ------  -------

  Net transfers among funds                                     (110)      (40)   150      --     (155)      420   (265)      --
  Net realized and unrealized appreciation in fair           
    value of plan assets                                          --       893     86     979       --       630    195      825
                                                             -------  -------- ------ -------  -------  -------- ------  -------
        Total additions                                          270       963    532   1,765      117     1,121    151    1,389
                                                             
Deductions from net assets attributed to benefits to         
  participants                                                   107     1,310     --   1,417      134        --     --      134
                                                             -------  -------- ------ -------  -------  -------- ------  ------- 
        Net increase (decrease)                                  163      (347)   532     348      (17)    1,121    151    1,255 
                                                             
Net assets available for plan benefits at beginning of year    1,462     3,286    812   5,560    1,479     2,165    661    4,305
                                                             -------  -------- ------ -------  -------  -------- ------  -------
 
Net assets available for plan benefits at end of year        $ 1,625     2,939  1,344   5,908    1,462     3,286    812    5,560
                                                             =======  ======== ====== =======  =======  ======== ======  =======
See accompanying notes to financial statements.
INCENTIVE SAVINGS PLAN FOR EMPLOYEES
                           OF FIRST SAVINGS BANK, SLA
                                        
                         Notes to Financial Statements

                           December 31, 1996 and 1995

(1)  GENERAL

   The Incentive Savings Plan for Employees of First Savings Bank, SLA (the
   Plan), a participant directed, defined contribution plan, is a voluntary
   savings plan available to all eligible employees of First Savings Bank, SLA
   (the Bank).

   The accompanying financial statements have been prepared on an accrual basis.
   Purchases and sales of investments are recorded on a trade-date basis.
   Certain amounts in the 1995 financial statements have been reclassified to
   comply with the 1996 presentation.

   In preparing plan financial statements, a number of estimates and assumptions
   have been made relating to the reporting of assets and liabilities and the
   disclosure of contingent assets and liabilities to prepare these financial
   statements in conformity with generally accepted accounting principles.
   Actual results could differ from those estimates.

   The assets of the Plan are primarily financial instruments which are monetary
   in nature.  As a result, interest rates have a more significant impact on the
   Plan's performance than the effects of general levels of inflation.  Interest
   rates do not necessarily move in the same direction or in the same magnitude
   as the prices of goods and services as measured by the consumer price index.
   Investments in funds are subject to risk conditions of the individual fund
   objectives, stock market interest rates, economic conditions and world
   affairs.

   All contributions are invested in a trust fund managed by a committee
   consisting of at least three members appointed by the Board of Directors of
   the Bank.  The Plan is subject to the provisions of the Employee Retirement
   Income Security Act of 1974 (ERISA).

(2)  PLAN DESCRIPTION

   The following description of the Plan provides only general information.
   Eligible employees who participate (members) should refer to the plan
   agreement for a more complete description of the Plan's provisions.

   ELIGIBILITY

   All employees over age 21 are eligible to participate in the Plan on the
   first day of January or July following the completion of one year of service,
   as defined.

   EMPLOYEE CONTRIBUTIONS

   A member may make basic contributions to the Plan, through payroll
   deductions, of any whole percentage from 2% to 12% of the member's
   compensation, as defined.  Cumulative employee contributions total
   approximately $2,283,000 and $1,853,000 at December 31, 1996 and 1995,
   respectively.
2

                      INCENTIVE SAVINGS PLAN FOR EMPLOYEES
                           OF FIRST SAVINGS BANK, SLA
                                        
                   Notes to Financial Statements, Continued

(2), CONTINUED

   BANK CONTRIBUTIONS

   The Bank matches 50% of a member's basic contribution, up to 6% of that
   member's compensation, as defined.  Bank contributions are funded biweekly.
   At its discretion, the Bank may make an additional contribution to the Plan
   as of the end of a plan year in an amount determined by the Bank.  For the
   years ended December 31, 1996 and 1995, the Bank elected not to make an
   additional discretionary match.

   VESTING

   All member contributions, employer contributions and income or loss thereon
   are fully vested at all times.

   WITHDRAWALS

   Money can be withdrawn from the Plan when a member reaches age 59-1/2,
   terminates employment, dies, becomes disabled or experiences financial
   hardship.

   BENEFIT PAYMENTS

   Upon termination of employment, a member's vested amount under the Plan is
   paid in a lump-sum distribution.  During 1996, included in deductions from
   plan assets attributed to benefits to participants is a $1,321,897 payment
   relating to the passing of the Bank's long-time President.

   MEMBERS' ACCOUNTS

   Each member's account is credited with the member's contribution, the
   appropriate amount of the Bank's contribution and an allocation of the Plan's
   earnings or losses.  Allocations are based on the member's relative
   contribution to the individual funds.

   LOANS TO PARTICIPANT

   Participants are permitted to borrow from the Plan as defined in the plan
   document.  In no event shall the loan exceed the lesser of (a) $50,000,
   reduced by the highest loan balance outstanding during the one-year period
   ending on the day before the date on which the new loan is granted; or (b)
   50% of the participant's vested amount under the Plan on the date the
   loan is granted.  Interest shall be charged thereon at a rate for similar
   loans in the Bank's portfolio  and the loan shall be repaid by payroll
   deduction or in a manner determined by the Trustee, but not less frequently
   than quarterly.
3

                      INCENTIVE SAVINGS PLAN FOR EMPLOYEES
                           OF FIRST SAVINGS BANK, SLA
                                        
                   Notes to Financial Statements, Continued

(2), CONTINUED

   INVESTMENTS

   Contributions to the Plan by a member and by the Bank will be invested in
   various types of investments, as determined by the trust fund committee, such
   as certificates of deposit, mutual funds and the Bank's common stock.
   Certificates of deposit and loans to members are carried at cost plus accrued
   interest.  Mutual funds and common stock, which represent the Bank's common
   stock, are carried at fair value.  Fair value is determined by quoted market
   prices.

(3)  INVESTMENTS

   The investments of the Plan are held in a trust fund managed by a committee
   appointed by the Board of Directors of the Bank.  Investments at December 31,
   1996 and 1995 are composed of certificates of deposit, mutual funds, loans to
   members and common stock issued by the Bank.

   Individual investments in excess of 5% of net assets available for plan
   benefits at December 31, 1996 and 1995 are as follows (in thousands):
Stated      Maturity
                 Description                    rate         date      1996    1995
                 -----------                ------------  ----------  ------   -----
First Savings Bank, SLA (the plan
        sponsor) certificate of deposit            6.79%  Oct.7,2004  $ 1,367  1,299
                                                 ======   ==========   
      Mutual fund -- Fidelity Magellan                                    564    407
      Mutual fund -- Fidelity Puritan                                     460    289
                                                                       ------  -----
                                                                        2,391  1,995        
                                                                                             
      Common stock -- First Savings Bank,                                                    
        SLA (the plan sponsor)                                          2,841  3,191        
                                                                       ------  -----        
                                                                                             
                                                                       $5,232  5,186
                                                                       ======  =====
As noted above, the Plan has a significant concentration of investments
   associated with the Bank.
4

                      INCENTIVE SAVINGS PLAN FOR EMPLOYEES
                           OF FIRST SAVINGS BANK, SLA
                                        
                   Notes to Financial Statements, Continued

(4)  PLAN EXPENSES

   Administrative expenses of the Plan may be paid in whole or in part by the
   Bank at its discretion, and any expenses not paid by the Bank shall be paid
   by the trustee out of the principal or income of the trust fund.  All
   administrative expenses for the years ended December 31, 1996 and 1995 were
   paid by the Bank.

(5)  PLAN TERMINATION

   The Plan has no termination date, and it is the Bank's intention to continue
   the Plan indefinitely.  However, the Bank may terminate, amend or modify the
   Plan at any time that it may deem advisable.  In the event of the termination
   of the Plan, an appraisal of the trust fund shall be made and, after
   deducting termination expenses, the members will be paid their vested
   amounts.

(6)  INCOME TAXES

   The plan administrator has obtained a tax determination letter dated July 20,
   1995 from the Internal Revenue Service stating that the Plan qualifies under
   the provisions of Section 401(a) of the Internal Revenue Code (the Code) and
   the related trust is exempt from federal income taxes under Section 501(a) of
   the Code.  In the opinion of the plan administrator, the Plan and its
   underlying trust have operated within the terms of the Plan and remain
   qualified under the applicable provisions of the Code.
Schedule 1
                                                            ----------
                      INCENTIVE SAVINGS PLAN FOR EMPLOYEES
                           OF FIRST SAVINGS BANK, SLA
                                        
                      Item 27a -- Schedule of Assets Held
                            for Investment Purposes

                               December 31, 1996

                             (Dollars in Thousands)
Stated   Maturity             Fair
     Description of investment        rate      date       Cost    value
     -------------------------        ----      ----       ----    -----
Certificates of deposit:
 First Savings Bank, SLA (the plan
   sponsor) certificate of deposit     6.79%  Oct.7,2004  $ 1,367  1,367

 First Savings Bank, SLA (the plan
   sponsor) certificate of deposit     5.84   Nov.3,1997       98     98
                                      =====   ==========  -------  ----- 
          Total certificates of
            deposit                                         1,465  1,465
 
Money market fund (plan sponsor)                               25     25
Common stock -- First Savings Bank,
 SLA (the plan sponsor) -- 147,598
 shares                                                       847  2,841
 
Mutual funds:
 Fidelity Magellan                                             *     564
 Fidelity Puritan                                              *     460
 Money Market                                                  *      78
 20th Century Growth                                           *      21
 20th Century Growth                                           *     145
 Dreyfus A Bonds                                               *      12
 N+B Partners Trust                                            *      64
                                                          -------  -----
                                                               *   1,344
 
Loans to members                                              233    233
                                                          -------  -----
          Total investments                               $ 2,570  5,908
                                                          =======  =====
*The historical cost of the investments in mutual funds was not provided by the
 Plan trustee.
Schedule 2
                                                                    ----------
                      INCENTIVE SAVINGS PLAN FOR EMPLOYEES
                           OF FIRST SAVINGS BANK, SLA
                                        
                 Item 27d -- Schedule of Reportable Transactions

                          Year ended December 31, 1996

                             (Dollars in Thousands)
Number
                            Number    of
      Description of          of    trans-   Purchase
  investments purchased     shares  actions   price
--------------------------  ------  -------  --------
Mutual fund -- Nationwide      --        32  $480,769
                            ======  =======  ========
Number
                            Number    of
 Description of               of     trans-                          Gain
 investments sold           shares  actions  Proceeds     Cost      (loss)
--------------------------  ------  -------  --------   ---------  --------
Employer stock fund         71,611       1*  $1,253,190  342,015    911,175
                            ======  =======  ==========  =======    =======
*Represents payout as a result of the passing of the Bank's long-time President
 in 1996.
THE INCENTIVE SAVINGS PLAN
                 FOR THE EMPLOYEES OF FIRST SAVINGS BANK, SLA

                                Investment Form
                                ---------------
                                    for the
                              Employer Stock Fund
                              -------------------

Name of Plan Participant:___________________________________

Social Security Number:  ___________________________________

1.   INSTRUCTIONS.   The Incentive Savings Plan permits participants to direct
some or all of their account balances into the Employer Stock Fund.  Amounts
transferred at the direction of participants into the Employer Stock Fund will
be used to purchase shares of the Common Stock pursuant to the terms and
conditions of the Offering.

        To direct a transfer of all or a part of the funds credited to your
accounts to the Employer Stock Fund, you should complete and file this form with
________________, or the Plan Administrator, no later than _______________,
1998.  A representative for the Plan Administrator will retain a copy of this
form and return a copy of it to you.  If you need any assistance in completing
this form, please contact __________ at _________.  If you do not complete and
return this form to the Plan Administrator by __________, the funds credited to
your accounts under the Incentive Savings Plan will remain invested by the
Trustee in the Trust Fund.

2.   TRANSFER DIRECTIONS.   I hereby direct the Plan Administrator to transfer
the following dollar amount credited to my accounts into the:

        EMPLOYER STOCK FUND $_________   Note: The total amount transferred may
                                         not exceed the total value of your
                                         accounts.

        Unless indicated otherwise below, each of my accounts under the
        Incentive Savings Plan will be invested proportionately in the Employer
        Stock Fund.

3.   ACKNOWLEDGMENT OF PARTICIPANT.   I understand that this Investment Form
shall be subject to all of the terms and conditions of the Incentive Savings
Plan.  I acknowledge that I have received a copy of the Prospectus  and
Supplement thereto.

______________________________              _______________________ 

Signature of Participant            Date

_______________________________________________________________________________

ACKNOWLEDGMENT OF RECEIPT BY ADMINISTRATOR.  This Investment Form was received
by the Plan Administrator and will become effective on the date noted below.

______________________________              _______________________
                                            Date

By:___________________________
PROSPECTUS

                          FIRST SOURCE BANCORP, INC.
            (Proposed Holding Company for First Savings Bank, SLA)
                       27,600,000 Shares of Common Stock

     First Source Bancorp, Inc. (the "Company" or "First Savings Bancshares"), a
Delaware corporation, is offering up to 27,600,000 shares of its common stock,
par value $.01 per share (the "Common Stock"), in connection with the
reorganization of First Savings Bank, SLA ("First Savings" or the "Bank") and
First Savings Bancshares, MHC, the mutual holding company of the Bank (the
"Mutual Holding Company" or "MHC") into the stock holding company structure
pursuant to the Mutual Holding Company's Plan of Conversion and Agreement and
Plan of Reorganization (the "Plan" or "Plan of Conversion").  In certain
circumstances, the Company may increase the amount of Common Stock offered
hereby to 31,740,000 shares.  See Footnote 4 to the table below.

                                                   (continued on following page)

     FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" BEGINNING ON PAGE __.

   THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
   AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, THE NEW JERSEY
        DEPARTMENT OF BANKING, OR ANY OTHER FEDERAL AGENCY OR ANY STATE
    SECURITIES COMMISSION, NOR HAS SUCH COMMISSION, OFFICE OR OTHER AGENCY
        OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
            ADEQUACY OF THIS PROSPECTUS.  ANY REPRESENTATION TO THE
                        CONTRARY IS A CRIMINAL OFFENSE.

     THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
  DEPOSITS AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
 CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND
   OR ANY OTHER GOVERNMENT AGENCY, NOR ARE THEY INSURED OR GUARANTEED BY THE
                             BANK OR THE COMPANY.
-----------------------------------------------------------------------------------------------------------------------------
                                                                   ESTIMATED UNDERWRITING
                                      SUBSCRIPTION PRICE(1)             COMMISSIONS               ESTIMATED NET PROCEEDS(3)
                                                               AND OTHER FEES AND EXPENSES(2)
-----------------------------------------------------------------------------------------------------------------------------
Minimum Per Share..................           $10.00                        $0.16                            $9.84
-----------------------------------------------------------------------------------------------------------------------------
Midpoint Per Share.................           $10.00                        $0.15                            $9.85
-----------------------------------------------------------------------------------------------------------------------------
Maximum Per Share..................           $10.00                        $0.15                            $9.85
-----------------------------------------------------------------------------------------------------------------------------
Total Minimum(1)...................       $105,269,170                   $1,707,000                      $103,562,170
-----------------------------------------------------------------------------------------------------------------------------
Total Midpoint(1)..................       $123,844,950                   $1,903,000                      $121,941,950
-----------------------------------------------------------------------------------------------------------------------------
Total Maximum(1)...................       $142,420,720                   $2,100,000                      $140,320,720
-----------------------------------------------------------------------------------------------------------------------------
Total Maximum, as adjusted(4)......       $163,784,210                   $2,326,000                      $161,458,210
-----------------------------------------------------------------------------------------------------------------------------
(1)  Based upon the minimum, midpoint and maximum of the valuation price range,
     which was determined in accordance with an independent appraisal prepared
     by FinPro, Inc. ("FinPro") dated December 18, 1997.  Does not include
     shares of Common Stock issued to Public Stockholders in the Exchange (as
     both are hereinafter defined).  See "The Conversion and Reorganization -
     Stock Pricing and Exchange Ratio" and "- Number of Shares to be Issued."
(2)  Consists of the estimated costs to the Bank and the Company arising from
     the Conversion and Reorganization, including estimated fixed expenses of
     $600,000 and marketing fees to be paid to Sandler O'Neill & Partners, L.P.
     ("Sandler O'Neill")  estimated to be $1.1 million and $1.5 million at the
     minimum and the maximum of the Estimated Price Range, respectively.  See
     "The Conversion and Reorganization - Marketing and Underwriting
     Arrangements."  See "Pro Forma Data" for the assumptions used to arrive at
     these estimates.  The actual fees and expenses may vary from the estimates.
(3)  Actual net proceeds may vary substantially from estimated amounts depending
     on the number of shares sold in each of the offerings and other factors.
     Includes the purchase of shares of Common Stock by the First Savings Bank,
     SLA Employee Stock Ownership Plan and related trust (the "ESOP") which will
     be funded by a loan to the ESOP from the Company or a third party and which
     will be deducted from the Company's stockholders' equity.  See "Use of
     Proceeds" and "Pro Forma Data."
(4)  As adjusted to reflect the sale of up to an additional 15% of the Common
     Stock which may be offered at the $10 per share price ("Purchase Price"),
     without resolicitation of subscribers or any right of cancellation, due to
     regulatory considerations or changes in market or general financial and
     economic conditions.  See "Pro Forma Data" and "The Conversion and
     Reorganization - Stock Pricing and Exchange Ratio."  For a discussion of
     the distribution and allocation of the additional shares, if any, see "The
     Conversion and Reorganization - Subscription Offering and Subscription
     Rights," "- Community Offering" and  "- Limitations on Conversion Stock
     Purchases."

                           ________________________

                       SANDLER O'NEILL & PARTNERS, L.P.

                           ________________________

             THE DATE OF THIS PROSPECTUS IS _______________, 1998.
Pursuant to the Plan adopted by the Bank and the Mutual Holding Company,
the Bank will become a subsidiary of the Company upon consummation of the
transactions described herein (collectively, with the Offerings, the "Conversion
and Reorganization"). As a result of the Conversion and Reorganization, each
share of common stock, par value $.01 per share, of the Bank ("Bank Common
Stock") held by the Mutual Holding Company will be cancelled and each share of
Bank Common Stock held by the Bank's public stockholders (the "Public Bank
Shares") will be converted into shares of the Company's Common Stock ("Exchange
Shares") pursuant to a ratio (the "Exchange Ratio") that will result in the
holders of such shares (the "Public Stockholders") owning in the aggregate
approximately the same percentage of the Company as they owned of the Bank,
before giving effect to (a) the payment of cash in lieu of fractional Exchange
Shares, or (b) any shares of Common Stock purchased by such stockholders in the
Offerings described herein or by the Bank's ESOP in the Offerings or thereafter
(the "Exchange"). As of October 31, 1997, the Mutual Holding Company held
4,134,812, or 51.6%, of the outstanding shares of Bank Common Stock and Public
Stockholders held 3,881,539, or 48.4%, of outstanding shares of the Bank's
Common Stock.

     IN ADDITION TO THE EXCHANGE, NON-TRANSFERABLE SUBSCRIPTION RIGHTS TO
SUBSCRIBE FOR UP TO 14,242,072 SHARES (WHICH MAY BE INCREASED TO 16,378,421
SHARES UNDER CERTAIN CIRCUMSTANCES DESCRIBED BELOW) OF COMMON STOCK (THE
"CONVERSION STOCK") HAVE BEEN GRANTED, IN ORDER OF PRIORITY, TO EACH OF THE
BANK'S ELIGIBLE ACCOUNT HOLDERS, TO THE ESOP, TO EACH OF THE BANK'S SUPPLEMENTAL
ELIGIBLE ACCOUNT HOLDERS, AND TO CERTAIN OTHER MEMBERS (EACH AS DEFINED HEREIN)
IN A SUBSCRIPTION OFFERING (THE "SUBSCRIPTION OFFERING").  SUBSCRIPTION RIGHTS
ARE NONTRANSFERABLE.  PERSONS FOUND TO BE TRANSFERRING SUBSCRIPTION RIGHTS WILL
BE SUBJECT TO THE FORFEITURE OF SUCH RIGHTS AND POSSIBLE FURTHER SANCTIONS AND
PENALTIES IMPOSED BY THE OFFICE OF THRIFT SUPERVISION ("OTS").  Concurrently,
and subject to the prior rights of holders of subscription rights, the Company
is offering the shares of Conversion Stock not subscribed for in the
Subscription Offering for sale in a community offering to certain members of the
general public, with a first preference given to holders of the Public Bank
Shares (the "Community Offering") (the Subscription Offering and Community
Offering are referred to collectively as the "Subscription and Community
Offerings").  Shares not subscribed for in the Subscription and Community
Offerings will be offered to members of the general public in a syndicated
community offering (the "Syndicated Community Offering") (the Subscription and
Community Offerings and the Syndicated Community Offering are referred to
collectively as the "Offerings").

     Except for the ESOP, no Eligible Account Holder, Supplemental Eligible
Account Holder or Other Member may, in their respective capacities as such,
purchase in the Subscription Offering more than $250,000 of Conversion Stock
offered for sale in the Conversion and Reorganization; no person, together with
associates of or persons acting in concert with such person, may purchase in the
Community Offering and the Syndicated Community Offering more than $250,000 of
Conversion Stock offered for sale in the Conversion and Reorganization; and no
person, together with associates of or persons acting in concert with such
person, may purchase in the aggregate more than the number of shares of
Conversion Stock that when combined with Exchange Shares received by such person
would exceed the overall maximum purchase limitation of 4.0% of the total number
of shares of Conversion Stock offered for sale in the Conversion and
Reorganization; provided, however, that such purchase limitations and the amount
that may be subscribed for may be increased or decreased in the sole discretion
of the Company, the Mutual Holding Company and the Bank (the "Primary Parties")
without further approval of the Mutual Holding Company's members or the Public
Stockholders.  See "The Conversion and Reorganization - Subscription Offering
and Subscription Rights," "- Community Offering" and "- Limitations on
Conversion Stock Purchases."  The minimum purchase is 25 shares.

     THE SUBSCRIPTION AND COMMUNITY OFFERINGS WILL TERMINATE AT _____ __ .M.,
NEW JERSEY TIME, ON _________, 1998 (THE "EXPIRATION DATE"), UNLESS EXTENDED BY
THE PRIMARY PARTIES, WITH APPROVAL OF THE OTS, IF NECESSARY. Orders submitted
are irrevocable until the completion of the Conversion and Reorganization;
provided that, if the Conversion and Reorganization is not completed within 45
days after the close of the Subscription and Community Offerings, unless such
period has been extended with the consent of the OTS, if necessary, all
subscribers will have their funds returned promptly with interest, and all
withdrawal authorizations will be cancelled. Such extensions may not go beyond
____________, 2000. See "The Conversion and Reorganization -- Subscription
Offering and Subscription Rights" and "-- Procedure for Purchasing Shares in
Subscription and Community Offerings."

     The Company has received conditional approval to have its Common Stock
traded on the Nasdaq National Market under the symbol "FSLA" upon completion of
the Conversion and Reorganization.  The Bank's Common Stock currently trades on
the Nasdaq National Market under the symbol "FSLA."  See "Market for the Common
Stock."

                                       2
[MAP GOES HERE]

                                       3
SUMMARY

     This summary is qualified in its entirety by the more detailed information
and Consolidated Financial Statements of the Bank and Notes thereto appearing
elsewhere in this Prospectus.

FIRST SOURCE BANCORP, INC.

     First Source Bancorp, Inc. is a Delaware corporation recently organized by
the Bank for the purpose of holding all of the capital stock of the Bank and
facilitating the Conversion and Reorganization. Immediately following the
Conversion and Reorganization, the only significant assets of the Company will
be the capital stock of the Bank, two loans to the ESOP and the net proceeds of
the Offerings retained by the Company. The Company will transfer to the Bank 50%
of the net proceeds from the Offerings with the remaining net proceeds to be
retained by the Company. Funds retained by the Company will be used for general
business activities, including a new loan to the ESOP to enable the ESOP to
purchase up to 8% of the aggregate of the Conversion Stock issued, as well as
the assumption of an existing loan to the ESOP. On an interim basis, the net
proceeds are expected to be deposited by the Company into a deposit account at
the Bank. See "Use of Proceeds." The business of the Company will initially
consist of the business of the Bank. See "Business of the Bank" and 
"Regulation - Holding Company Regulation."

     The Company's executive offices are located at the administrative office
of the Bank at 1000 Woodbridge Center Drive, Woodbridge, New Jersey 07095. The
Company's telephone number is (732) 726-9700.

FIRST SAVINGS BANK, SLA

     First Savings is a New Jersey-chartered capital stock savings and loan
association headquartered in Woodbridge, New Jersey. First Savings has operated
in its present market area since 1901. Until 1992, the Bank operated in the
mutual form of organization. In July 1992, First Savings reorganized to become a
federally-chartered mutual holding company, First Savings Bancshares, MHC, and
simultaneously formed the Bank as a majority-owned subsidiary of the Company
("1992 MHC Reorganization"). The Mutual Holding Company transferred
substantially all of its assets (except $1.0 million in cash) and all its
liabilities to the newly organized Bank in exchange for 1,660,000 shares of the
Bank's common stock. Concurrently with the 1992 MHC Reorganization, the Bank
sold one million shares of its common stock to the general public at $10 per
share, resulting in net proceeds of $9.2 million. Upon completion of the 1992
MHC Reorganization, 62.4% of the Bank's Common Stock outstanding was held by the
Mutual Holding Company. Subsequently, the Bank completed a Secondary Stock
Offering of 600,000 shares of common stock at $13.00 per share on July 11, 1995
("1995 Secondary Offering"), which resulted in a decrease in the Mutual Holding
Company's ownership interest from 62.4% to 52.5%.

     First Savings' deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC") under the Savings Association Insurance Fund ("SAIF"). The
Bank has been a member of the Federal Home Loan Bank System ("FHLB") System
since 1945. At September 30, 1997, the Bank had total assets of $1.0 billion,
total deposits of $809.4 million and stockholders' equity of $99.2 million. The
Mutual Holding Company's assets at September 30, 1997 consisted of $491,000 in
cash and certificates of deposit, a loan to the Bank's ESOP of $571,000, and a
51.6% interest in the Bank's outstanding common stock.

     The Bank is a community-oriented institution that offers traditional
deposit and loan products. It operates 17 full service offices in its market
area of Middlesex, Monmouth and Union Counties in New Jersey. Based on an
evaluation of its retail operations, the Bank has entered into an agreement to
sell its Eatontown branch with deposits totalling $28.2 million at September 30,
1997 for $1.2 million in cash. The

                                       4
Bank's principal business has been, and continues to be, attracting retail
deposits from the general public and investing those deposits, together with
funds generated from operations and borrowings, primarily in one- to four-family
residential mortgage loans, real estate construction loans, commercial real
estate loans, home equity loans and lines of credit. The Bank also invests in
U.S. Government and federal agency securities and other marketable securities.
The Bank's revenues are derived principally from interest on its mortgage loan
and mortgage-backed securities portfolios, and interest and dividends on its
investment securities. The Bank's total loan portfolio amounted to $573.0
million at September 30, 1997, which represented 54.3% of total assets. One- to
four-family residential mortgage loans accounted for 81.8% of total loans, while
home equity loans and lines of credit equalled 7.3% of total loans. In addition,
the Bank had investments in mortgage-backed securities, including those
available for sale, totalling $350.5 million, or 33.6% of total assets, at
September 30, 1997.

THE CONVERSION AND REORGANIZATION

     On October 24, 1997, the Boards of Directors of the Bank and the Mutual
Holding Company adopted the Plan, and in December 1997, the Company was
incorporated under Delaware law. Subsequent to its incorporation, the Company
became a first-tier wholly owned subsidiary of the Bank. Pursuant to the Plan,
(i) the Mutual Holding Company will convert to an interim federal stock savings
institution ("MHC Interim Savings Bank") and simultaneously merge with and into
the Bank, pursuant to which the Mutual Holding Company will cease to exist and
the 51.6% of the outstanding Bank Common Stock held by the Mutual Holding
Company will be canceled, and (ii) an interim savings association, First Interim
Savings Bank, FSB ("First Interim") to be formed as a wholly-owned subsidiary of
the Company solely for purposes of the Reorganization, will then merge with and
into the Bank. As a result of the merger of First Interim with and into the
Bank, the Bank will become a wholly-owned subsidiary of the Company and the
outstanding Public Bank Shares will be converted into the Exchange Shares
pursuant to the Exchange Ratio. This will result in the holders of such shares
owning in the aggregate approximately the same percentage of the Common Stock to
be outstanding upon completion of the Conversion and Reorganization (i.e., the
Conversion Stock) as the percentage of Bank Common Stock owned by them in the
aggregate immediately prior to consummation of the Conversion and
Reorganization, before giving effect to (a) the payment of cash in lieu of
issuing fractional Exchange Shares, or (b) any shares of Conversion Stock
purchased by the Bank's Stockholders or by the ESOP in the Offerings or
thereafter.

     In addition to shares of Common Stock to be issued pursuant to the
Exchange, the Company is offering shares of Conversion Stock in the Offerings as
part of the Conversion and Reorganization. See "-- The Offerings" below and "The
Conversion and Reorganization."

     Pursuant to OTS regulations, consummation of the Conversion and
Reorganization is conditioned upon the approval of the Plan by the OTS, as well
as (1) the approval of the holders of at least a majority of the total number of
votes eligible to be cast by the members of the Mutual Holding Company
("Members") as of the close of business on __________, 1998 (the "Voting Record
Date") at a special meeting of Members called for the purpose of submitting the
Plan for approval (the "Members' Meeting"), and (2) the approval of the holders
of at least two-thirds of the shares of the outstanding Bank Common Stock held
by the stockholders, as of the Voting Record Date at a special meeting of
stockholders called for the purpose of considering the Plan (the "Stockholders'
Meeting"). In addition, in accordance with current OTS policy, the Plan must be
approved by a majority of the votes cast in person or by proxy by the holders of
the Public Bank Shares at the Stockholders' Meeting. The Mutual Holding Company
intends to vote its shares of Bank Common Stock, which amounts to 51.6% of the
outstanding shares, in favor of the Plan at the Stockholders' Meeting. Officers
and directors of the Bank, who owned in the aggregate 9.3% of the Bank's Common
Stock as of November 30, 1997, also intend to vote in favor of the Plan.

                                       5
Under New Jersey law, Public Stockholders of the Bank will not have
dissenters' rights or appraisal rights in connection with the Conversion and
Reorganization. See "The Conversion and Reorganization -- Effects of the
Conversion and Reorganization -- Effect on Public Bank Shares."

PURPOSES OF THE CONVERSION AND REORGANIZATION

     The Boards of Directors of the Bank and the Mutual Holding Company believe
that the Conversion and Reorganization is in the best interests of their
respective stockholders and members. A principal purpose of the Conversion and
Reorganization is to structure the Mutual Holding Company and the Bank in a form
used by most other holding companies of savings institutions and commercial
banks and most other business entities. The Conversion and Reorganization will
also support future expansion of operations of the Bank, as well as possible
diversification into other banking-related businesses. Although there are no
current arrangements, understandings or agreements regarding such opportunities,
the Company will be in a position after the Conversion and Reorganization,
subject to regulatory limitations and the Company's financial position, to take
advantage of any additional opportunities for such expansion that may arise.

     In addition, the Mutual Holding Company and the Bank considered various
regulatory uncertainties associated with the mutual holding company structure,
including the ability to waive dividends from the Bank in the future, the tax
limitation on the Bank to repurchase its Common Stock as well as the general
uncertainty regarding a possible elimination of the thrift charter. See "Use of
Proceeds" and "Dividend Policy." The Offerings will also result in more shares
of stock outstanding, which should result in a more active and liquid market for
the Common Stock than currently exists for the Bank Common Stock, although there
can be no assurances that this will be the case. See "Market for the Common
Stock."

     In light of the foregoing, the Boards of Directors of the Bank and the
Mutual Holding Company believe that the Conversion and Reorganization is in the
best interests of such companies and their respective stockholders and Members.
See "The Conversion and Reorganization."

EFFECTS OF THE REORGANIZATION ON PUBLIC STOCKHOLDERS

     The following table sets forth the effects of the Conversion and
Reorganization on Public Stockholders, assuming that at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Price Range, as defined
herein, one Public Bank Share will be exchanged for 2.5436, 2.9925, 3.4414 and
3.9576 shares of Company Common Stock. See "Pro Forma Data."

                                       6
PRO FORMA AT OR FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
                                                                                 BASED UPON SALE AT $10.00 PER SHARE
                                                                 -----------------------------------------------------------------
                                                   HISTORICAL                                                       16,378,421
                                                   AT OR FOR       10,526,917        12,384,495     14,242,072         SHARES
                                                    THE NINE         SHARES            SHARES         SHARES         (15% ABOVE
                                                  MONTHS ENDED    (MINIMUM OF      (MIDPOINT OF     (MAXIMUM OF      MAXIMUM OF
                                                   SEPTEMBER       ESTIMATED         ESTIMATED       ESTIMATED        ESTIMATED
                                                    30, 1997      PRICE RANGE)     PRICE RANGE)     PRICE RANGE)     PRICE RANGE)
                                                  ------------   --------------   --------------   --------------   --------------
Stockholders' equity per share:

  Tangible stockholders' equity per share........     $11.26          $ 8.93           $ 8.26           $7.76           $ 7.35

  Tangible stockholders' equity of
     Exchange Shares(1)(2).......................       N/A            22.71            24.72           26.74            29.05

  Total stockholders' equity per share...........      12.39            9.37             8.64            8.09             7.63

  Total stockholders' equity of
     Exchange Shares (1).........................       N/A            23.83            25.86           27.84            30.20

Earnings:

  Earnings per share.............................       0.84            0.44             0.39            0.35             0.31

  Earnings on Exchange Shares(1).................       N/A             1.12             1.17            1.20             1.23

Dividends:

  Dividends per share, as adjusted
     (annualized) (3)............................       0.43            0.12             0.12            0.12             0.12

  Dividends on Exchange Shares (1)(4)............       N/A             0.31             0.36            0.41             0.47

Market value:

  Price per share(5).............................      32.27           10.00            10.00           10.00            10.00

  Price of Exchange Shares (1)...................       N/A            25.44            29.93           34.41            39.58
____________________
(1)  Based on 2.5436, 2.9925, 3.4414 and 3.9576 shares of Company Common Stock
     being exchanged for one Public Bank Share at the minimum, midpoint, 
     maximum and maximum, as adjusted, of the Estimated Price Range.
(2)  Represents a pro forma increase of 174.9%, 199.3%, 223.7% and 251.7% on an
     exchange basis at the minimum, midpoint, maximum, and maximum, as adjusted,
     of the Estimated Price Range.
(3)  Dividends have been adjusted to reflect a 10% stock dividend paid on
     October 30, 1997. Pro forma dividends reflect the Company's intention to
     pay a quarterly dividend of $.03 per share.
(4)  No assurance can be given that the dividend will not be reduced or
     eliminated in future periods. See "Dividend Policy."
(5)  The price of a Public Bank Share was $______ on __________, 1998, the most
     recent day on which trading of the Bank Common Stock occurred preceding the
     date on this Prospectus. Pro forma price per share is reflected as the
     $10.00 Purchase Price.

                                       7
THE VALUE OF THE EXCHANGE SHARES TO BE RECEIVED FOR EACH PUBLIC BANK SHARE
MAY BE LESS THAN THE MARKET PRICE OF THE PUBLIC BANK SHARES AT THE TIME OF THE
EXCHANGE, BASED ON THE FINAL EXCHANGE RATIO AND THE MARKET PRICE AT THE TIME OF
THE EXCHANGE. IN ADDITION, THE BOOK VALUE PER SHARE WILL DECLINE AFTER
CONSUMMATION OF THE CONVERSION AND REORGANIZATION DUE TO THE INCREASE IN THE
NUMBER OF SHARES OUTSTANDING. SEE "--STOCK PRICING AND NUMBER OF SHARES TO BE
ISSUED IN THE CONVERSION AND REORGANIZATION" AND "RISK FACTORS--ESTIMATED PRICE
RANGE BELOW MARKET PRICE."

THE OFFERINGS

     Pursuant to the Plan and in connection with the Conversion and
Reorganization, the Company is offering up to 14,242,072 shares of Conversion
Stock in the Offerings. Conversion Stock will be offered in the Subscription and
Community Offerings and, to the extent shares are available, in the Syndicated
Community Offering. Conversion Stock offered in the Subscription Offering will
be offered in the following order of priority: (1) holders of savings accounts
in the Bank totalling $50 or more on December 31, 1995 ("Eligible Account
Holders"); (2) the ESOP; (3) holders of savings accounts in the Bank totalling
$50 or more on December 31, 1997 ("Supplemental Eligible Account Holders"); and
(4) other members of the MHC, consisting of depositors of the Bank as of
______________, 1998, the Voting Record Date for the special meeting of members
to vote on the Conversion, and borrowers with loans outstanding as of July 10,
1992, which continue to be outstanding as of the Voting Record Date, other than
those members who otherwise qualify as Eligible Account Holders or Supplemental
Eligible Account Holders ("Other Members"). Subject to the prior rights of
holders of subscription rights, Conversion Stock not subscribed for in the
Subscription Offering is being concurrently offered in the Community Offering to
certain members of the general public, with a preference given to the Public
Stockholders. The Primary Parties reserve the absolute right to reject or accept
any orders in the Community Offering, in whole or in part, either at the time of
receipt of an order or as soon as practicable following the Expiration Date.

     All shares of Conversion Stock not purchased in the Subscription and
Community Offerings, if any, will be offered for sale to the general public in a
Syndicated Community Offering through a syndicate of registered broker-dealers
to be formed and managed by Sandler O'Neill acting as agent of the Company to
assist the Company and the Bank in the sale of the Conversion Stock. The Primary
Parties reserve the absolute right to reject orders, in whole or part, in their
sole discretion, in the Syndicated Community Offering.

PROSPECTUS DELIVERY AND PROCEDURE FOR PURCHASING SHARES

     To ensure that each purchaser receives a prospectus at least 48 hours prior
to the Expiration Date in accordance with Rule 15c2-8 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), no prospectus will be mailed any
later than five days prior to the Expiration Date or hand delivered any later
than two days prior to such date. Stock order forms will only be distributed
with a prospectus. The Bank is not obligated to accept for processing orders not
submitted on original stock order forms. Stock order forms unaccompanied by an
executed certification form will not be accepted. Payment by check, money order,
bank draft, cash or debit authorization to an existing account at the Bank must
accompany the stock order and certification forms. No wire transfers will be
accepted. The Bank is prohibited from lending funds to any person or entity for
the purpose of purchasing shares of Conversion Stock in the Conversion and
Reorganization. See "The Conversion and Reorganization --Procedure for
Purchasing Shares in Subscription and Community Offerings."

                                       8
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES

     Prior to the completion of the Conversion and Reorganization, no person may
transfer or enter into any agreement or understanding to transfer the legal or
beneficial ownership of the subscription rights issued under the Plan or the
shares of Common Stock to be issued upon their exercise. Following the
Conversion and Reorganization, there generally will be no restrictions on the
transfer or sale of shares by purchasers other than affiliates of the Company
and the Bank. See "Regulation --Federal Securities Laws" and "The Conversion and
Reorganization -- Certain Restrictions on Purchase or Transfer of Shares After
Conversion."

PURCHASE LIMITATIONS

     The minimum purchase in the Subscription and Community Offerings is 25
shares. With the exception of the ESOP, no Eligible Account Holder, Supplemental
Eligible Account Holder or Other Member, in their capacity as such, may
subscribe in the Subscription Offering for more than $250,000 of Conversion
Stock offered; no person, together with associates of or persons acting in
concert with such person, may purchase in the Community Offering and the
Syndicated Community Offering in the aggregate more than $250,000 of Conversion
Stock offered; and no person, together with associates of or persons acting in
concert with such person, may purchase in the Offerings the number of shares of
Conversion Stock that, when combined with any Exchange Shares received by such
person, aggregates to more than the overall maximum purchase limitation of 4.0%
of the total number of shares of Conversion Stock offered in the Conversion and
Reorganization, exclusive of any shares issued pursuant to an increase in the
Estimated Price Range of up to 15%. See "Risk Factors - Effect of Purchase
Limitations on Ability of Public Stockholders to Purchase Conversion Shares." At
any time during the Conversion and Reorganization and without further approval
by the Mutual Holding Company's Members or the Bank's Public Stockholders, the
Primary Parties may in their sole discretion decrease the maximum purchase
limitation to 1% of the number of shares of Conversion Stock to be issued in the
Subscription and Community Offerings, when aggregated with any Exchange Shares,
and/or may decrease the amount that may be subscribed for in the Subscription
and Community Offerings. Additionally, at any time during the Conversion and
Reorganization and without further approval by the Mutual Holding Company's
Members or the Bank's Public Stockholders, the Primary Parties may in their sole
discretion increase the overall maximum purchase limitation and/or increase the
amount that may be subscribed for in the Subscription and Community Offerings,
up to 5% of the Conversion Stock to be offered in the Conversion and
Reorganization. Prior to consummation of the Conversion and Reorganization, if
the maximum purchase limitation is increased, subscribers for the maximum amount
will be, and certain other large subscribers in the sole discretion of the
Primary Parties may be, given the opportunity to increase their subscriptions up
to the then applicable limit. IN ANY EVENT, PURSUANT TO OTS POLICY, ANY EXCHANGE
SHARES RECEIVED BY AN INDIVIDUAL WILL BE AGGREGATED WITH SHARES SUBSCRIBED FOR
BY SUCH PERSON FOR PURPOSES OF APPLYING THE MAXIMUM PURCHASE LIMITATION. In the
event of an increase in the Estimated Price Range, the additional shares will be
distributed and allocated to fill unfilled orders in the Subscription and
Community Offerings, with priority given to the ESOP, without any resolicitation
of subscribers, as described in "The Conversion and Reorganization --
Subscription Offering and Subscription Rights," "-- Community Offering" and "--
Limitations on Conversion Stock Purchases." PURSUANT TO OTS POLICY, BECAUSE THE
OVERALL MAXIMUM PURCHASE LIMITATION CONTAINED IN THE PLAN OF CONVERSION INCLUDES
EXCHANGE SHARES TO BE ISSUED TO PUBLIC STOCKHOLDERS FOR THEIR PUBLIC BANK
SHARES, CERTAIN HOLDERS OF PUBLIC BANK SHARES MAY BE LIMITED IN THEIR ABILITY TO
SUBSCRIBE FOR CONVERSION STOCK IN THE OFFERINGS. See "Risk Factors - Effect of
Purchase Limitations on Ability of Public Stockholders to Purchase Conversion
Shares."

                                       9
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED IN THE CONVERSION AND
REORGANIZATION

     Federal regulations require that the aggregate purchase price of the
Conversion Stock to be offered in the Conversion and Reorganization be
consistent with an independent appraisal of the estimated pro forma market value
of the Bank and the Mutual Holding Company. FinPro, an independent appraiser,
has advised the Primary Parties that in its opinion, dated December 18, 1997,
the estimated aggregate pro forma market value of the Common Stock of the
Company was $240.0 million (the "Appraisal"). Because the holders of the Public
Bank Shares will continue to hold approximately the same aggregate percentage
ownership interest in the Company as they held in the Bank (before giving effect
to any shares of Conversion Stock purchased by the Bank's stockholders in the
Offerings or by the ESOP in the Offerings or thereafter or the payment of cash
in lieu of issuing fractional Exchange Shares), the Appraisal was multiplied by
the Mutual Holding Company's percentage interest in the Bank, which corresponds
with the amount of Conversion Stock to be sold in the Offerings (i.e., 51.6% as
of October 31, 1997), to determine the midpoint of the price range, which was
$123.8 million. In accordance with OTS regulations, the minimum and maximum of
the offering range were set at 15% below and above the midpoint, respectively,
resulting in an offering range of $105.3 million to $142.4 million (the
"Estimated Price Range"). The full text of the appraisal report of FinPro
describes the procedures followed, the assumptions made, limitations on the
review undertaken and matters considered, which included the trading market for
the Bank Common Stock (see "Market for the Common Stock") but was not solely
dependent thereon. (Based on the $39.25 and $____ closing prices of the Bank
Common Stock on October 23, 1997, the day preceding the Bank's announcement of
the Conversion and the Reorganization and _________, 1998, respectively, the
estimated market value of all outstanding shares of Bank Common Stock (including
shares held by the Mutual Holding Company) was $314.6 million and $_____
million, respectively.) For further information, see "The Conversion and
Reorganization -- Stock Pricing and Exchange Ratio." THE APPRAISAL OF THE COMMON
STOCK IS NOT INTENDED AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION OF ANY
KIND AS TO THE ADVISABILITY OF PURCHASING SUCH STOCK NOR CAN ANY ASSURANCE BE
GIVEN THAT PURCHASERS OF THE COMMON STOCK IN THE CONVERSION AND REORGANIZATION
WILL BE ABLE TO SELL SUCH SHARES AFTER THE COMPLETION OF THE CONVERSION AND
REORGANIZATION AT OR ABOVE THE PURCHASE PRICE.

     All shares of Conversion Stock issued in the Conversion and Reorganization
will be sold at the Purchase Price of $10.00 per share, as determined by the
Primary Parties. The actual number of shares to be issued in the Offerings will
be determined by the Primary Parties based upon the final updated estimate of
the aggregate pro forma market value of the Common Stock of the Company, giving
effect to the Conversion and Reorganization, at the completion of the Offerings.
The maximum of the Estimated Price Range may be increased by up to 15% and the
number of shares of Conversion Stock to be issued in the Conversion and
Reorganization may be increased to 16,378,421 shares due to regulatory
considerations or changes in market or general financial and economic
conditions. No resolicitation of subscribers will be made and subscribers will
not be permitted to modify or cancel their subscriptions unless the gross
proceeds from the sale of the Conversion Stock are less than the minimum or more
than 15% above the maximum of the current Estimated Price Range. Any increase or
decrease in the number of shares of Conversion Stock will result in a
corresponding change in the number of Exchange Shares, so that upon consummation
of the Conversion and Reorganization, the Conversion Stock and the Exchange
Shares will represent approximately 51.6% and 48.4%, respectively, of the
Company's total outstanding shares. Furthermore, Exchange Shares may represent
less than 48.4% of the Company's total outstanding shares if there are
insufficient shares for the ESOP to purchase 8.0% of the Conversion Stock and,
consequently, the Company issues authorized but unissued shares to the ESOP in
order to satisfy its order to purchase such amount of Conversion Stock in the
Offerings. See "Risk Factors -- Possible Increase in Estimated Price Range and
Number of Shares Issued," "Pro Forma Data," and "The Conversion and
Reorganization -- Stock Pricing and Exchange Ratio" and "-- Number of Shares to
be Issued."

                                       10
Based on the 3,881,539 Public Bank Shares outstanding at October 31, 1997,
and assuming a minimum of 10,526,917 and a maximum of 14,242,072 shares of
Conversion Stock are issued in the Offerings, the Exchange Ratio is expected to
range from approximately 2.5436 Exchange Shares to 3.4414 Exchange Shares for
each Public Bank Share outstanding immediately prior to the consummation of the
Conversion and Reorganization. The Exchange Ratio will be affected if any stock
options to purchase shares of Bank Common Stock are exercised after October 31,
1997 and prior to consummation of the Conversion and Reorganization. If any of
such stock options are outstanding immediately prior to consummation of the
Conversion and Reorganization, they will be converted into options to purchase
shares of Common Stock, with the number of shares subject to the option and the
exercise price per share to be adjusted based upon the Exchange Ratio so that
the aggregate exercise price remains unchanged, and with the duration of the
option remaining unchanged. At October 31, 1997, there were options exercisable
to purchase 77,201 shares of Bank Common Stock outstanding, which have a
weighted average exercise price of $4.32 per share. Another 65,340 options had
been awarded, but were not exercisable at October 31, 1997. The weighted average
exercise price of these options was $14.35. The Bank has no plans to grant
additional stock options prior to the consummation of the Conversion and
Reorganization.

     The following table sets forth, based upon the minimum, midpoint, maximum
and 15% above the maximum of the Estimated Price Range: (i) the total number of
shares of Conversion Stock and Exchange Shares to be issued in the Conversion
and Reorganization, (ii) the percentage of the total Common Stock represented by
the Conversion Stock and the Exchange Shares, and (iii) the Exchange Ratio. The
table does not give effect to cash paid in lieu of issuing fractional Exchange
Shares.
TOTAL SHARES
                                                                                              OF COMMON
                                  CONVERSION STOCK                EXCHANGE SHARES            STOCK TO BE             EXCHANGE 
                                  TO BE OFFERED(1)              TO BE ISSUED(1)(2)          OUTSTANDING(1)            RATIO(1)
                              -------------------------     -------------------------     ------------------     -----------------
                                AMOUNT        PERCENT         AMOUNT        PERCENT
Minimum ..................    10,526,917         51.6%       9,873,083         48.4%         20,400,000                2.5436
Midpoint .................    12,384,495         51.6       11,615,505         48.4          24,000,000                2.9925
Maximum ..................    14,242,072         51.6       13,357,928         48.4          27,600,000                3.4414
15% above maximum ........    16,378,421         51.6       15,361,579         48.4          31,740,000                3.9576
___________________
(1)  Assumes that outstanding options to purchase 142,541 shares of Bank Common
     Stock at October 31, 1997 are not exercised prior to consummation of the
     Conversion and Reorganization.
(2)  Based upon 3,881,539 Public Bank Shares outstanding as of October 31, 1997.
     Does not reflect unexercised options.

     The final Exchange Ratio will be determined based upon the number of shares
issued in the Offerings in order to maintain the Public Stockholders'
approximately 48.4% ownership interest in the Bank at October 31, 1997. The
final Exchange Ratio will not be based upon the market value of the Public Bank
Shares. At the minimum, midpoint and maximum of the Estimated Price Range, one
Public Bank Share will be exchanged for 2.5436, 2.9925, 3.4414, and 3.9576
shares of Common Stock, respectively (which have a calculated equivalent value
of $25.44, $29.93, $34.41, and $39.58 based on the $10.00 Purchase Price of a
share of Common Stock in the Offerings and the aforementioned Exchange Ratios).
THE VALUE OF THE EXCHANGE SHARES TO BE RECEIVED FOR EACH PUBLIC BANK SHARE MAY
BE LESS THAN THE MARKET PRICE OF THE PUBLIC BANK SHARES AT THE TIME OF THE
EXCHANGE, BASED ON THE FINAL EXCHANGE RATIO AND THE MARKET PRICE AT THE TIME OF
THE EXCHANGE. Further, there can be no assurance as to the actual market value
of a share of Common Stock after the Conversion and Reorganization or that such
shares could be sold at or above the $10.00 Purchase Price. Public Stockholders
will be paid cash in lieu of issuing fractional Exchange Shares.

                                       11
USE OF PROCEEDS

     Net proceeds from the sale of the Conversion Stock are estimated to be
between $103.6 million and $140.3 million (or $161.5 million if the Estimated
Price Range is increased by 15%) depending on the number of shares sold and the
expenses of the Conversion and Reorganization. See "Pro Forma Data." The Company
plans to contribute to the Bank 50% of the net proceeds from the Offerings, and
to retain the remaining net proceeds. Net proceeds to be retained by the Company
after the contribution to the Bank are estimated to be between $51.8 million and
$70.2 million (or $80.8 million if the Estimated Price Range is increased by
15%). The Company will be unable to utilize any of the net proceeds until the
close of the Offerings.

     Funds retained by the Company will be used for general business activities,
including a loan to the ESOP to purchase Conversion Stock in the Offerings (to
the extent such loan is not funded by a third party), the refinancing of an
existing loan to the ESOP and, subject to applicable limitations, the possible
payment of dividends and repurchases of Common Stock. Assuming the acquisition
by the ESOP of 8% of the aggregate of the number of shares of Conversion Stock
to be issued in the Conversion and Reorganization, the amount of the loan to the
ESOP is estimated to be between $8.4 million and $11.4 million (or $13.1 million
if the Estimated Price Range is increased by 15%) to be repaid over a 15-year
period at the prevailing market rate of interest. See "Management of the Bank --
Benefits -- Employee Stock Ownership Plan and Trust." Funds received by the Bank
from the Company's purchase of its capital stock will be used for general
business purposes. The Company and the Bank may also use such funds to expand
operations through the acquisition or establishment of branch offices and the
acquisition of smaller financial institutions or assets of other financial
institutions. Neither the Bank nor the Company has any pending agreements or
understandings regarding acquisitions of any specific financial institutions,
branch offices or assets of other financial institutions. See "Use of Proceeds"
and "Business of the Bank." To the extent that the stock-based benefit programs
which the Company or Bank intend to adopt subsequent to the Conversion and
Reorganization are not funded with authorized but unissued common stock of the
Company, the Company or Bank may use net proceeds from the Conversion and
Reorganization to fund the purchase of stock in the open market to be awarded
under such stock benefit programs. See "Management of the Bank -- Benefits --
Stock-Based Incentive Plan."

DIVIDENDS

     The Bank has paid cash dividends on each Minority Share for each quarter
since reorganizing in July 1992. The Bank intends to continue to pay regular
quarterly dividends through either the date of consummation of the Conversion
and Reorganization (on a pro rata basis) or the end of the fiscal quarter during
which the consummation of the Conversion and Reorganization occurs.

     Commencing with the first full quarter following consummation of the
Conversion and Reorganization, the Board of Directors of the Company intends to
pay cash dividends on the Common Stock at an initial quarterly rate of $.03 per
share, regardless of the total number of shares of Common Stock outstanding.
Declarations of dividends by the Company's Board of Directors will depend upon a
number of factors, however, including the amount of the net proceeds from the
Offerings retained by the Company, investment opportunities available to the
Company or the Bank, capital requirements, regulatory limitations, the Company's
and the Bank's financial condition and results of operations, tax considerations
and general economic conditions. Consequently, there can be no assurance that
dividends will in fact be paid on the Common Stock or that, if paid, such
dividends will not be reduced or eliminated in future periods. See "Dividend
Policy" and "Market for the Common Stock."

                                       12
BENEFITS OF THE CONVERSION AND REORGANIZATION TO MANAGEMENT

     Among the benefits to the Company and the Bank anticipated from the
Conversion and Reorganization is the ability to attract and retain personnel
through the prudent use of stock options and other stock related benefit
programs. Subsequent to the Conversion and Reorganization, the Company intends
to adopt one or more stock-based benefit plans to provide stock options,
restricted stock awards and certain related rights to directors, officers and
employees (hereinafter individually or collectively referred to as the "Stock-
Based Incentive Plan"). If such Stock-Based Incentive Plan is adopted within one
year after the Conversion and Reorganization, under current OTS regulations the
plan will be subject to stockholders' approval at a meeting of stockholders
which may not be held earlier than six months after the Conversion and
Reorganization. The Company intends to adopt a plan which would provide for the
granting of Common Stock to officers, directors and employees of the Bank and
Company in an amount equal to 4% of the Conversion Stock issued in the
Conversion and Reorganization. The Company also intends to adopt a plan to
provide the Company with the ability to grant options to officers, directors and
employees of the Bank and Company to purchase Common Stock equal to 10% of the
number of shares of Conversion Stock sold in the Conversion and Reorganization.
For a further description of the Stock-Based Incentive Plan, see "Risk Factors -
Stock Based Benefits to Management and Directors" and "Management of the Bank -
Benefits -- Stock-Based Incentive Plan." See "Beneficial Ownership of Capital
Stock - Subscriptions of Executive Officers and Directors," and "Restrictions on
Acquisition of the Company and the Bank - Restrictions in the Company's
Certificate of Incorporation and Bylaws."

RISK FACTORS

     See "Risk Factors" for a discussion of certain factors that should be
considered by prospective investors.

                                       13
SELECTED FINANCIAL AND OTHER DATA

     The selected data presented below under the captions "Selected Consolidated
Financial Data" and "Selected Operating Data" for, and as of the end of each of
the years in the five-year period ended December 31, 1996, are derived from the
consolidated financial statements of First Savings Bank, SLA, and subsidiaries,
which financial statements have been audited by KPMG Peat Marwick LLP,
independent certified accountants. The selected data presented below for the
nine month periods ended September 30, 1997 and 1996, are derived from the
unaudited consolidated financial statements of First Savings Bank, SLA, and
subsidiaries included elsewhere in this prospectus.
AT SEPTEMBER 30,                            AT DECEMBER 31,
                                          ------------------------   --------------------------------------------------------------
                                            1997(1)      1996(1)        1996         1995         1994         1993         1992
                                          -----------  -----------   ----------   ----------   ----------   ----------   ----------
                                                                               (IN THOUSANDS)
SELECTED CONSOLIDATED FINANCIAL DATA:
 Total assets............................  $1,044,513    $ 974,771    $ 987,115     $945,012     $798,350     $783,846     $759,495
 Loan receivable, net....................     567,197      498,472      509,627      457,756      415,902      415,010      413,748
 Loans available for sale................          --          149          287          424          148        1,595        2,287
 Investment securities...................      40,959       39,968       38,955       39,003       23,997       19,019       43,039
 Investment securities available
  for sale...............................      18,024       21,690       14,831        2,058       13,206       41,064        8,960
 Other interest-earning assets(2)........      25,970        7,428        9,278       24,151       10,066        9,967        9,475
 Mortgage-backed securities, net.........     228,158      270,855      252,383      288,143      283,263      244,187      255,931
 Mortgage-backed securities available
   for sale..............................     122,371       93,402      120,797       89,339       24,367       28,314        3,528
 Deposits................................     809,449      800,441      794,595      806,338      681,613      678,961      673,031
 Borrowed funds..........................     124,465       70,108       88,640       39,496       34,300       26,400       20,600
 Stockholders' equity....................      99,213       90,226       92,863       89,713       74,064       68,809       58,551
FOR THE NINE MONTHS
                                                  ENDED
                                               SEPTEMBER 30,                      FOR THE YEARS ENDED DECEMBER 31,
                                          ------------------------   --------------------------------------------------------------
                                            1997(1)      1996(1)        1996         1995         1994         1993         1992
                                          -----------  -----------   ----------   ----------   ----------   ----------   ----------
                                                                         (IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED OPERATING DATA:
 Interest income.........................  $   54,636    $  50,499    $  68,039     $ 64,573     $ 52,909     $ 54,665     $ 62,142
 Interest expense........................      30,591       27,644       37,264       35,691       25,135       26,448       33,810
                                           ----------    ---------    ---------     --------     --------     --------     --------
   Net interest income before
    provision for loan losses............      24,045       22,855       30,775       28,882       27,774       28,217       28,332
 Provision for loan losses...............         900          375          550          310          300        1,200        2,400
                                           ----------    ---------    ---------     --------     --------     --------     --------
   Net interest income after
    provision for loan losses............      23,145       22,480       30,225       28,572       27,474       27,017       25,932

 Other operating income..................       2,186        1,382        1,995        2,171        1,734        2,791        2,786
 Operating expenses......................      14,581       20,122(3)    24,701(3)    17,830       16,021       15,551       15,194
                                           ----------    ---------    ---------     --------     --------     --------     --------
 Income before income taxes, and
   cumulative effect of accounting
    changes..............................      10,750        3,740        7,519       12,913       13,187       14,257       13,524
 Income taxes............................       3,990        1,376        2,809        4,611        4,912        5,352        5,495
                                           ----------    ---------    ---------     --------     --------     --------     --------
      Income before cumulative
       effect of accounting changes......       6,760        2,364        4,710        8,302        8,275        8,905        8,029
 Cumulative effect of accounting
   changes(4)............................          --           --           --           --           --          398           --
                                           ----------    ---------    ---------     --------     --------     --------     --------
       Net income........................  $    6,760    $   2,364    $   4,710     $  8,302     $  8,275     $  9,303     $  8,029
                                           ==========    =========    =========     ========     ========     ========     ========
 Net income per share before cumulative
   effect of accounting changes(5).......       $0.84        $0.29        $0.59        $1.04        $1.03        $1.16        N/A
 Cumulative effect of accounting
   changes(4)(5).........................          --           --           --           --           --         0.05        N/A
                                           ----------    ---------    ---------     --------     --------     --------     --------
 Net income per share after cumulative
   effect of accounting changes(5).......       $0.84        $0.29        $0.59        $1.04        $1.03        $1.21        N/A
                                           ==========    =========    =========     ========     ========     ========     ========
 Dividends per share, as adjusted(5)(6)..       $0.31        $0.25        $0.33        $0.30        $0.27        $0.27        N/A
                                           ==========    =========    =========     ========     ========     ========     ========
(footnotes on following pages)

                                       14
AT OR FOR THE NINE
                                                 MONTHS ENDED
                                                 SEPTEMBER 30,                    AT OR FOR THE YEARS ENDED DECEMBER 31,
                                           ------------------------   --------------------------------------------------------------
                                             1997(1)      1996(1)        1996         1995         1994         1993         1992
                                           -----------  -----------   ----------   ----------   ----------   ----------   ----------
SELECTED FINANCIAL RATIOS AND OTHER DATA(5):
  Return on average assets(4)..............   0.87%        0.33%         0.49%         0.91%        1.04%       1.20%        1.04%
  Return on average stockholder's
    equity(4)..............................   9.37         3.46          5.12         10.14        11.63       14.70        15.84
  Average stockholder's equity to
    average assets.........................   9.31         9.44          9.52          8.95         8.92        8.19         6.58
  Stockholders' equity to total assets.....   9.50         9.26          9.41          9.49         9.28        8.78         7.71
  Interest rate spread.....................   2.83         2.86          2.88          2.77         3.26        3.40         3.46
  Net interest margin (7)..................   3.25         3.29          3.30          3.22         3.58        3.74         3.78
  Operating expenses to average
    assets(8)..............................   1.63         2.62(3)       2.42(3)       1.83         1.98        1.99         1.92
  Net interest income before provision
  for loan losses to operating
    expenses (8)...........................   1.90x        1.20x(3)      1.32x(3)      1.72x        1.76x       1.84x        1.91x
  Non-performing loans to total loans
    receivable, net........................   0.69         0.93          0.94          1.32         2.17        2.77         3.81
  Non-performing assets to total assets....   0.51         0.67          0.64          0.97         1.34        1.73         2.25
  Allowance for loan losses to non-
    performing loans....................... 151.83       110.27        110.58         86.90        63.52       51.09        36.32
  Allowance for loan losses to non-
    performing assets...................... 112.06        77.90         84.08         57.23        53.81       43.42        33.60
  Allowance for loan losses to total
    loans receivable, net..................   1.05         1.02          1.04          1.15         1.38        1.42         1.38
  Dividend payout ratio(6).................  17.59        39.26         26.29         12.09         9.51        7.36           --
  Average interest-earning assets to
    average interest-bearing
    liabilities............................   1.10x        1.11x         1.11x         1.11x        1.10x       1.10x         1.07x
Full service offices.......................     17(9)        16            16            17           15          15            15
(footnotes on following page)

                                       15
___________________
(1)  The data presented at September 30, 1997 and for the nine months ended
     September 30, 1997 and 1996 were derived from unaudited financial
     statements and reflect, in the opinion of management, all adjustments
     (consisting only of normal recurring adjustments) which are necessary to
     present fairly the results for such interim periods. Interim results for
     the nine months ended September 30, 1997 are not necessarily indicative of
     the results that may be expected for the year ending December 31, 1997. All
     selected financial ratios and other data relating to operating results for
     the nine month periods ended September 30, 1997 and September 30, 1996 are
     presented on an annualized basis.
(2)  Includes federal funds sold and investment in the stock of the FHLB-NY.
(3)  Includes the Savings Association Insurance Fund ("SAIF") special assessment
     of $5.2 million for the nine months ended September 30, 1996 and for the
     year ended December 31, 1996.
(4)  Reflects the implementation of Statement of Financial Accounting Standards
     ("SFAS") No. 106 -- Accounting for Postretirement Benefits and SFAS No. 
     109 -- Accounting for Income Taxes.
(5)  Per share data reflects 10% stock dividends paid July 1, 1993, April 1,
     1994, December 16, 1996 and October 30, 1997, as well as a 2-for-1 stock
     split on December 1, 1994, adjusted retroactively.
(6)  Excludes shares owned by the MHC, for which cash dividends were waived with
     regulatory approval, after giving effect to prior stock dividends and the
     two-for-one stock split.
(7)  Calculation is based upon the net interest income before provision for loan
     losses divided by interest earning assets.
(8)  For purposes of calculating these ratios, operating expenses equal total
     operating expenses less amortization of intangibles.
(9)  The Bank has signed an agreement to sell the branch deposits of its
     Eatontown location, which totalled $28.2 million at September 30, 1997, for
     cash of $1.2 million. The closing date is scheduled for February 1998.

                                       16
RISK FACTORS

     The following risk factors, in addition to those discussed elsewhere in
this Prospectus, should be considered by investors in deciding whether to
purchase the Common Stock offered hereby.

COMPETITION

     The Bank faces significant competition both in originating loans and in
attracting deposits. The State of New Jersey has a high density of financial
institutions, many of which are branches of significantly larger institutions
which have greater financial resources than the Bank and all of which are
competitors of the Bank to varying degrees. The Bank's competition for loans
comes principally from commercial banks, savings banks, savings and loan
associations, credit unions, mortgage banking companies and insurance companies.
Its most direct competition for deposits has historically come from commercial
banks, savings banks, savings and loans associations and credit unions. The Bank
faces additional competition for deposits from short-term money market funds,
other corporate and government securities funds and from other financial
institutions such as brokerage firms, mutual funds, and insurance companies. See
"Business of the Bank."

     Competitive mortgage lending and deposit opportunities in the Bank's
primary market area may exist for the foreseeable future, preventing the Bank
from achieving significant growth within its primary market area. In an effort
to address diminished mortgage loan demand and increased competition for
deposits, the Bank may seek to expand its market area and the loan and deposit
products it offers. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Business Strategy," "Business of the 
Bank - Lending Activities" and "- Sources of Funds."

POTENTIAL IMPACT OF CHANGES IN INTEREST RATES

     The Bank's profitability, like that of most financial institutions, is
dependent to a large extent upon its net interest income, which is the
difference between its interest income on interest-earning assets, such as loans
and investments, and its interest expense on interest-bearing liabilities, such
as deposits and borrowed funds. Accordingly, the Bank's results of operations
and financial condition are affected by on movements in market interest rates
and its ability to manage its assets and liabilities in response to such
movements. At September 30, 1997, total interest-bearing liabilities maturing or
repricing within one year exceeded total interest-earning assets maturing or
repricing in the same time period by $136.9 million based upon national interest
rate sensitivity assumptions and the Bank's historical experience. This
represents a cumulative one year gap as a percentage of total assets of negative
13.09%. As a result of its negative gap position, the yield on interest-earning
assets of the Bank will adjust to changes in interest rates at a slower rate
than the cost of the Bank's interest-bearing liabilities. Consequently, the
Bank's net interest income may be adversely affected during periods of rapidly
rising interest rates.

     The Bank's interest rate sensitivity is also monitored by management
through the use of an OTS Net Portfolio Value Model which generates estimates of
the change in the Bank's net portfolio value ("NPV") over a range of interest
rate scenarios. NPV is the present value of expected cash flows from assets,
liabilities, and off-balance sheet contracts. The NPV ratio, under any interest
rate scenario, is defined as the NPV in that scenario divided by the market
value of assets in the same scenario. As of September 30, 1997, the Bank's NPV
was $127.4 million, or 11.92% of the market value of assets. A 200 basis point
increase in interest rates would result in a decrease in the Bank's NPV to
$104.7 million, representing an 18.0% reduction in the value of the Bank's
discounted cash flows. Conversely, a 200 basis point decrease in interest rates
would result in an increase in the Bank's NPV to $132.7 million, representing
only a 4.0% increase in

                                       17
the value of the Bank's discounted cash flows. Consequently, an increase in
interest rates will have a significantly greater impact on the Bank's NPV than a
corresponding decrease in interest rates.

     Increases in market interest rates also can affect the type (fixed-rate or
adjustable-rate) and amount of loans originated by the Bank and the average life
of loans and securities, which can adversely impact the yields earned on the
Bank's loan and securities portfolio. In addition, increases in interest rates
could result in interest rates on the Bank's adjustable-rate loans increasing,
thereby resulting in increased loan payment amounts by the borrowers which, in
turn, may result in higher delinquencies on such loans. In periods of decreasing
interest rates, the average life of loans held by the Bank may be shortened to
the extent increased prepayment activity occurs during such periods which, in
turn, may result in the Bank investing funds from such prepayments in lower
yielding assets. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Management of Interest Rate Risk."

DEPENDENCE UPON LOCAL ECONOMY

     The Bank's market area is concentrated in north and central New Jersey and
therefore, its results of operations are largely dependent on the economy of the
New Jersey area. In the late 1980s and early 1990s, due in part to the effects
of a prolonged decline in the national and regional economy, layoffs in the
financial services industry and corporate relocations, New Jersey experienced
reduced levels of employment. These events, in conjunction with a surplus of
available commercial and residential properties, resulted in an overall decline
during this period in the underlying values of properties located in New Jersey.

     New Jersey's real estate market has stabilized in recent periods. The
population of Middlesex County is growing, but at a declining rate, and new
housing starts in the Bank's primary market area are still lower than those in
the state of New Jersey generally. For the nine months ended September 30, 1997
and the years ended December 31, 1996 and 1995, the Bank originated $76.2
million, $100.0 million and $75.5 million of one- to four-family residential
loans, respectively. Repayments on total mortgage loans were $48.1 million,
$77.1 million and $52.2 million, respectively, for the same periods. While the
Bank's total loan portfolio has grown in the 1990s in dollar amount, from $416.0
million at December 31, 1992, to $567.2 million at September 30, 1997, it has
decreased as a percentage of total assets over the same period. Total loans as a
percentage of assets were 54.8% at December 31, 1992, compared to 54.3% at
September 30, 1997. Although the current national and local economic conditions
have significantly improved since the early 1990s, there can be no assurances
that conditions in the local economy, national economy, or real estate market in
general will not deteriorate and adversely affect the financial condition and
results of operations of the Bank.

ESTIMATED PRICE RANGE BELOW MARKET PRICE

     The aggregate purchase price of the Conversion Stock to be offered and the
amount of Exchange Shares to be issued in connection with the Conversion and
Reorganization have been determined on the basis of FinPro's independent
appraisal of the estimated pro forma market value of the Bank and the Mutual
Holding Company. The appraised amount was multiplied by the Mutual Holding
Company's percentage interest in the Bank to determine the aggregate amount of
Conversion Stock to be sold in the Offerings, and by the Public Stockholders'
percentage interest to determine the aggregate number of Exchange Shares to be
issued based upon the Purchase Price of $10.00 per share. The final Exchange
Ratio will be based upon the number of shares issued in the Offerings in order
to maintain the Public Stockholders' approximately 48.4% ownership interest in
the Bank. THE FINAL EXCHANGE RATIO WILL NOT BE BASED UPON THE TRADING PRICE OF
THE PUBLIC BANK SHARES. At the minimum, midpoint, maximum and maximum, as
adjusted, of the Estimated Price Range, one Public Bank Share will be exchanged
for 2.5436, 2.9925, 3.4414 and 3.9576 shares of Common Stock, respectively.
Based upon the $10.00 Purchase Price of a share of Common Stock

                                       18
in the Offerings and the Exchange Ratio, the Exchange Shares to be received for
one share of Bank Common Stock have a calculated equivalent value of $25.44,
$29.93, $34.41 and $39.58 at the minimum, midpoint, maximum and maximum, as
adjusted, of the Estimated Price Range, which may be less than the market value
of one share of Bank Common Stock at the time of the Exchange. The closing price
per share of the Bank Common Stock as of ___________, 1998, was $_____. There
can be no assurance as to the actual market price of a share of Bank Common
Stock at the time of the Exchange. Further, there can be no assurance as to the
actual market value of a share of Common Stock of the Company after the
Conversion and Reorganization, or that such shares could be sold at or above the
$10.00 Purchase Price. See "Summary - Effects of the Reorganization on Public
Stockholders," and "The Conversion and Reorganization - Stock Pricing and Number
of Shares to be Issued in the Conversion and Reorganization."

EFFECT OF PURCHASE LIMITATIONS ON ABILITY OF PUBLIC STOCKHOLDERS TO PURCHASE
CONVERSION SHARES

     The OTS has required that the overall maximum purchase limitation contained
in the Plan of Conversion include Exchange Shares to be issued to Public
Stockholders for their Public Bank Shares. As a result, a Public Stockholder who
receives Exchange Shares in an amount equal to or exceeding 4.0% of the
Conversion Stock offered will not be able to subscribe for shares of Conversion
Stock in the Offerings. For example, a Public Stockholder who qualifies as an
Eligible Account Holder and receives 569,682 Exchange Shares at the maximum of
the Estimated Price Range, will not be able to participate as a first priority
purchaser in the Subscription Offering. See "The Conversion and Reorganization
-- Limitations on Conversion Stock Purchases."

STOCK-BASED BENEFITS TO MANAGEMENT AND DIRECTORS

     The Company intends to seek stockholder approval of a Stock-Based Incentive
Plan which it intends to adopt for the benefit of non-employee directors,
officers and employees of the Company and the Bank at a meeting of stockholders
following the Conversion and Reorganization, which under current OTS regulations
may be held no earlier than six months after completion of the Conversion and
Reorganization. Assuming the receipt of stockholder approval, the Company
expects to acquire or issue an amount equal to 4% of the Conversion Stock sold
in the Conversion, or 421,076 shares and 569,682 shares at the minimum and
maximum of the Estimated Price Range, respectively. These shares will be
acquired either through open market purchases or from authorized but unissued
Common Stock. The Company also intends to acquire or issue an amount equal to
10% of the Conversion Stock issued, or 1,052,691 shares and 1,424,207 shares at
the minimum and maximum of the Estimated Price Range, respectively, for stock
options. The exercise price will be equal to the fair market value of the
underlying Common Stock on the date of grant. Although no specific award
determinations have been made, the Company anticipates that it will provide
awards and options to its directors and employees to the extent permitted by
applicable regulations. Current OTS regulations provide that no individual may
receive more than 25% of the shares of any plan and non-employee directors may
not receive more than 5% individually, or 30% in the aggregate, of the shares or
options awarded under any plan. Stock awards will be granted at no cost to the
recipients. Officers and directors receiving options will not be required to pay
for the shares until the date of exercise. See "Management of the Bank - New
Benefits Resulting from the Conversion and Reorganization."

     The foregoing plans are in addition to the First Savings Bank, SLA 1992
Incentive Stock Option Plan and the 1992 Stock Option Plan for Outside
Directors, (collectively, the "1992 Stock Option Plans") which were adopted by
the Bank in connection with the 1992 MHC Reorganization, and to the First
Savings Bank, SLA 1996 Omnibus Incentive Plan ("1996 Incentive Plan") which was
implemented following the Bank's 1995 Secondary Offering, each of which were
subsequently approved by the stockholders of the Bank. These plans will continue
in existence after the Conversion and Reorganization as plans of the Company.
See "Management of the Bank - Benefits" and "The Conversion and Reorganization -
Effect on Existing

                                       19
Compensation Plans." In addition, the Bank's existing ESOP, which was adopted in
connection with the 1992 MHC Reorganization, intends to purchase 8.0% of the
Conversion Stock to be issued in the Offerings (1,139,365 shares or $11.4
million of Conversion Stock at the maximum of the Estimated Price Range) with a
loan funded by the Company, if such loan is not made by a third party. See "Use
of Proceeds" and "Management of the Bank - Benefits - Employee Stock Ownership
Plan."

     Expenses Associated With Stock Benefit Plans. The purchase by the Bank's
ESOP of 8.0% of the Conversion Stock issued and the purchase by the Stock-Based
Incentive Plan of 4% of the Conversion Stock issued, assuming receipt of
stockholder approval, will cause the Bank to recognize additional significant
compensation and employee benefits expense. The Bank cannot predict the actual
amount of these new expenses because applicable accounting practices require
that the compensation expense be based on the fair market value of the shares of
Common Stock when the expenses are recognized. Expenses for the ESOP would be
recognized when shares are committed to be released to participants' accounts,
and expenses for the Stock-Based Incentive Plan would be recognized over the
vesting period of awards made to recipients. These expenses have been reflected
in the pro forma financial information under "Pro Forma Data" assuming the
$10.00 per share Purchase Price as the fair market value. Actual expenses,
however, will be based on the fair market value of the Common Stock at the time
of recognition, which may be higher or lower than $10.00. For further discussion
of these plans, see "Management of the Bank - Benefits -Employee Stock Ownership
Plan" and "- Stock-Based Incentive Plan."

     Possible Dilutive Effect of Stock-Based Incentive Plan. Following the
Conversion and Reorganization, the Stock-Based Incentive Plan, if approved by
the stockholders of the Company, will acquire an amount of shares equal to 4% of
the shares of Conversion Stock issued in the Conversion and Reorganization,
either through open market purchases or the issuance of authorized but unissued
shares of Common Stock from the Company. If the Stock-Based Incentive Plan is
funded by the issuance of authorized but unissued shares, the voting interests
of then-existing shareholders will be diluted by 2.0%. In addition, directors,
officers and employees will be granted options to purchase authorized but
unissued shares in an amount equal to 10% of the Conversion Stock issued in the
Conversion and Reorganization, if the Stock-Based Incentive Plan is approved by
the stockholders of the Company. If all of the options were to be exercised
using authorized but unissued Common Stock and the stock awards were funded with
authorized but unissued shares, the voting interests of then-existing
stockholders would be diluted by 6.6%.

     The Bank also has adopted and maintains the 1992 Stock Option Plans, which
reserved for issuance 292,820 shares of Bank Common Stock, after giving effect
to four 10% stock dividends and a two-for-one stock split. As of September 30,
1997, 79,584 options remained available for exercise. In addition, the Bank
maintains the 1996 Incentive Plan, which has reserved for issuance 72,600 shares
of Bank Common Stock, after giving effect to two 10% stock dividends. At
September 30, 1997, all of the option shares awarded under this plan remained
available for exercise. Upon consummation of the Conversion and Reorganization,
the 1992 Stock Option Plans and the 1996 Incentive Plan will become plans of the
Company and Common Stock will be issued in lieu of Bank Common Stock pursuant to
the terms of such plans, as adjusted to reflect the exchange of options in
connection with the Conversion and Reorganization. See "Management of the Bank
-- Benefit Plans."

     Voting Control of Officers and Directors. Directors and executive officers
of the Bank and the Company expect to hold approximately 12.6% or 9.3% of the
shares of Common Stock to be outstanding upon completion of the Conversion and
Reorganization, based upon the minimum and the maximum of the Estimated Price
Range, respectively. When combined with shares that may be attributable to
directors and officers through the existing and future stock benefit plans, and
the ESOP, management's potential voting control could, together with additional
stockholder support, defeat stockholder proposals requiring 80% approval of
stockholders. As a result, this potential voting control may preclude takeover
attempts that certain stockholders deem to be in their best interest and may
tend to perpetuate existing management. See

                                       20
"Restrictions on Acquisition of the Company and the Bank - Restrictions in the
Company's Certificate of Incorporation and Bylaws."

EMPLOYMENT CONTRACTS, CHANGE IN CONTROL PROVISIONS AND EMPLOYEE SEVERANCE
COMPENSATION

     The Bank and the Mutual Holding Company currently maintain employment
agreements with Messrs. Mulkerin and Martin. In connection with the Conversion
and Reorganization, the Bank and the Company intend to enter into new employment
or severance agreements with certain executive officers of the Company and the
Bank, which agreements provide for severance payments if their respective
employment is terminated in connection with a change in control of the Bank or
the Company. In addition, the Bank intends to adopt a severance plan for
employees that would provide for severance payments for employees that are
terminated in connection with a change in control. These provisions may have the
effect of increasing the cost of acquiring the Company, thereby discouraging
future attempts to take over the Company or the Bank. See "Restrictions on
Acquisition of the Company and the Bank - Restrictions in the Company's
Certificate of Incorporation and Bylaws," "Management of the Bank - Employment
Agreements," "- Change-in-Control Agreements," "- Employee Severance
Compensation Plan."

CERTAIN ANTI-TAKEOVER PROVISIONS WHICH MAY DISCOURAGE TAKEOVER ATTEMPTS

     Provisions in the Company's and the Bank's Governing Instruments. Certain
provisions of the Company's Certificate of Incorporation and Bylaws,
particularly a provision limiting voting rights, and the Bank's Stock
Certificate of Incorporation and Bylaws, as well as certain federal regulations,
assist the Company in maintaining its status as an independent publicly owned
corporation. These provisions provide for, among other things, supermajority
voting on certain matters, staggered boards of directors, non-cumulative voting
for directors, limits on the calling of special meetings, limits on voting
shares in excess of 10% of the outstanding shares, and certain uniform price
provisions for certain business combinations. The Bank's Stock Certificate of
Incorporation also prohibits, for five years, the acquisition or offer to
acquire, directly or indirectly, the beneficial ownership of more than 10% of
the Bank's equity securities. Any person violating this restriction may not vote
the Bank's securities in excess of 10%. These provisions in the Bank's and the
Company's governing instruments may discourage potential proxy contests and
other potential takeover attempts, particularly those which have not been
negotiated with the Board of Directors, and thus, generally may serve to
perpetuate current management. For a more detailed discussion of these
provisions, see "Restrictions on Acquisition of the Company and the Bank."

POSSIBLE INCREASE IN ESTIMATED PRICE RANGE AND NUMBER OF SHARES ISSUED

     The number of shares to be sold in the Conversion and Reorganization may be
increased as a result of an increase in the Estimated Price Range of up to 15%
to reflect changes in market and financial conditions following the commencement
of the Subscription and Community Offerings. In the event that the Estimated
Price Range is so increased, it is expected that the Company will issue up to
16,378,421 shares of Conversion Stock at the Purchase Price for an aggregate
purchase price of up to $163.8 million. An increase in the number of shares
issued will decrease pro forma net earnings per share and stockholders' equity
per share and will increase the Company's pro forma consolidated stockholders'
equity and net earnings for those subscribers who are not already Public
Stockholders of the Bank. Such an increase will also increase the Purchase Price
as a percentage of pro forma stockholders' equity per share and net earnings per
share.

POSSIBLE ADVERSE INCOME TAX CONSEQUENCES OF THE DISTRIBUTION OF SUBSCRIPTION
RIGHTS

     The Bank has received an opinion of FinPro that subscription rights granted
to Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members have no value. However, this opinion

                                       21
is not binding on the Internal Revenue Service ("IRS"). If the subscription
rights granted to Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members are deemed to have an ascertainable value, receipt of
such rights could result in taxable gains to those Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members who receive and/or
exercise the subscription rights in an amount equal to such value. Additionally,
the Bank could recognize a gain for tax purposes on such distribution. Whether
subscription rights are considered to have ascertainable value is an inherently
factual determination. See "The Conversion and Reorganization -- Effects of the
Conversion and Reorganization" and "- Tax Aspects."

                          FIRST SOURCE BANCORP, INC.

     The Company was organized in December 1997 at the direction of the Boards
of Directors of the Mutual Holding Company and the Bank for the purpose of
holding all of the capital stock of the Bank. The Company has applied to the OTS
to become a savings and loan holding company, and, as such, will be subject to
regulation by the OTS. See "The Conversion and Reorganization -- General." After
completion of the Conversion and Reorganization, the Company will conduct
business initially as a unitary savings and loan holding company. See
"Regulation - Holding Company Regulation." Upon consummation of the Conversion
and Reorganization, the Company's assets will consist of all of the outstanding
shares of the Bank's capital stock issued and exchanged to the Company in the
Conversion and Reorganization and that portion of the net proceeds of the
Offerings retained by the Company. The Company intends to use part of the net
proceeds it retains to loan funds to the ESOP to enable the ESOP to purchase 8%
of the aggregate of the Conversion Stock issued, and to refinance the MHC's
existing loan to the ESOP. Initially, the Company expects to deposit the
remaining proceeds with the Bank. See "Use of Proceeds." The Company and Bank
may, however, alternatively choose to fund the ESOP through a loan to the ESOP
trust by a third party financial institution.

     Initially, the Company will neither own nor lease any property, but will
instead use the premises, equipment and furniture of the Bank. At the present
time, the Company does not intend to employ any persons other than the officers
set forth under "Management of the Company," but will utilize the support staff
of the Bank from time to time. Additional employees will be hired as appropriate
to the extent the Company expands its business in the future. The initial
business activities of the Company will consist of investment in the Bank. The
Company may in the future expand its business activities or services which it
provides through existing or newly-formed subsidiaries or through acquisitions
of other financial services providers. The initial activities of the Company are
anticipated to be funded by the net proceeds retained by the Company and
earnings thereon or, alternatively, through dividends from the Bank.

     The Company's executive offices are currently located at 1000 Woodbridge
Center Drive, Woodbridge, New Jersey 07095. Its telephone number is (732) 726-
9700.

                         FIRST SAVINGS BANCSHARES, MHC

     The Mutual Holding Company was formed as a result of the 1992 MHC
Reorganization of the Bank, in a series of steps, from a New Jersey-chartered
savings association into a federally-chartered mutual holding company. The Bank
is a majority-owned subsidiary of the Mutual Holding Company. Pursuant to OTS
regulations governing mutual holding companies, the Mutual Holding Company must
at all times own more than 50% of the outstanding voting stock of the Bank. As
the majority owner of the Bank, the Mutual Holding Company elects directors who
oversee the affairs and operations of the Bank. Depositors and those current
borrowers of the Bank who had loans outstanding as of the consummation of the
Reorganization, vote and elect directors of the Mutual Holding Company. The
Mutual Holding Company currently does not engage in any business activity other
than to hold the majority of the Bank's common stock, to invest the

                                       22
funds retained at the Mutual Holding Company, and to finance a loan to the
Bank's ESOP. At September 30, 1997, the Mutual Holding Company's assets
consisted of a 51.6% ownership interest in the Bank, $491,000 in cash and
certificates of deposit (which will become assets of the Bank upon consummation
of the Conversion and Reorganization), and a loan to the Bank's ESOP totalling
$571,000. The Mutual Holding Company had liabilities of $29,000 at September 30,
1997, and had net income for the nine months ended September 30, 1997 of
$10,000. As part of the Conversion and Reorganization, the Mutual Holding
Company will convert from mutual form to a federal interim stock savings
institution and simultaneously merge with and into the Bank, with the Bank being
the surviving entity.

                            FIRST SAVINGS BANK, SLA

     First Savings is a New Jersey-chartered capital stock savings and loan
association headquartered in Woodbridge, New Jersey. First Savings has operated
in its present market area since 1901. Until 1992, the Bank operated in the
mutual form of organization. On July 10, 1992, the Bank, acting on a Plan of
Reorganization approved by its members, reorganized to become a federally-
chartered mutual holding company. In connection with the 1992 MHC
Reorganization, all of the assets and substantially all of the liabilities of
the mutual savings association were transferred to a newly formed state-
chartered stock savings association that assumed the name of First Savings Bank,
SLA. Concurrently, the newly formed stock savings association sold approximately
37.6% of its Common Stock at $10.00 per share in an initial minority stock
offering. The remaining 62.4% of the Bank Common Stock was issued to the Mutual
Holding Company in exchange for all assets, except $1.0 million in cash, and all
of the liabilities of the former state-chartered mutual association. On July 11,
1995, the Bank consummated its 1995 Secondary Offering, whereby the Bank sold
additional shares of Common Stock, which resulted in the Minority Ownership
Interest in the Bank increasing to 47.5% at that time.

     The Bank's executive offices are currently located at 1000 Woodbridge
Center Drive, Woodbridge, New Jersey 07095. Its telephone number is (732) 726-
9700.

                                       23
REGULATORY CAPITAL COMPLIANCE

     At September 30, 1997, the Bank exceeded all regulatory capital
requirements. See "Regulation - Federal Regulation of Savings Institutions-
Capital Requirements." Set forth below is a summary of the Bank's compliance
with regulatory capital standards as of September 30, 1997, on a historical and
pro forma basis assuming that the indicated number of shares were sold as of
such date and receipt by the Bank of 50% of the net proceeds. For purposes of
the table below, the amount expected to be borrowed by the ESOP and the cost of
the shares expected to be acquired by the Stock-Based Incentive Plan are
deducted from pro forma regulatory capital.
FIRST SAVINGS BANK, SLA
                                                               PRO FORMA AT SEPTEMBER 30, 1997 BASED UPON SALE AT $10.00 PER SHARE
                                                  ----------------------------------------------------------------------------------
                                                                                                                             
                                                     10,526,917 SHARES       12,384,495 SHARES        14,242,072 SHARES      
                                                       (MINIMUM OF              (MIDPOINT OF             (MAXIMUM OF         
                               HISTORICAL AT            ESTIMATED                ESTIMATED                ESTIMATED          
                            SEPTEMBER 30, 1997         PRICE RANGE)             PRICE RANGE)             PRICE RANGE)        
                           --------------------   ----------------------   ----------------------   ----------------------   
                                     PERCENT                   PERCENT                  PERCENT                  PERCENT     
                                       OF                        OF                        OF                       OF       
                           AMOUNT    ASSETS (2)   AMOUNT      ASSETS (2)   AMOUNT      ASSETS (2)   AMOUNT      ASSETS (2)   
                           ------    ----------   ------      ----------   ------      ----------   ------      ----------   
                                                                           (DOLLARS IN THOUSANDS)
GAAP Capital (3).........  $99,213     9.50%      $145,230      13.32%     $153,306     13.95%      $161,381     14.58%   
                           =======    =====       ========      =====      ========     =====       ========     =====    
Tangible Capital:                                                                                                         
   Capital Level.........  $89,992     8.68%      $136,212      12.59%     $144,288     13.24%      $152,363     13.88%   
   Requirement...........   15,552     1.50         16,107       1.50        16,228      1.50         16,349      1.50    
                           -------    -----       --------      -----      --------     -----       --------     -----    
   Excess................  $74,440     7.18%      $119,989      11.09%     $128,059     11.74%      $136,014     12.38%   
                           =======    =====       ========      =====      ========     =====       ========     =====    
Core Capital:                                                                                                             
   Capital Level.........  $89,992     8.68%      $136,212      12.59%     $144,288     13.24%      $152,363     13.88%   
   Requirement (4).......   31,104     3.00         32,214       3.00        32,451      3.00         32,699      3.00    
                           -------    -----       --------      -----      --------     -----       --------     -----    
   Excess................  $58,888     5.68%      $103,998       9.59%     $111,831     10.24%      $119,664     10.88%   
                           =======    =====       ========      =====      ========     =====       ========     =====    
Risk-Based Capital (5):                                                                                                   
   Capital Level (5).....  $95,319    22.38%      $141,336      31.49%     $149,412     31.13%      $157,487     32.27%   
   Requirement...........   34,070     8.00         35,911       8.00        38,397      8.00         39,043      8.00    
                           -------    -----       --------      -----      --------     -----       --------     -----    
   Excess................  $61,249    14.38%      $105,426      23.49%     $111,014     23.13%      $118,444     24.27%   
                           =======    =====       ========      =====      ========     =====       ========     =====
---------------------
                               16,378,421 SHARES
                                  (15% ABOVE
                                   MAXIMUM
                                 OF ESTIMATED
                               PRICE RANGE) (1)
                             ---------------------
                                        PERCENT
                                          OF
                              AMOUNT   ASSETS (2)
                             -------  ------------
                         
GAAP Capital (3).........   $170,668     15.28%
                            ========     =====   
Tangible Capital:                                
   Capital Level.........   $161,650     14.60%  
   Requirement...........     16,489      1.50   
                            --------     -----   
   Excess................   $145,161     13.10%  
                            ========     =====   
Core Capital:                                    
   Capital Level.........   $161,650     14.60%  
   Requirement (4).......     33,978      3.00   
                            --------     -----   
   Excess................   $128,673     11.60%  
                            ========     =====   
Risk-Based Capital (5):                          
   Capital Level (5).....   $166,774     33.53%  
   Requirement...........     39,786      8.00   
                            --------     -----   
   Excess................   $126,988     25.53%  
                            ========     =====
______________________
(1)  As adjusted to give effect to an increase in the number of shares which
     could occur due to an increase in the Estimated Price Range of up to 15% as
     a result of regulatory considerations or changes in market or general
     financial and economic conditions following the commencement of the
     Subscription and Community Offerings.
(2)  Tangible capital levels are shown as a percentage of total adjusted assets.
     Core capital levels are shown as a percentage of total adjusted assets.
     Risk-based capital levels are shown as a percentage of risk-weighted
     assets.
(3)  Excludes the $193,000 unrealized gain on securities available for sale, net
     of taxes.
(4)  The current OTS core capital requirement for savings associations is 3% of
     total adjusted assets. The OTS has proposed core capital requirements which
     would require a core capital ratio of 3% of total adjusted assets for
     thrifts that receive the highest supervisory rating for safety and
     soundness and a 4% to 5% core capital ratio requirement for all other
     thrifts. See "Regulation - Federal Regulation of Savings Institutions -
     Capital Requirements."
(5)  Assumes net proceeds are invested in assets that carry a 50% 
     risk-weighting.

                                       24
USE OF PROCEEDS

          Although the actual net proceeds from the sale of the Conversion Stock
cannot be determined until the Conversion and Reorganization is completed, it is
presently anticipated that the net proceeds from the sale of the Conversion
Stock will be between $103.6 million and $140.3 million (or $161.5 million if
the Estimated Price Range is increased by 15%). See "Pro Forma Data" and "The
Conversion and Reorganization -- Stock Pricing and Exchange Ratio" as to the
assumptions used to arrive at such amounts. The Company will be unable to
utilize any of the proceeds of the Offerings until the consummation of the
Conversion and Reorganization.

          The Company will contribute to the Bank 50% of the net proceeds of the
Offerings. Such portion of net proceeds will be added to the Bank's general
funds which the Bank currently intends to utilize for general corporate
purposes, including investment in one- to four-family residential mortgage
loans, commercial real estate loans and other loans, investment in federal
funds, investment grade marketable securities and mortgage-backed securities, to
repay borrowings and to fund the Stock-Based Incentive Plan. The Bank may also
use such funds to expand operations through the establishment or acquisition of
branch offices, and the acquisition of other financial institutions or other
financial services companies, including those located within the Bank's market
area. To the extent the Stock Programs are not funded with authorized but
unissued common stock of the Company, the Company or Bank may use net proceeds
from the Conversion and Reorganization to fund the purchase of stock to be
awarded under such Stock-Based Incentive Plan. See "Risk Factors - Stock-Based
Benefits to Management and Directors" and "Management of the Bank - Benefits -
Stock-Based Incentive Plan."

          The Company intends to use a portion of the net proceeds to loan
additional funds to the ESOP to enable the ESOP to purchase 8% of the Conversion
Stock issued in the Conversion and to refinance the MHC's existing loan to the
ESOP. Based upon the issuance of 10,526,917 shares or 14,242,072 shares at the
minimum and maximum, respectively, of the Estimated Price Range, the amount of
the loan to the ESOP would be $8.4 million or $11.4 million, respectively (or
$13.1 million if the Estimated Price Range is increased by 15%) to be repaid
over a 15 year period at a market rate of interest. See "Management of the 
Bank -Benefit Plans -Employee Stock Ownership Plan and Trust."

          The net proceeds retained by the Company may also be used to support
the future expansion of operations through branch acquisitions, the
establishment of branch offices and the acquisition of smaller savings
associations and commercial banks or their assets, including those located
within the Bank's market area or diversification into other banking related
businesses. The Company has no current arrangements, understandings or
agreements regarding any such transactions. Upon completion of the Conversion
and Reorganization, the Company will be a unitary savings and loan holding
company, which under existing laws would generally not be restricted as to the
types of business activities in which it may engage, provided that the Bank
continues to be a qualified thrift lender ("QTL"). See "Regulation - Holding
Company Regulation" for a description of certain regulations currently
applicable to the Company.

          Upon completion of the Conversion and Reorganization, the Board of
Directors of the Company will have the authority to adopt stock repurchase
plans, subject to statutory and regulatory requirements. Unless approved by the
OTS, the Company, pursuant to OTS regulations, will be prohibited from
repurchasing any shares of the Common Stock for three years except (i) for an
offer to all stockholders on a pro rata basis, or (ii) for the repurchase of
qualifying shares of a director. Notwithstanding the foregoing and except as
provided below, beginning one year following completion of the Conversion and
Reorganization, the Company may repurchase its Common Stock so long as: (i) the
repurchases within the following two years are part of an open-market program
not involving greater than 5% of its outstanding capital stock during a 

                                       25
twelve-month period; (ii) the repurchases do not cause the Bank to become
"undercapitalized" within the meaning of the OTS prompt corrective action
regulation; and (iii) the Company provides to the Regional Director of the OTS
no later than ten days prior to the commencement of a repurchase program written
notice containing a full description of the program to be undertaken and such
program is not disapproved by the Regional Director. See "Regulation - Prompt
Corrective Regulatory Action."

          Based upon facts and circumstances following the Conversion and
Reorganization and subject to applicable regulatory requirements, the Board of
Directors may determine to repurchase stock in the future. Such facts and
circumstances may include but not be limited to: (i) market and economic factors
such as the price at which the stock is trading in the market, the volume of
trading, the attractiveness of other investment alternatives in terms of the
rate of return and risk involved in the investment, the ability to increase the
book value and/or earnings per share of the remaining outstanding shares, and
the opportunity to improve the Company's return on equity; (ii) the avoidance of
dilution to stockholders by not having to issue additional shares to cover the
exercise of stock options or to fund employee stock benefit plans; and (iii) any
other circumstances in which repurchases would be in the best interests of the
Company and its shareholders. In the event the Company determines to repurchase
stock, such repurchases may be made at market prices which may be in excess of
the Purchase Price in the Offerings. To the extent that the Company repurchases
stock at market prices in excess of the per share book value, such repurchases
may have a dilutive effect upon existing stockholders.

          Any stock repurchases will be subject to the determination of the
Board of Directors that both the Company and the Bank will be capitalized in
excess of applicable regulatory requirements after any such repurchases and that
such capital will be adequate, taking into account, among other things, the
level of nonperforming and other risk assets, the Company's and the Bank's
current and projected results of operations and asset/liability structure, the
economic environment, tax and other considerations. See "The Conversion and
Reorganization -- Certain Restrictions on Purchase or Transfer of Shares After
Conversion."

                                       26
DIVIDEND POLICY

          Since the 1992 MHC Reorganization, the Bank has paid, in the
aggregate, annual cash dividends on the Bank Common Stock ranging from $0.27 per
share for 1993 to $0.33 per share for 1996, as adjusted for stock dividends and
a 2-for-1 stock split. The current quarterly cash dividend is $0.12 per share.
The Bank intends to continue to pay regular quarterly dividends through either
the date of consummation of the Conversion and Reorganization (on a pro rata
basis) or the end of the fiscal quarter during which the consummation of the
Conversion and Reorganization occurs. The table below sets forth the cash and
stock dividends paid by the Bank since January 1, 1995.
ACTUAL
                                                              CASH                              STOCK
                                                            DIVIDEND      DIVIDEND PAID,       DIVIDEND
                                          PAYABLE DATE      PAID(1)       AS ADJUSTED(2)         PAID
                                          ------------    -----------     --------------     ------------
YEAR ENDING DECEMBER 31, 1997:

Fourth Quarter.........................   November 28         $.12             $.12               --%
                                           October 30           --               --               10
Third Quarter..........................    August 29           .12              .11               --
Second Quarter.........................     May 30             .12              .11               --
First Quarter..........................   February 28          .10              .09               --

YEAR ENDING DECEMBER 31, 1996:

Fourth Quarter.........................   December 16         $ --             $ --               10%
                                          November 29          .10              .08               --
Third Quarter..........................    August 31           .10              .08               --
Second Quarter.........................     May 31             .10              .08               --
First Quarter..........................   February 29          .10              .08               --

YEAR ENDING DECEMBER 31, 1995:

Fourth Quarter.........................   November 30         $.09              .07               10%
Third Quarter..........................    August 31           .09              .07               --
Second Quarter.........................      May 31            .09              .07               --
First Quarter..........................   February 28          .09              .07               --
________________________
(1)    The Mutual Holding Company has waived receipt of all cash dividends paid
       by the Bank.  The aggregate amount of all cash dividends waived by the
       Mutual Holding Company as of September 30, 1997 is $6.7 million.
(2)    As adjusted for 10% stock dividends paid on July 1, 1993, April 1, 1994,
       December 16, 1996 and October 30, 1997, respectively, and a two-for-one
       stock split effected on December 1, 1994.

          Upon consummation of the Conversion and Reorganization, the Company
expects to pay an initial quarterly dividend of $.03 per share. Declarations of
dividends by the Company's Board of Directors, however, will depend upon a
number of factors, including the amount of the net proceeds from the Offerings
retained by the Company, investment opportunities available to the Company or
the Bank, capital requirements, regulatory limitations, the Company's and the
Bank's financial condition and results of operations, tax considerations and
general economic conditions. Consequently, there can be no assurance that
dividends will in fact be paid on the Common Stock or that, if paid, such
dividends will not be reduced or eliminated in future periods. See "Market for
the Common Stock."
 

                                       27
The Bank will not be permitted to pay dividends to the Company on its
capital stock if its stockholders' equity would be reduced below the amount
required for the liquidation account. See "The Conversion and Reorganization --
Liquidation Rights." For information concerning federal and state law and
regulations which apply to the Bank in determining the amount of proceeds which
may be retained by the Company and regarding a savings institution's ability to
make capital distributions including payment of dividends to its holding
company, see "Federal and State Taxation - Federal Taxation - Distributions" and
"Regulation - Federal Regulation of Savings Institutions -- Limitation on
Capital Distributions."

          Unlike the Bank, the Company is not subject to OTS regulatory
restrictions on the payment of dividends to its stockholders, although the
source of such dividends will be dependent on the net proceeds retained by the
Company and earnings thereon and may be dependent, in part, upon dividends from
the Bank. The Company is subject, however, to the requirements of Delaware law,
which generally limit dividends to an amount equal to the excess of the net
assets of the Company (the amount by which total assets exceed total
liabilities) over its statutory capital (generally defined as the aggregate par
value of the outstanding shares of the Company's capital stock having a par
value plus the amount of the consideration paid for shares of the Company's
capital stock without par value) or, if there is no such excess, to its net
profits for the current and/or immediately preceding fiscal year.

          Additionally, in connection with the Conversion and Reorganization,
the Company and Bank have committed to the OTS that during the one-year period
following the consummation of the Conversion and Reorganization, the Company
will not take any action to declare an extraordinary dividend to stockholders
which would be treated by recipient stockholders as a tax-free return of capital
for federal income tax purposes without prior approval of the OTS.

                          MARKET FOR THE COMMON STOCK

          Although the Bank Common Stock is traded on the Nasdaq National
Market, there is no established market for the Common Stock of the Company at
this time. The Company has received conditional approval to have its Common
Stock quoted on the Nasdaq National Market under the symbol "FSLA." One of the
requirements for quotation of the Common Stock on the Nasdaq National Market is
that there be at least three market makers for the Common Stock. The Company
will seek to encourage and assist at least three market makers to make a market
in its Common Stock. Currently, there are three market makers for the Bank's
Common Stock. Making a market involves maintaining bid and ask quotations and
being able, as principal, to effect transactions in reasonable quantities at
those quoted prices, subject to various securities laws and other regulatory
requirements. Although under no obligation to do so, Sandler O'Neill has
informed the Company that it intends, upon the completion of the Conversion and
Reorganization, to make a market in the Common Stock by maintaining bid and ask
quotations and trading in the Common Stock so long as the volume of trading
activity and certain other market making considerations justify it doing so. As
of the date hereof, no other broker-dealers have agreed to act as market makers.
While the Company anticipates that prior to the completion of the Conversion
there will be at least two other broker-dealers to act as market maker for the
Common Stock, there can be no assurance there will be three or more market
makers for the Common Stock.

          Additionally, the development of a liquid public market depends on the
existence of willing buyers and sellers, the presence of which is not within the
control of the Company, the Bank or any market maker. Accordingly, there can be
no assurance that an active and liquid trading market for the Common Stock will
develop or that, if developed, it will continue.

                                       28
The following table sets forth the high and low trading prices of the
Bank's Common Stock during the periods indicated as adjusted for a 10% stock
dividend paid on October 30, 1997.
HIGH               LOW
                                           --------           -------
YEAR ENDING DECEMBER 31, 1997:
     ------------------------------

     Fourth Quarter................         $  N/A             $  N/A
     Third Quarter.................          32.50              26.88
     Second Quarter................          29.25              21.00
     First Quarter.................          23.50              18.25

     YEAR ENDED DECEMBER 31, 1996:
     -----------------------------

     Fourth Quarter................         $19.50             $16.50
     Third Quarter.................          17.00              15.50
     Second Quarter................          16.25              14.50
     First Quarter.................          16.50              15.00

     YEAR ENDED DECEMBER 31, 1995:
     -----------------------------

     Fourth Quarter................         $17.50             $13.25
     Third Quarter.................          14.25              13.25
     Second Quarter................          15.25              12.50
     First Quarter.................          14.50              12.50
29
CAPITALIZATION

     The following table presents the unaudited historical consolidated
capitalization of the Bank at September 30, 1997, and the pro forma consolidated
capitalization of the Company after giving effect to the Conversion and
Reorganization, based upon the sale of the number of shares indicated in the
table and the other assumptions set forth under "Pro Forma Data."
COMPANY PRO FORMA BASED UPON SALE AT $10.00 PER SHARE
                                                              ----------------------------------------------------------------------

                                                                                                                      16,378,421
                                                                                                                        SHARES
                                               BANK            10,526,917         12,384,495        14,242,072        (15% ABOVE
                                             HISTORICAL           SHARES             SHARES           SHARES            MAXIMUM
                                                 AT              (MINIMUM          (MIDPOINT        (MAXIMUM OF       OF ESTIMATED
                                            SEPTEMBER 30,      OF ESTIMATED       OF ESTIMATED       ESTIMATED           PRICE 
                                                1997           PRICE RANGE)       PRICE RANGE)      PRICE RANGE)       RANGE) (1)
                                           --------------     --------------     --------------    --------------    ---------------

                                                                                 (IN THOUSANDS)
Deposit accounts (2).....................     $809,449            $809,449           $809,449          $809,449          $809,449
Borrowed funds...........................      123,894             123,894            123,894           123,894           123,894
Debt in connection with acquisition
  of shares of Common Stock by
  ESOP (3)...............................          571                 571                571               571               571
                                              --------            --------           --------          --------          --------
Total deposit accounts and
  borrowed funds.........................     $933,914            $933,914           $933,914          $933,914          $933,914
                                              ========            ========           ========          ========          ========
Stockholders' equity:
  Preferred Stock, $.01 par value,
    10,000,000 shares authorized;
    none to be issued....................     $     --            $     --           $     --          $     --          $     --
  Common Stock, $.01 par
    value, 85,000,000 shares
    authorized; shares to be
    issued as reflected (4)..............           73                 204                240               276               317
  Additional paid-in capital (5)(6)......       27,856             132,393            150,737           169,080           190,176
  Retained earnings......................       71,870              71,870             71,870            71,870            71,870
Net unrealized gain on securities
  available for sale.....................          193                 193                193               193               193
Less:
  Unearned Common Stock previously
    acquired by the ESOP (3).............         (571)               (571)              (571)             (571)             (571)
  Unearned Common Stock held
    by the 1996 Incentive Plan...........         (208)               (208)              (208)             (208)             (208)
  Common Stock to be acquired
    by the ESOP (7)......................           --              (8,422)            (9,908)          (11,394)          (13,103)
  Common Stock to be acquired by
    the Stock-Based Incentive Plan (8)...           --              (4,211)            (4,954)           (5,697)           (6,551)
                                              --------            --------           --------          --------          --------
Total stockholders' equity...............     $ 99,213            $191,248           $207,399          $223,549          $242,123
                                              ========            ========           ========          ========          ========
(footnotes on next page)

                                       30
______________________
(1)  As adjusted to give effect to an increase in the number of shares which
     could occur due to an increase in the Estimated Price Range of up to 15% as
     a result of regulatory considerations or changes in market or general
     financial and economic conditions following the commencement of the
     Subscription and Community Offerings.
(2)  Does not reflect withdrawals from deposit accounts for the purchase of
     Common Stock in the Conversion. Such withdrawals would reduce pro forma
     deposits by the amount of such withdrawals.
(3)  Assumes that the existing loan to the ESOP remains outstanding.
(4)  Assumes (i) that the 3,881,539 Public Bank Shares outstanding at October
     31, 1997 are converted into 9,873,082, 11,615,505, 13,357,928 and
     15,361,578 Exchange Shares at the minimum, midpoint, maximum and 15% above
     the maximum of the Valuation Price Range, respectively, and (ii) that no
     fractional shares of Exchange Shares will be issued by the Company. No
     effect has been given to the issuance of additional shares of Common Stock
     pursuant to existing and proposed stock option plans. See "Pro Forma Data,"
     "Management of the Bank -- Benefits."
(5)  No effect has been given to the issuance of additional shares of Common
     Stock pursuant to the Company's Stock-Based Incentive Plan intended to be
     adopted by the Company and presented for approval of stockholders at a
     meeting of stockholders following the Conversion and Reorganization. If
     approved by the stockholders of the Company, an amount equal to 10% of the
     shares of Conversion Stock issued in the Conversion and Reorganization will
     be reserved for issuance upon the exercise of options to be granted under
     the Stock-Based Incentive Plan. See "Risk Factors -Possible Dilutive Effect
     of Stock-Based Incentive Plan," Footnote 3 to the tables under "Pro Forma
     Data" at or for the nine months ended September 30, 1997 and at or for the
     year ended December 31, 1996, respectively, and "Management of the Bank --
     Benefits -- Stock-Based Incentive Plan."
(6)  The additional paid-capital includes $1.1 million of assets from the Mutual
     Holding Company. The pro forma additional paid- in capital and retained
     earnings reflect a restriction of the original retained earnings of the
     Bank prior to the 1992 MHC Reorganization. The retained earnings of the
     Bank will be substantially restricted after the Conversion and
     Reorganization by virtue of the liquidation account to be established in
     connection with the Conversion and Reorganization. See "The Conversion and
     Reorganization -- Liquidation Rights" and "Regulation - Federal Regulation
     of Savings Institutions -- Limitations on Capital Distributions."
(7)  Assumes that 8% of the aggregate of the Conversion Stock issued in the
     Conversion and Reorganization will be purchased by the ESOP and that the
     funds used to acquire such shares will be borrowed from the Company. The
     Common Stock acquired by the ESOP is reflected as a reduction of
     stockholders' equity. See "Management of the Bank - Benefits - Employee
     Stock Ownership Plan and Trust."
(8)  Assumes that, subsequent to the Conversion and Reorganization, an amount
     equal to 4% of the shares of Conversion Stock issued in the Conversion and
     Reorganization is purchased by the Stock-Based Incentive Plan through open
     market purchases. The Common Stock purchased by the Stock-Based Incentive
     Plan is reflected as a reduction of stockholder's equity. Implementation of
     the Stock-Based Incentive Plan is subject to the approval of the Company's
     stockholders at a meeting following the Conversion and Reorganization. See
     "Risk Factors - Possible Dilutive Effect of Stock-Based Incentive Plan,"
     Footnote 2 to the tables under "Pro Forma Data" at or for the nine months
     ended September 30, 1997 and at or for the year ended December 31, 1996,
     respectively, and "Management of the Bank - Benefits -- Stock-Based
     Incentive Plan."

                                       31
PRO FORMA DATA

     The actual net proceeds from the sale of the Conversion Stock cannot be
determined until the Conversion and Reorganization is completed. However, net
proceeds are currently estimated to be between $103.6 million and $140.3 million
(or $161.5 million in the event the Estimated Price Range is increased by 15.0%)
based upon the following assumptions: (i) 100% of the shares of Conversion Stock
will be sold in the Subscription Offering to Eligible Account Holders; (ii)
directors, officers and employees of the Bank and members of their immediate
families (collectively, "Insiders") will purchase an aggregate of $600,000 of
Common Stock; (iii) Sandler O'Neill will receive a fee equal to 1.15% of the
aggregate Purchase Price of shares sold in the Subscription Offering and in the
Community Offering, excluding shares purchased by Insiders and the ESOP; and
(iv) Conversion and Reorganization expenses, excluding the marketing fees paid
to Sandler O'Neill, will be approximately $600,000. Actual Conversion and
Reorganization expenses may vary from those estimated.

     Pro forma consolidated net income of the Company for the nine months ended
September 30, 1997, and for the year ended December 31, 1996 have been
calculated as if the Conversion Stock had been sold (and the Exchange Shares
issued) at the beginning of the respective periods and the net proceeds had been
invested at an average yield of 5.42%, the one-year Treasury note rate at
September 30, 1997. The Treasury yield was used on the reinvestment of proceeds
because it reflects a more achievable rate of return than the arithmetic average
of the average yield of the Bank's interest-earning assets and cost of deposits.
The tables below do not reflect the effect of withdrawals from deposit accounts
for the purchase of Conversion Stock or the effect of any possible use of the
net proceeds. The pro forma after-tax yield for the Company and the Bank is
assumed to be 3.41% for both the nine months ended September 30, 1997 and the
year ended December 31, 1996 based on an effective tax rate of 37%.

     The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma consolidated stockholders' equity represents
the difference between the stated amount of assets and liabilities of the
Company. The pro forma stockholders' equity is not intended to represent the
fair market value of the Common Stock and may be greater than amounts that would
be available for distribution to stockholders in the event of liquidation.

     The following tables summarize historical data of the Bank and pro forma
data of the Company at or for the nine months ended September 30, 1997 and the
year ended December 31, 1996 based on the assumptions set forth above and in the
tables and should not be used as a basis for projections of market value of the
Common Stock following the Conversion and Reorganization. The tables below give
effect to the Stock-Based Incentive Plan, which is expected to be adopted by the
Company following the Conversion and Reorganization and presented to
stockholders for approval at a meeting of stockholders. See Footnotes 2 and 3 to
the tables and "Management of the Bank - Benefits - Stock-Based Incentive Plan."
No effect has been given in the tables to the possible issuance of additional
shares reserved for future issuance pursuant to the options to be adopted by the
Board of Directors of the Company and presented to stockholders for approval at
a meeting of stockholders, nor does book value give any effect to the
liquidation account to be established for the benefit of Eligible Account
Holders and Supplemental Eligible Account Holders or, in the event of
liquidation of the Bank, to the tax effect of the bad debt reserve and other
factors. See Footnote 3 to the tables below, "The Conversion and Reorganization
-- Liquidation Rights" and "Management of the Bank -Benefits - Stock-Based
Incentive Plan."

                                       32
AT OR FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
                                                       ----------------------------------------------------------------------
                                                          10,526,917      12,384,495        14,242,072         16,378,421
                                                         SHARES SOLD     SHARES SOLD       SHARES SOLD        SHARES SOLD
                                                          AT $10.00       AT $10.00         AT $10.00        AT $10.00 PER
                                                          PER SHARE       PER SHARE         PER SHARE          SHARE (15%
                                                          (MINIMUM        (MIDPOINT          (MAXIMUM        ABOVE MAXIMUM
                                                        OF ESTIMATED     OF ESTIMATED      OF ESTIMATED       OF ESTIMATED
                                                        PRICE RANGE)     PRICE RANGE)      PRICE RANGE)      PRICE RANGE)(7)
                                                       --------------   --------------    --------------    -----------------
                                                                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Gross Proceeds.......................................     $105,269          $123,845         $142,421            $163,784
Less:  Offering expenses and commission..............        1,707             1,903            2,100               2,326
                                                          --------          --------         --------            --------
Estimated net proceeds...............................      103,562           121,942          140,321             161,458
Less:  Common Stock purchased by the ESOP............       (8,422)           (9,908)         (11,394)            (13,103)
       Common Stock purchased by Stock-Based
       Incentive Plan                                       (4,211)           (4,954)          (5,697)             (6,551)
                                                          --------          --------         --------            --------
  Estimated net proceeds, as adjusted................     $ 90,929          $107,080         $123,230            $141,804
                                                          ========          ========         ========            ========
Consolidated net earnings:
  Historical.........................................     $  6,760          $  6,760         $  6,760            $  6,760
  Pro forma earnings on net proceeds.................        2,326             2,739            3,152               3,627
  Less:   Pro forma ESOP adjustment(1)...............         (265)             (312)            (359)               (413)
          Pro forma Stock-Based Incentive
             Plan(2).................................         (398)             (468)            (538)               (619)
                                                          --------          --------         --------            --------
       Pro forma net earnings........................     $  8,423          $  8,719         $  9,015            $  9,355
                                                          ========          ========         ========            ========
Per share net earnings (3):
  Historical.........................................     $   0.35          $   0.30         $   0.26            $   0.22
  Pro forma earnings on net proceeds.................         0.12              0.12             0.12                0.12
  Less:   Pro forma ESOP adjustment(1)...............        (0.01)            (0.01)           (0.01)              (0.01)
          Pro forma Stock-Based Incentive
             Plan(2).................................        (0.02)            (0.02)           (0.02)              (0.02)
                                                          --------          --------         --------            --------
       Pro forma net earnings per share..............     $   0.44          $   0.39         $   0.35            $   0.31
                                                          ========          ========         ========            ========
Stockholders' equity:
  Historical.........................................     $ 99,213          $ 99,213         $ 99,213            $ 99,213
  Estimated net proceeds.............................      103,562           121,942          140,321             161,458
  Plus: Assets consolidated from MHC.................        1,106             1,106            1,106               1,106
  Less:   Common stock acquired by ESOP(1)...........       (8,422)           (9,908)         (11,394)            (13,103)
          Common Stock acquired by Stock-
             Based Incentive Plan(2).................       (4,211)           (4,954)          (5,697)             (6,551)
                                                          --------          --------         --------            --------
       Pro forma stockholders' equity(2)(4)(5).......     $191,248          $207,399         $223,549            $242,123
                                                          ========          ========         ========            ========
Stockholders' equity per share (6):
  Historical.........................................     $   4.86          $   4.13         $   3.59            $   3.13
  Estimated net proceeds.............................         5.08              5.08             5.08                5.09
  Plus: Assets consolidated from MHC.................         0.05              0.05             0.04                0.03
  Less:   Common stock acquired by ESOP(1)...........        (0.41)            (0.41)           (0.41)              (0.41)
          Common Stock acquired by Stock-
             Based Incentive Plan(2).................        (0.21)            (0.21)           (0.21)              (0.21)
                                                          --------          --------         --------            --------
       Pro forma stockholders' equity per
          share(2)(4)(5).............................     $   9.37          $   8.64         $   8.09            $   7.63
                                                          ========          ========         ========            ========
Offering price as a percentage of pro forma
  stockholders' equity per share.....................       106.72%           115.74%          123.61%             131.06%
Offering price to pro forma net earnings per share...         22.7x             25.6x            28.6x               32.3x
(footnotes on following page)

                                       33
__________________
(1)  It is assumed that 8% of the shares of Common Stock issued in the
     Conversion and Reorganization will be purchased by the ESOP. For purposes
     of this table, the funds used to acquire such shares are assumed to have
     been borrowed by the ESOP from the Company. The amount to be borrowed is
     reflected as a reduction of stockholders' equity. The Bank intends to make
     annual contributions to the ESOP in an amount at least equal to the
     principal and interest requirement of the debt. The Bank's total annual
     payment of the ESOP debt is based upon 15 equal annual installments of
     principal, with an assumed interest rate at 7.00%. The pro forma net
     earnings assume: (i) that the Bank's contribution to the ESOP is equivalent
     to the debt service requirement for the nine months ended September 30,
     1997, and was made at the end of the period; (ii) that 42,107, 49,537,
     56,968 and 65,513 shares at the minimum, midpoint, maximum and 15% above
     the maximum of the range, respectively, were committed to be released
     during the nine months ended September 30, 1997 at an average fair value of
     $10.00 per share in accordance with Statement of Position ("SOP") 93-6; and
     (iii) only the ESOP shares committed to be released were considered
     outstanding for purposes of the net earnings per share calculations. See
     "Management of the Bank -- Benefits -- Employee Stock Ownership Plan and
     Trust."
(2)  Gives effect to the Stock-Based Incentive Plan expected to be adopted by
     the Company following the Conversion and presented for approval at a
     meeting of stockholders. The Stock-Based Incentive Plan intend to acquire
     an amount of Common Stock equal to 4% of the shares of Common Stock sold in
     the Conversion or 421,076, 495,379, 569,682 and 655,136 shares of Common
     Stock at the minimum, midpoint, maximum and 15% above the maximum of the
     Estimated Price Range, respectively, either through open market purchases,
     if permissible, or from authorized but unissued shares of Common stock or
     treasury stock of the Company, if any. Funds used by the Stock-Based
     Incentive Plan to purchase the shares will be contributed to the Stock-
     Based Incentive Plan by the Bank. In calculating the pro forma effect of
     the Stock-Based Incentive Plan, it is assumed that the shares were acquired
     by the Stock-Based Incentive Plan at the beginning of the period presented
     in open market purchases at the Purchase Price and that 15% of the amount
     contributed was an amortized expense during such period. The issuance of
     authorized but unissued shares of the Company's Common Stock to the Stock-
     Based Incentive Plan instead of open market purchases would dilute the
     voting interests of existing stockholders by approximately 2.2% and pro
     forma net earnings per share would be $.43, $.38, $.34, and $.31,
     at the minimum, midpoint, maximum and 15% above the maximum of the range,
     respectively, and pro forma shareholders' equity per share would be $9.19,
     $8.47, $7.94 and $7.47 at the minimum, midpoint, maximum, and 15% above
     the maximum of the range, respectively. There can be no assurance that
     stockholder approval of the Stock-Based Incentive Plan will be obtained, or
     that the actual purchase price of the shares will be equal to the Purchase
     Price. See "Management of the Bank -- Benefits -- Stock-Based Incentive
     Plan."
(3)  Historical and pro forma net earnings per share have been divided by the
     total number of shares to be outstanding upon consummation of the
     Conversion and Reorganization, as adjusted to give effect to the purchase
     of shares by the ESOP during the period, or 19,392,930, 22,815,270,
     26,237,578 and 30,173,225 shares at the minimum, midpoint, maximum, and
     maximum, as adjusted, of the Estimated Price Range, respectively.
(4)  No effect has been given to the issuance of additional shares of Common
     Stock pursuant to the options provided for in the Stock-Based Incentive
     Plan expected to be adopted by the Company following the Conversion and
     Reorganization or to the exercise of existing stock options. The Company
     expects to present the Stock-Based Incentive Plan for approval at a meeting
     of stockholders. An amount equal to 10% of the Common Stock issued in the
     Conversion or 1,052,691, 1,238,449, 1,424,207 and 1,637,842 shares at the
     minimum, midpoint, maximum and 15% above the maximum of the Estimated Price
     Range, respectively, will be reserved for future issuance upon the exercise
     of options to be granted under the Stock-Based Incentive Plan. The issuance
     of Common Stock pursuant to the exercise of options under the Stock-Based
     Incentive Plan will result in the dilution of existing stockholders'
     interests. Assuming all options were exercised at the end of the period at
     an exercise price of $10.00 per share, the pro forma net earnings per share
     would be $0.41, $0.36, $0.33, and $0.29, respectively, and the pro forma
     stockholders' equity per share would be $9.41, $8.71, $8.19, and $7.74,
     respectively. See "Management of the Bank -- Benefits -- Stock-Based
     Incentive Plan."
(5)  The retained earnings of the Bank will continue to be substantially
     restricted after the Conversion and Reorganization. See "Dividend Policy,"
     "The Conversion -- Liquidation Rights" and "Regulation --Federal Savings
     Institution Regulation -- Limitation on Capital Distributions."
(6)  Historical and pro forma shareholders' equity per share have been divided
     by the total number of shares to be outstanding upon consummation of the
     Conversion and Reorganization, or 20,400,000, 24,000,000, 27,600,000 and
     30,174,000 shares at the minimum, midpoint, maximum, and maximum, as
     adjusted, of the Estimated Price Range, respectively.
(7)  As adjusted to give effect to an increase in the number of shares which
     could occur due to an increase in the Estimated Price Range of up to 15% as
     a result of regulatory considerations or changes in market or general
     financial and economic conditions following the commencement of the
     Subscription and Community Offerings.

                                       34
AT OR FOR THE YEAR ENDED DECEMBER 31,1996
                                                       ----------------------------------------------------------------------
                                                          10,526,917      12,384,495        14,242,072         16,378,421
                                                         SHARES SOLD     SHARES SOLD       SHARES SOLD        SHARES SOLD
                                                          AT $10.00       AT $10.00         AT $10.00        AT $10.00 PER
                                                          PER SHARE       PER SHARE         PER SHARE          SHARE (15%
                                                          (MINIMUM        (MIDPOINT          (MAXIMUM        ABOVE MAXIMUM
                                                        OF ESTIMATED     OF ESTIMATED      OF ESTIMATED       OF ESTIMATED
                                                        PRICE RANGE)     PRICE RANGE)      PRICE RANGE)      PRICE RANGE)(6)
                                                       --------------   --------------    --------------    -----------------
                                                                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Gross Proceeds.......................................     $105,269          $123,845         $142,421            $163,784
Less:  Offering expenses and commissions.............        1,707             1,903            2,100               2,326
                                                          --------          --------         --------            --------
Estimated net proceeds...............................      103,562           121,942          140,321             161,458
Less:  Common Stock purchased by the ESOP............       (8,422)           (9,908)         (11,394)            (13,103)
       Common Stock purchased by Stock-Based
            Incentive Plan...........................       (4,211)           (4,954)          (5,697)             (6,551)
                                                          --------          --------         --------            --------
  Estimated net proceeds, as adjusted................     $ 90,929          $107,080         $123,230            $141,804
                                                          ========          ========         ========            ========
Consolidated net earnings:
  Historical.........................................     $  4,710          $  4,710         $  4,710            $  4,710
  Pro forma earnings on net proceeds, as adjusted....        3,101             3,651            4,202               4,836
  Less:     Pro forma ESOP adjustment(1).............         (354)             (416)            (479)               (550)
            Pro forma Stock-Based Incentive Plan
                adjustment(2)........................         (531)             (624)            (718)               (825)
                                                          --------          --------         --------            --------
       Pro forma net earnings........................     $  6,926          $  7,321         $  7,715            $  8,171
                                                          ========          ========         ========            ========
Per share net earnings (3)
  Historical.........................................     $   0.24          $   0.21         $   0.18            $   0.16
  Pro forma earnings on net proceeds, as adjusted....         0.16              0.16             0.16                0.16
  Less:     Pro forma ESOP adjustment(1).............        (0.02)            (0.02)           (0.02)              (0.02)
            Pro forma Stock-Based Incentive Plan
                adjustment(2)........................        (0.03)            (0.03)           (0.03)              (0.03)
                                                          --------          --------         --------            --------
       Pro forma net earnings per share..............     $   0.35          $   0.32         $   0.29            $   0.27
                                                          ========          ========         ========            ========
Stockholders' equity:
  Historical.........................................     $ 92,863          $ 92,863         $ 92,863            $ 92,863
  Estimated net proceeds.............................      103,562           121,942          140,321             161,458
  Plus: Assets consolidated from MHC.................        1,106             1,106            1,106               1,106
  Less:     Common Stock acquired by ESOP(1).........       (8,422)           (9,908)         (11,394)            (13,103)
            Common Stock acquired by
                Stock-Based Incentive Plan(2)........       (4,211)           (4,954)          (5,697)             (6,551)
                                                          --------          --------         --------            --------
       Pro forma stockholders' equity(2)(4)(5).......     $184,898          $201,049         $217,199            $235,773
                                                          ========          ========         ========            ========
Stockholders' equity per share (6):
  Historical.........................................     $   4.55          $   3.87         $   3.36            $   2.93
  Estimated net proceeds.............................         5.08              5.08             5.08                5.09
  Plus: Assets consolidated from MHC.................         0.05              0.05             0.04                0.03
  Less:     Common Stock acquired by ESOP(1).........        (0.41)            (0.41)           (0.41)              (0.41)
            Common Stock acquired by
                Stock-Based Incentive Plan(2)........        (0.21)            (0.21)           (0.21)              (0.21)
                                                          --------          --------         --------            --------
       Pro forma stockholders' equity
            per share(2)(4)(5).......................     $   9.06          $   8.38         $   7.86            $   7.43
                                                          ========          ========         ========            ========
Offering price as a percentage of pro forma      
  stockholders' equity per share.....................       110.38%           119.19%          127.23%             134.59%
Offering price to pro forma net earnings (loss)              
  per share..........................................         28.6x             31.3x            34.5x               37.0x
(footnotes on following page)

                                       35
__________________
(1)  It is assumed that 8% of the shares of Conversion Stock issued in the
     Conversion and Reorganization, will be purchased by the ESOP. For purposes
     of this table, the funds used to acquire such shares are assumed to have
     been borrowed by the ESOP from the Company. The amount to be borrowed is
     reflected as a reduction of stockholders' equity. The Bank intends to make
     annual contributions to the ESOP in an amount at least equal to the
     principal and interest requirement of the debt. The Bank's total annual
     payment of the ESOP debt is based upon 15 equal annual installments of
     principal, with an assumed interest rate at 7.00%. The pro forma net
     earnings assumes: (i) that the Bank's contribution to the ESOP is
     equivalent to the debt service requirement for the year ended December 31,
     1996, and was made at the end of the period; (ii) that 56,143, 66,050,
     75,957 and 87,351 shares at the minimum, midpoint, maximum and 15% above
     the maximum of the range, respectively, were committed to be released
     during the year ended December 31, 1996, at an average fair value of $10.00
     per share in accordance with the SOP 93-6; and (iii) only the ESOP shares
     committed to be released were considered outstanding for purposes of the
     net earnings per share calculations. See "Management of the Bank- Benefit
     Plans - Employee Stock Ownership Plan and Trust."
(2)  Gives effect to the Stock-Based Incentive Plan expected to be adopted by
     the Company following the Conversion and Reorganization and presented for
     approval at a meeting of stockholders. If the Stock-Based Incentive Plan is
     approved by stockholders, the Stock-Based Incentive Plan intends to acquire
     an amount of Conversion Stock equal to 4% of the shares of Common Stock
     issued in the Conversion and Reorganization, or 421,076, 495,379, 569,682
     and 655,136 shares of Common Stock at the minimum, midpoint, maximum and
     15% above the maximum of the Estimated Price Range, respectively, either
     through open market purchases, if permissible, or from authorized but
     unissued shares of Common Stock or treasury stock of the Company, if any.
     Funds used by the Stock-Based Incentive Plan to purchase the shares will be
     contributed to the Stock-Based Incentive Plan by the Bank. In calculating
     the pro forma effect of the Stock-Based Incentive Plan, it is assumed that
     the required stockholder approval has been received, that the shares were
     acquired by the Stock-Based Incentive Plan at the beginning of the period
     presented in open market purchases at the Purchase Price and that 20% of
     the amount contributed was an amortized expense during such period. The
     issuance of authorized but unissued shares of the Company's Common Stock to
     the Stock-Based Incentive Plan instead of open market purchases would
     dilute the voting interests of existing stockholders by approximately 2.17%
     and pro forma net earnings per share would be $0.36, $0.32, $0.29 and $0.27
     at the minimum, midpoint, maximum and 15% above the maximum of the range,
     respectively, and pro forma stockholders' equity per share would be $8.88,
     $8.21, $7.71 and $7.28 at the minimum, midpoint, maximum and 15% above the
     maximum of the range, respectively. There can be no assurance that
     stockholder approval of the Stock-Based Incentive Plan will be obtained, or
     that the actual purchase price of the shares will be equal to the Purchase
     Price. See "Management of the Bank -Benefits - Stock-Based Incentive Plan."
(3)  Historical and pro forma net earnings per share have been divided by the
     total number of shares to be outstanding upon consummation of the
     Conversion and Reorganization, as adjusted to give effect to the purchase
     of shares by the ESOP during the period, or 19,406,967, 22,831,784,
     22,256,568 and 30,195,063 shares of Common Stock at the minimum, midpoint,
     maximum, and maximum, as adjusted, of the Estimated Price Range,
     respectively.
(4)  No effect has been given to the issuance of additional shares of Common
     Stock pursuant to the options provided for under the Stock-Based Incentive
     Plan expected to be adopted by the Company following the Conversion and
     Reorganization or to the exercise of existing stock options. The Company
     expects to present the Stock-Based Incentive Plan for approval at a meeting
     of stockholders. If the Stock-Based Incentive Plan are approved by
     stockholders, an amount equal to 10% of the Conversion Stock issued in the
     Conversion, or 1,052,691, 1,238,449, 1,424,207 and 1,637,842 shares at the
     minimum, midpoint, maximum and 15% above the maximum of the Estimated Price
     Range, respectively, will be reserved for future issuance upon the exercise
     of options to be granted under the Stock-Based Incentive Plan. The issuance
     of Common Stock pursuant to the exercise of options under the Stock-Based
     Incentive Plan will result in the dilution of existing stockholders'
     interests by approximately 5.31%. Assuming stockholder approval of the
     Stock-Based Incentive Plan and all options were exercised at the end of the
     period at an exercise price of $10.00 per share, the pro forma net earnings
     per share would be $0.34, $0.30, $0.28 and $0.26, respectively, and the pro
     forma stockholders' equity per share would be $9.11, $8.46, $7.97 and
     $7.55, respectively. See "Management of the Bank - Benefits -- Stock-Based
     Incentive Plan."
(5)  The retained earnings of the Bank will continue to be substantially
     restricted after the Conversion. See "Dividend Policy," "The Conversion and
     Reorganization -- Liquidation Rights" and "Regulation -Federal Regulation
     of Savings Institutions - Limitation on Capital Distributions."
(6)  Historical and pro forma stockholders' equity per share have been divided
     by the total number of shares to be outstanding upon consummation of the
     Conversion and Reorganization, or 20,400,000, 24,000,000, 27,600,000 and
     30,174,000 shares at the minimum, midpoint, maximum, and maximum, as
     adjusted, of the Estimated Price Range, respectively.
(7)  As adjusted to give effect to an increase in the number of shares which
     could occur due to an increase in the Estimated Price Range of up to 15% as
     a result of regulatory considerations or changes in market or general
     financial and economic conditions following the commencement of the
     Subscription and Community Offerings.

                                       36
FIRST SAVINGS BANK, SLA AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME

     The following Consolidated Statements of Income of the Bank and
Subsidiaries for each of the years in the three-year period ended December 31,
1996 have been audited by KPMG Peat Marwick LLP independent certified public
accountants, whose report thereon is included elsewhere in this Prospectus. With
respect to the information for the nine months ended September 30, 1997 and
1996, which is unaudited, in the opinion of management, all adjustments
necessary for a fair presentation of such interim periods have been included and
are of a normal recurring nature. Results for the nine months ended September
30, 1997 are not necessarily indicative of the results that may be expected for
the fiscal year ended December 31, 1997. These Consolidated Statements of Income
should be read in conjunction with the Consolidated Financial Statements and
notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations included elsewhere in this Prospectus.
FOR THE NINE MONTHS         
                                                        ENDED SEPTEMBER 30,          FOR THE YEAR ENDED DECEMBER 31,
                                                    -------------------------     ----------------------------------
                                                        1997           1996          1996         1995         1994
                                                    ----------   ------------     ----------  ----------- ----------
                                                             (UNAUDITED)
                                                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
Interest income:
Loans..........................................   $  32,216     $  28,489       $  38,596   $  35,245   $  32,095
  Mortgage-backed securities.....................      12,598        14,680          19,147      22,140      15,115
  Investment securities and other................       2,993         2,952           4,094       4,671       2,179
  Investment and mortgage-backed securities       
     and loans available for sale................       6,829         4,378           6,202       2,517       3,520 
                                                    ---------     ---------       ---------   ---------   --------- 
          Total interest income..................      54,636        50,499          68,039      64,573      52,909
                                                    ---------     ---------       ---------   ---------   ---------
Interest expense:
  Deposits:
          NOW and money market demand............       4,142         3,809           5,122       5,090       4,348
          Savings................................       2,462         2,665           3,514       3,568       3,609
          Certificates of deposit................      18,863        19,040          25,256      24,997      15,738
                                                    ---------     ---------       ---------   ---------   ---------
                                                       25,467        25,514          33,892      33,655      23,695
  Borrowed funds.................................       5,124         2,130           3,372       2,036       1,440
                                                    ---------     ---------       ---------   ---------   ---------
          Total interest expense.................      30,591        27,644          37,264      35,691      25,135
                                                    ---------     ---------       ---------   ---------   ---------
  Net interest income before provision for      
     loan losses.................................      24,045        22,855          30,775      28,882      27,774 
  Provision for loan losses......................         900           375             550         310         300
                                                    ---------     ---------       ---------   ---------   ---------
  Net interest income after provision for              23,145        22,480          30,225      28,572      27,474
     loan losses.................................   ---------     ---------       ---------   ---------   ---------

Other operating income:
  Fees and service charges.......................       1,241         1,140           1,557       1,604       1,587
  Net gain on sales of loans and securities......         593           139             236         751          40
  Other, net.....................................         352           103             202        (184)        107
                                                    ---------     ---------       ---------   ---------   ---------
          Total other operating income...........       2,186         1,382           1,995       2,171       1,734
                                                    ---------     ---------       ---------   ---------   ---------
Operating expenses:
  Compensation and employee benefits.............       7,342         7,956          10,283       8,531       8,189
  Occupancy......................................       1,491         1,517           2,048       2,056       1,875
  Equipment......................................       1,103           762           1,033       1,186       1,288
  Advertising....................................         439           313             445         563         426
  Federal deposit insurance premium..............         285         1,394           1,860       1,701       1,569
  Special SAIF assessment........................          --         5,220           5,220          --          --
- Amortization of intangibles....................       1,932         1,138           1,349       1,066         223
  General and administrative.....................       1,989         1,822           2,463       2,727       2,451
                                                    ---------     ---------       ---------   ---------   ---------
          Total operating expenses...............      14,581        20,122          24,701      17,830      16,021
                                                    ---------     ---------       ---------   ---------   ---------
Income before income tax expense.................      10,750         3,740           7,519      12,913      13,187
Income tax expense...............................       3,990         1,376           2,809       4,611       4,912
                                                    ---------     ---------       ---------   ---------   ---------
Net income.......................................   $   6,760     $   2,364       $   4,710   $   8,302   $   8,275
                                                    =========     =========       =========   =========   =========
Net income per share.............................   $    0.84     $    0.29       $    0.59   $    1.04   $    1.03
                                                    =========     =========       =========   =========   =========
Weighted average shares outstanding including
  common stock equivalents.......................   8,025,954     8,023,369       7,986,590   7,974,548   7,997,935
                                                    ---------     ---------       ---------   ---------   ---------
37
MANAGEMENT'S DISCUSSION AND ANALYSIS
               OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

     The earnings of the Bank depend primarily on its level of net interest and
dividend income, which is the difference between interest earned on the Bank's
interest-earning assets, consisting primarily of mortgage and consumer loans,
mortgage-backed securities, U.S. Government and agency obligations, and the
interest paid on interest-bearing liabilities, which consist of savings deposits
and borrowings from the FHLB and primary brokers/dealers. Net interest income is
a function of the Bank's interest rate spread, which is the difference between
the average yield on interest-earning assets and the average rate paid on
interest-bearing liabilities, as well as a function of the average balance of
interest-earning assets as compared to interest-bearing liabilities. The Bank's
earnings are also affected by its level of noninterest income, including
primarily loan fees and service charges, gains (losses) on sales of securities
available for sale, sales of real estate acquired in settlement of loans, income
from real estate operations and by its level of noninterest expense, including
primarily compensation and employee benefits, occupancy, equipment, SAIF deposit
premiums, and other operating expenses. Earnings of the Bank are also affected
significantly by general economic and competitive conditions, particularly
changes in market interest rates, government policies and actions of regulatory
authorities, which events are beyond the control of the Bank.

BUSINESS STRATEGY

     The Bank's business strategy is to preserve asset quality, to maintain a
strong capital position by continuing to emphasize one- to four-family lending
and to seek controlled growth. The Bank's strategy emphasizes customer service
and convenience, and the Bank attributes the loyalty of its customer base to its
commitment to maintaining customer satisfaction. The Bank attempts to set itself
apart from its competitors by providing the type of personalized service not
generally available from larger banks while offering a greater variety of
products and services than is typically available from smaller, local depository
institutions.

     The Bank's principal business has historically been, and, to a large
degree, continues to be, attracting retail deposits from the general public and
investing those deposits, together with funds generated from operations and
borrowings, primarily in one- to four-family residential mortgage loans, real
estate construction loans, commercial real estate loans, home equity loans and
lines of credit and multi-family residential mortgage loans. The Bank maintains
a significant portfolio of mortgage-backed securities and also invests in U. S.
Government, federal agency and corporate debt securities and other marketable
securities. The Bank's revenues are derived principally from interest on its
mortgage loan and mortgage-backed securities portfolios and interest and
dividends on its investment securities. The Bank's primary sources of funds are
deposits, proceeds from principal and interest payments on loans and mortgage-
backed securities; sales of loans, mortgage-backed securities and investments
available for sale; maturities of investment securities and short-term
investments; and, to an increasing extent, advances from the Federal Home Loan
Bank of New York ("FHLB-NY"), reverse repurchase agreements and other borrowed
funds.

     In an effort to enhance its long-term profitability and increase its market
share, however, the Bank began, in 1997, to expand its traditional thrift
lending and securities investment strategy. In this regard, the Bank has begun
to diversify and expand upon the products and services it offers by focusing on
small and medium-sized retail businesses as both lending and deposit customers
by increasing its emphasis on the origination of commercial real estate,
construction and commercial loans, as well as increasing the marketing of its
business checking accounts and other business-related services. To develop full-
service relationships with commercial customers, the Bank has introduced
merchant services, such as merchant credit card 

                                       38
processing, overdraft sweep accounts and express teller services. The Bank
intends to hire additional lending personnel with expertise in commercial real
estate lending to facilitate growth in this area. It is also the Bank's
intention to increase lending volumes through the use of third-party
correspondent lending, without compromising credit quality, as the
correspondents selected will be using the Bank's underwriting guidelines and
approved appraisers.

     As part of the Bank's asset/liability management strategy, and as a means
of enhancing profitability, the Bank also invests in securities. More recently,
the Bank has begun to increase its borrowings as a means of funding asset
growth. The average balance of borrowings outstanding for the year ended
December 31, 1996 was $55.2 million, compared to $111.0 for the nine months
ended September 30, 1997. To the extent the Bank continues to increase its
utilization of borrowings, it may incur an increase in the average cost of
funds, and a corresponding decrease in its net interest margin.

     The Bank is in the process of redesigning its retail delivery system to
facilitate the transition from deposit gathering to active sales promotion and
tracking. The Bank has also invested in a Marketing Customer Information File
marketing system to provide better target marketing and develop product and
customer profitability levels. This strategy is intended to enable the Bank to
reach new and existing customers with products and services which match their
profile, and result in more effective use of the Bank's marketing initiatives.
The desired results of the revamping of the retail branch network is to attract
low-cost deposit accounts, primarily non-interest bearing checking, and also
maintain its current core customer by enhancing existing services to become more
efficient.

     The Bank has, and will continue to, actively pursue growth in contiguous
markets, as evidenced in its retail expansion via branch purchase transactions
with the Resolution Trust Corporation ("RTC"). The Bank has opened a new branch
in its corporate headquarters, and will actively seek opportunities as they
present themselves. The Bank and the Company may use a portion of the net
Conversion and Reorganization proceeds to open additional branch offices or
acquire other financial institutions. However, neither the Company nor the Bank
have any pending agreements or understandings regarding acquisitions of any
specific financial institutions or branch offices.

     The Bank emphasizes its attention to quality service, but also monitors its
operating expenses to maintain its profitability. As business lines and products
are added, the Bank develops break-even levels and budgetary constraints to make
sure the service or product offered is enhancing returns and meeting growth
targets. The Bank regularly reviews its retail operations to verify that they
maintain lending and retail deposit growth initiatives and retention targets. As
a result of this review, the Bank entered into an agreement with a commercial
bank to sell its Eatontown branch, which at September 30, 1997, had total
deposits of $28.2 million. The Bank determined that this branch, acquired from
the RTC in 1991 in a cluster of three branches of another financial institution,
had not performed to the Bank's targeted retail lending and cost of funds
levels. This transaction is scheduled to close in February 1998.

YEAR 2000 COMPUTER ISSUES

     First Savings Bank has adopted a Year 2000 Compliant Plan. This lan was
approved by the Board of Directors and has been submitted to the OTS. First
Savings has also established a Year 2000 Compliant Committee, which includes
members of senior management from all operating areas. The objectives of the
plan and the committee are to ensure that the Bank will be prepared for the new
millennium. As recommended by the Federal Financial Institutions Examination
Council, the Year 2000 Compliant Plan encompasses the following phases:
Awareness, Assessment, Renovation, Validation and Implementation. These phases
will enable the Bank to identify risks, develop an action plan, perform adequate
testing and 

                                       39
complete certification that its processing systems will be Year 2000 compliant.
Execution of the plan is currently on target and no material expenses have been
identified to date.

MANAGEMENT OF INTEREST RATE RISK

     The principal objective of the Bank's interest rate risk management is to
evaluate the interest rate risk inherent in certain balance sheet accounts,
determine the level of risk appropriate given the Bank's business strategy,
operating environment, capital and liquidity requirements and performance
objectives, and manage the risk consistent with the Board of Directors' approved
guidelines. Through such management, the Bank seeks to minimize the
vulnerability of its operations to changes in interest rates. The Bank's Board
of Directors reviews the Bank's interest rate risk position quarterly. The
Bank's Asset/Liability Committee is comprised of the Bank's senior management
under the direction of the Board of Directors, with senior management
responsible for reviewing with the Board of Directors its activities and
strategies, the effect of those strategies on the Bank's net interest margin,
the market value of the portfolio and the effect that changes in interest rates
will have on the Bank's portfolio and the Bank's exposure limits. In addition,
the Bank has established an Asset/Liability Strategy Committee ("ALSCO"), a
subcommittee of the Asset/Liability Committee, which is charged with
establishing and maintaining a monitoring system for all marketing initiatives
providing management reports, and formulating and recommending strategies to the
Asset/Liability Committee. The ALSCO meets at least twice monthly. See "Risk
Factors--Potential Impact of Changes in Interest Rates."

     The Bank utilizes the following strategies to manage interest rate risk:
(1) emphasizing the origination and retention of fixed-rate mortgage loans
having terms to maturity of not more than 20 years, adjustable-rate loans and
consumer loans consisting primarily of home equity loans and lines of credit;
(2) selling substantially all fixed-rate conforming mortgage loans with terms of
thirty years without recourse and on a servicing-retained basis; and (3)
investing primarily in adjustable-rate mortgage-backed securities, which may
generally bear lower yields as compared to longer term investments, but which
better position the Bank for increases in market interest rates and holding the
majority of same as available for sale. The Bank currently does not participate
in hedging programs, interest rate swaps or other activities involving the use
of off-balance sheet derivative financial instruments, but may do so in the
future to mitigate interest rate risk.

     Net Portfolio Value. The Bank's interest rate sensitivity is monitored by
management through the use of the OTS model which estimates the change in the
Bank's net portfolio value ("NPV") over a range of interest rate scenarios, and
the Federal Home Loan Bank of Atlanta Asset/Liability Model. The NPV is defined
as the current market value of assets, minus the current market value of
liabilities, plus or minus the current value of off-balance sheet items. The
market values are estimated through two cash flow-based valuation methodologies
and an option-based valuation model: (1) static discounted cash flow analysis,
(2) an option-based pricing analysis (modified discounted cash flow analysis to
value embedded options), and (3) the Black-Scholes model to value off-balance
sheet items. The change in NPV measures an institution's vulnerability to
changes in interest rates by estimating the change in the market value of an
institution's assets, liabilities, and off-balance sheet contracts in response
to an instantaneous change in the general level of interest rates.

     The OTS uses, as a critical point, a change of plus or minus 200 basis
points in order to set its "normal" institutional results and peer comparisons.
The greater the change, positive or negative, in NPV, the more interest rate
risk is assumed to exist within the institution. The following table lists the
Bank's percentage change in NPV assuming an immediate change of plus or minus of
up to 400 basis points from the level of interest rates at September 30, 1997,
as calculated by the OTS. As the table shows, increases in

                                       40
interest rates would result in decreases in the Bank's NPV, while decreases in
interest rates would result in increases in the Bank's NPV.
CHANGE IN                                                                NPV AS % OF PORTFOLIO
INTEREST RATES                      NET PORTFOLIO VALUE                     VALUE OF ASSETS
                              ---------------------------------       ---------------------------- 
IN BASIS POINTS                                                          NPV                      
(RATE SHOCK)                  AMOUNT      $ CHANGE     % CHANGE          RATIO           CHANGE(1) 
---------------               --------  -----------    --------       ----------     -------------
                                (DOLLARS IN THOUSANDS)
400                     $ 72,140    $(55,218)     (43.0)%          7.30%            (461)
      300                       89,115     (38,243)     (30.0)           8.81             (310)
      200                      104,705     (22,653)     (18.0)          10.14             (178)
      100                      117,921      (9,437)      (7.0)          11.20              (71)
     Static                    127,358          --         --           11.92               --
     (100)                     131,681       4,323        3.0           12.19               27
     (200)                     132,680       5,322        4.0           12.19               27
     (300)                     135,050       7,692        6.0           12.28               37
     (400)                     140,536      13,178       10.0           12.63               71
_____________
(1)  Expressed in basis points.

     Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurements. Modeling changes in NPV require the making of
certain assumptions which may or may not reflect the manner in which actual
yields and costs respond to changes in market interest rates. In this regard,
the NPV model presented assumes that the composition of the Bank's interest
sensitive assets and liabilities existing at the beginning of a period remains
constant over the period being measured and also assumes that a particular
change in interest rates is reflected uniformly across the yield curve
regardless of the duration to maturity or repricing of specific assets and
liabilities. Accordingly, although the NPV measurements and net interest income
models provide an indication of the Bank's interest rate risk exposure at a
particular point in time, such measurements are not intended to and do not
provide a precise forecast of the effect of changes in market interest rates on
the Bank's net interest income and will differ from actual results.

ANALYSIS OF NET INTEREST INCOME

     Net interest income represents the difference between income on interest-
earning assets and expense on interest-bearing liabilities. Net interest income
also depends on the relative amounts of interest-earning assets and interest-
bearing liabilities and the interest rate earned or paid on them.

                                       41
AVERAGE BALANCE SHEET. The following table sets forth certain information
relating to the Bank's average balance sheet and reflects the average yield on
assets and average cost of liabilities for the periods indicated and the average
yields earned and rates paid. Such yields and costs are derived by dividing
annualized income or expense by the average balance of assets or liabilities,
respectively, for the periods presented. Average balances are derived from 
month-end balances.
AT SEPTEMBER 30,                 FOR THE NINE MONTHS ENDED SEPTEMBER 30,
                                                               ---------------------------------------------------------------------
                                             1997                        1997                                1996
                                        ---------------------- ---------------------------------------------------------------------
                                                                                       AVERAGE                            AVERAGE
                                                       YIELD/     AVERAGE              YIELD/     AVERAGE                  YIELD/
                                           BALANCE     COST       BALANCE    INTEREST   COST      BALANCE     INTEREST      COST
                                        -----------  --------- ----------  ----------  --------  ---------  -----------  -----------
                                                                         (DOLLARS IN THOUSANDS)
ASSETS:
Interest-earning assets:
     Loans receivable, net(1)........... $  567,197    7.84%   $  540,782     $32,216   7.94%     $480,638      $28,489    7.90%
     Mortgage-backed securities.........    228,158    7.33       243,273      12,598   6.90       289,080       14,680    6.77
     Investment securities..............     40,959    7.23        41,236       2,258   7.30        35,665        2,002    7.48
     Investment and mortgage-backed      
       securities and loans available    
        for sale........................    140,395    6.77       144,510       6,829   6.30        95,717        4,378    6.10
      Other interest-earning             
       investments(2)...................     25,970    6.09        17,163         735   5.71        24,642          950    5.14
                                         ----------            ----------     -------             --------      -------
       Total interest-earning assets....  1,002,679    7.50       986,964      54,636   7.38       925,742       50,499    7.27
                                                                              -------                           -------
      Non-interest earning assets.......     41,834                46,474                           39,524
                                         ----------            ----------                         --------
      Total assets...................... $1,044,513            $1,033,438                         $965,266
                                         ==========            ==========                         ========
                                         
LIABILITIES AND STOCKHOLDERS' EQUITY:    
     Interest-bearing liabilities:       
      NOW and money market accounts.....    195,003    2.93       191,758       4,142   2.88       177,228        3,809    2.87
      Passbook and statement savings....    123,384    2.54       129,334       2,462   2.54       141,031        2,665    2.52
      Certificate accounts..............    464,652    5.54       463,939      18,863   5.42       470,523       19,040    5.40
      Borrowed funds....................    124,465    5.98       110,954       5,124   6.16        46,978        2,130    6.05
                                         ----------            ----------     -------             --------      -------
     Total interest-bearing liabilities.    907,504    4.63       895,985      30,591   4.55       835,760       27,644    4.41
                                                                              -------                           -------
     Non-interest-bearing deposits......     26,410                21,109                           19,667
     Other liabilities..................     11,386                20,147                           18,677
                                         ----------            ----------                         --------
      Total liabilities.................    945,300               937,241                          874,104
     Stockholders' equity...............     99,213                96,197                           91,162
                                         ----------            ----------                         --------
      Total liabilities and stockholders 
       equity........................... $1,044,513            $1,033,438                         $965,266
                                         ==========            ==========                         ========
      Net interest income/interest       
       rate spread(3)...................               2.87%                  $24,045   2.83%                   $22,855    2.86%
                                                       ====                   =======   ====                    =======    ==== 
     Net interest-earning assets/        
      net interest                       
       rate  margin(4)..................                       $   90,979               3.25%     $ 89,982                 3.29%
                                                               ==========               ====      ========                 ====
     Ratio of interest-earning assets to 
       interest-bearing liabilities.....                           1.10x                            1.11x
                                                                   =====                            =====
___________________
(1)  Loans receivable, net includes non-accrual loans.
(2)  Includes federal funds sold and FHLB-NY stock.
(3)  Interest rate spread represents the difference between the average rate on
     interest-earning assets and the average cost of interest-bearing
     liabilities.
(4)  Net interest margin represents net interest income divided by average
     interest-earning assets.

                                       42
FOR THE YEARS ENDED DECEMBER 31,                      
                                           ------------------------------------------------------------------------------
                                                          1996                                     1995                  
                                           -----------------------------------   ----------------------------------------   
                                                                      AVERAGE                                 AVERAGE    
                                            AVERAGE                    YIELD/       AVERAGE                    YIELD/    
                                            BALANCE      INTEREST       COST        BALANCE      INTEREST       COST     
                                           --------      --------     -------      --------      --------     -------    
                                                                           (DOLLARS IN THOUSANDS)
ASSETS:                                                                                                                  
  Interest-earning assets:                                                                                               
    Loans receivable, net(1)...........     $487,619      $38,596        7.92%      $457,802      $35,245        7.70%   
    Mortgage-backed securities.........      282,021       19,147        6.79        332,167       22,140        6.67    
    Investment securities..............       36,810        2,741        7.45         44,334        3,171        7.15    
    Investment and mortgage-backed                                                                                       
      securities and loans available                                                                                     
      for sale.........................      101,244        6,202        6.13         42,425        2,517        5.93    
    Other interest-earning                                                                                               
      investments(2)...................       23,525        1,353        5.75         21,069        1,500        7.12    
                                            --------      -------                   --------      -------                
       Total interest-earning assets...      931,219       68,039        7.31        897,797       64,573        7.19    
                                                          -------                                 -------                
    Non-interest earning assets........       34,360                                  16,030                             
                                            --------                                --------                             
    Total assets.......................     $965,579                                $913,827                             
                                            ========                                ========                             
                                                                                                                         
LIABILITIES AND STOCKHOLDERS' EQUITY: 
  Interest-bearing liabilities:                                                                                          
    NOW and money market accounts......      178,176        5,122        2.87        179,978        5,090        2.83    
    Passbook and statement savings.....      139,045        3,514        2.53        140,122        3,568        2.55    
    Certificate accounts...............      468,894       25,256        5.39        453,655       24,997        5.51    
    Borrowed funds.....................       55,241        3,372        6.10         33,575        2,036        6.06    
                                            --------      -------                   --------      -------                
  Total interest-bearing.liabilities...      841,356       37,264        4.43        807,330       35,691        4.42    
                                                          -------                                 -------                
  Non-interest-bearing deposits........       19,491                                  16,610                             
  Other liabilities....................       12,799                                   8,029                             
                                            --------                                --------                             
    Total liabilities..................      873,646                                 831,969                             
  Stockholders' equity.................       91,933                                  81,858                             
                                            --------                                --------                             
    Total liabilities and                                                                                                
     stockholders' equity..............     $965,579                                $913,827                             
                                            ========                                ========                             
  Net interest income/interest                                                                                           
   rate spread(3).....................                    $30,775        2.88%                    $28,882        2.77%   
                                                          =======        ====                     =======        ====    
  Net interest-earning assets/net                                                                                        
   interest margin(4)..................     $ 89,863                     3.30%      $ 90,517                     3.22%   
                                            ========                     ====       ========                     ====    
  Ratio of interest-earning                                                                                              
   assets to interest-bearing                                                                                            
    liabilities........................         1.11x                                   1.11x                            
                                            ========                                ========
FOR THE YEARS ENDED DECEMBER 31,     
                                           -----------------------------------------
                                                              1994                    
                                           -----------------------------------------        
                                                                           AVERAGE          
                                             AVERAGE                        YIELD/          
                                             BALANCE         INTEREST        COST           
                                           -----------      ----------     ---------
                                                       (DOLLARS IN THOUSANDS)
ASSETS:                                                 
  Interest-earning assets:                                 
    Loans receivable, net(1)...........     $413,314          $32,095        7.77%                    
    Mortgage-backed securities.........      267,274           15,115        5.66                     
    Investment securities..............       24,954            1,410        5.65                     
    Investment and mortgage-backed                                                                    
      securities and loans                                                                            
       available for sale..............       56,270            3,520        6.26                     
    Other interest-earning.............                           769        5.94                     
      investments(2)...................       12,948          -------                                 
       Total interest-earning assets...     --------           52,909        6.83                     
                                             774,760          -------                                 
    Non-interest earning assets........                                                               
                                              22,407                                                  
    Total assets.......................     --------                                                  
                                            $797,167                                                  
                                            ========                                                  
LIABILITIES AND STOCKHOLDERS' EQUITY:                                                                                              
  Interest-bearing liabilities:                                                                       
    NOW and money market accounts......                         4,348        2.59                     
    Passbook and statement savings.....      168,168            3,609        2.51                     
    Certificate accounts...............      143,738           15,738        4.35                     
    Borrowed funds.....................      361,589            1,440        4.82                     
                                              29,896          -------                                 
  Total interest-bearing                    --------                                                  
   liabilities.........................      703,391           25,135        3.57                     
                                                              -------                                 
  Non-interest-bearing deposits               14,002                                                  
  Other liabilities....................        8,638                                                  
                                            --------                                                  
    Total liabilities                        726,031                                                  
  Stockholders' equity.................       71,136                                                  
                                            --------                                                  
    Total liabilities and                                                                             
     stockholders' equity..............     $797,167                                                  
                                            ========                                                  
                                                                                                      
  Net interest income/interest                                                                        
   rate spread(3).....................                        $27,774        3.26%                    
                                                              =======        ====                     
  Net interest-earning assets/net           $ 71,369                                                  
   interest margin(4)..................     ========                         3.58%                    
                                                                             ====                      
  Ratio of interest-earning                                                                        
   assets to interest-bearing                   1.10x                                              
    liabilities........................     ========
____________________________
     (1)  Loans receivable, net includes non-accrual loans.
     (2)  Includes federal funds sold and FHLB-NY stock.
     (3)  Interest rate spread represents the difference between the average
          rate on interest-earning assets and the average cost of interest-
          bearing liabilities.
     (4)  Net interest margin represents net interest income divided by average
          interest-earning assets.

                                       43
RATE/VOLUME ANALYSIS

     Net interest income can also be analyzed in terms of the impact of changing
interest rates on interest-earning assets and interest-bearing liabilities and
changing volume or amount of these assets and liabilities. The following table
represents the extent to which changes in interest rates and changes in the
volume of interest-earning assets and interest-bearing liabilities have affected
the Bank's interest income and interest expense during the periods indicated.
Information is provided in each category with respect to (i) changes
attributable to changes in volume (change in volume multiplied by prior rate),
(ii) changes attributable to changes in rate (change in rate multiplied by prior
volume), and (iii) the net change. Changes attributable to the combined impact
of volume and rate have been allocated proportionately to the changes due to
volume and the changes due to rate.
NINE MONTHS ENDED                   YEAR ENDED             
                                           SEPTEMBER 30, 1997                DECEMBER 31, 1996          
                                               COMPARED TO                     COMPARED TO             
                                            NINE MONTHS ENDED                   YEAR ENDED             
                                           SEPTEMBER 30, 1996                DECEMBER 31, 1995           
                                     ----------------------------     -----------------------------------
                                            INCREASE                           INCREASE                                     
                                           (DECREASE)                         (DECREASE)                                    
                                             DUE TO                             DUE TO                                       
                                     --------------------             ----------------------
                                      VOLUME       RATE       NET        VOLUME       RATE         NET      
                                     --------   ---------   -------   ----------   ---------   ----------  
                                                                           (IN THOUSANDS)
INTEREST-EARNING ASSETS:                                                                                   
Loans receivable,  net............... $ 3,582      $145     $ 3,727     $ 2,329      $1,022      $ 3,351   
Mortgage-backed securities...........  (2,527)      445      (2,082)     (3,387)        394       (2,993)  
Investment securities................     333       (77)        256        (558)        128         (430)  
Investment and mortgage-backed                                                                             
  securities and loans available                                                                           
  for sale...........................   2,303       148       2,451       3,597          88        3,685    
Other interest earning                                                                                     
  investments........................    (363)      148        (215)        162        (309)        (147)  
                                      -------      ----     -------     -------      ------      -------   
       Total.........................   3,328       809       4,137       2,143       1,323        3,466   
                                      -------      ----     -------     -------      ------      -------   
INTEREST-BEARING LIABILITIES:                                                                              
Deposits:                                                                                                  
NOW and money market accounts........     319        14         333         (46)         78           32   
Passbook and statement savings.......    (237)       34        (203)        (27)        (27)         (54)  
Certificates of deposit..............    (289)      112        (177)        819        (560)         259   
Borrowed funds.......................   2,955        39       2,994       1,322          14        1,336   
                                      -------      ----     -------     -------      ------      -------   
       Total.........................   2,748       199       2,947       2,068        (495)       1,573   
                                      -------      ----     -------     -------      ------      -------   
Net change in net interest income.... $   580      $610     $ 1,190     $    75      $1,818      $ 1,893   
                                      =======      ====     =======     =======      ======      =======
YEAR ENDED                
                                                     DECEMBER 31, 1995    
                                                        COMPARED TO          
                                                        YEAR ENDED          
                                                     DECEMBER 31, 1994   
                                              -----------------------------------
                                                      INCREASE                 
                                                      (DECREASE)               
                                                        DUE TO                   
                                              ----------------------           
                                                VOLUME        RATE        NET     
                                              ---------     --------   ----------
INTEREST-EARNING ASSETS:                                                                          
Loans receivable,  net................          $3,441       $  (291)    $ 3,150
Mortgage-backed securities............           4,049         2,976       7,025
Investment securities.................           1,312           449       1,761
Investment and mortgage-backed
  securities and loans available
  for sale............................            (826)         (177)     (1,003)
Other interest earning
  investments.........................             555           176         731
                                                ------       -------     -------
       Total..........................           8,531         3,133      11,664
                                                ------       -------     -------
INTEREST-BEARING LIABILITIES:
Deposits:
NOW and money market accounts.........             320           442         742
Passbook and statement savings........             (95)           54         (41)
Certificates of deposit...............           4,521         4,738       9,259
Borrowed funds........................             193           403         596
                                                ------       -------
       Total..........................           4,939         5,617      10,556
                                                ------       -------     -------
Net change in net interest income.....          $3,592       $(2,484)    $ 1,108
                                                ======       =======     =======
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1997 AND DECEMBER 31, 1996

     ASSETS. Total assets increased by $57.4 million, or 5.8%, to $1.0 billion
at September 30, 1997, from $987.1 million at December 31, 1996. Cash and cash
equivalents increased $14.8 million, or 163.2%, to $23.8 million as of September
30, 1997, from $9.0 million at December 31, 1996. The increase was due primarily
to a temporary increase in the balance of federal funds sold. These funds were
subsequently invested in longer term, higher yielding assets. Investment
securities, including those available for sale, increased $5.2 million, or 9.7%,
to $59.0 million as of September 30, 1997, from $53.8 million at December 31,
1996. Mortgage-backed securities, including those available for sale, decreased
$22.7 million, or 6.1%, to $350.5 million at September 30, 1997, from $373.2
million at December 31, 1996. The primary source of the asset growth was
increased lending. Net loans receivable, inclusive of those available for sale,
grew by $57.3 million, or 11.2 %, to $567.2 million at September 30, 1997, from
$509.9 million at December 31, 1996. The increase in loans was due to
management's strategic decision to maintain a higher percentage of 

                                       44
loans as a balance sheet component. Management emphasized the origination of
residential one- to four-family five-year adjustable rate mortgages and
construction loans. Loan originations totaled $105.2 million for the nine months
ended September 30, 1997 as compared to $97.3 million for the same period in
1996. Repayment of principal on loans totaled $51.0 million for the nine months
ended September 30, 1997 as compared to $59.7 million for the same period in
1996. Over the 1997 period, principal repayments and sales of mortgage backed
securities were primarily used to fund loan growth. Premises and equipment, net
increased $2.9 million to $13.3 million at September 30, 1997, from $10.4
million at December 31, 1996. The increase was primarily due to costs
capitalized in conjunction with the completion of the Bank's new corporate
headquarters in Woodbridge, New Jersey. Excess of costs over fair value of net
assets acquired decreased $1.9 million to $9.0 million at September 30, 1997,
from $11.0 million at December 31, 1996. Normal amortization accounted for
$635,000 of this decrease. In addition, an impairment writedown of the core
deposit intangible totaling $1.3 million was recognized as of September 30,
1997, on deposits acquired from the RTC in 1995.

     LIABILITIES. Deposits increased $14.9 million, or 1.9%, to $809.4 million
at September 30, 1997, from $794.6 million at December 31, 1996. Borrowed funds
increased $35.9 million, or 40.8%, to $123.9 million at September 30, 1997, from
$88.0 million at December 31, 1996. The increased deposits and borrowed funds
were used primarily to fund the asset growth detailed above as well as for
normal operations. Advances by borrowers for taxes and insurance increased
$782,000, or 17.0%, to $5.4 million at September 30, 1997, from $4.6 million at
December 31, 1996, primarily due to the timing of these payments as well as an
increase in the residential loan portfolio.

     STOCKHOLDERS' EQUITY. The Bank's stockholders' equity increased $6.4
million for the nine months ended September 30, 1997, due primarily to earnings
of $6.8 million, partially offset by dividends of $1.2 million declared and paid
during the first nine months of 1997. Stockholder's equity was also positively
affected by an increase in the market value of securities available for sale
which resulted in an increase in the value of such investments of $196,000, net
of applicable income tax effect. Stock options exercised during the first nine
months of 1997 totaled $430,000.

     The OTS requires that the Bank meet minimum tangible, core, and risk-based
capital requirements. At September 30, 1997, the Bank exceeded all regulatory
capital requirements.

COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1996 AND DECEMBER 31, 1995

     ASSETS. The Bank's assets at December 31, 1996, totaled $987.1 million, an
increase of $42.1 million, or 4.5% from December 31, 1995. Cash and cash
equivalents decreased $17.5 million, or 65.9%, to $9.0 million at December 31,
1996 from $26.5 million at December 31, 1995. The decrease was due primarily to
federal funds being utilized to fund loan production. Investment securities,
including those available for sale, increased $12.7 million, or 31.0%, to $53.8
million at December 31, 1996, from $41.1 million at December 31, 1995. The
increase was due primarily to purchases of investment securities of $52.7
million, partially offset by sales, calls, and maturities of investment
securities of $39.8 million. FHLB-NY stock increased $1.2 million, or 18.4%, to
$7.4 million December 31, 1996, due to an additional purchase of stock as
required by FHLB-NY. Loans receivable, net increased $51.9 million, or 11.3%, to
$509.6 million at December 31, 1996 from $457.8 million at December 31, 1995.
The Bank originated $124.1 million in loans during 1996, compared to $95.7
million for 1995. The Bank also purchased $10.1 million of first mortgage loans
secured by 1-4 family properties in New Jersey from third-party correspondents
during 1996, compared with $5.2 million during 1995. The Bank will continue to
originate residential and commercial mortgage loans through its retail outlets,
in-house originators, brokers and third-party correspondents. The Bank will also
continue to warehouse and sell its 30-year fixed-rate conforming 

                                       45
mortgage loans. The Bank provided $550,000 for possible loan losses during 1996,
compared to $310,000 for 1995. Although non-performing loans decreased to $4.8
million at December 31, 1996, from $6.0 million at December 31, 1995, the Bank's
loan portfolio growth warranted an increase in the provision. Real estate owned
("REO") decreased $1.6 million to $1.5 million at December 31, 1996, from $3.1
million at December 31, 1996. The Bank acquired $2.5 million in properties,
provided $105,000 for possible losses on REO, while selling $4.2 million during
1996. The Bank continues to liquidate REO properties as expeditiously as
possible. MBS, including those available for sale, totaled $373.2 million at
December 31, 1996, compared to $377.5 million at December 31, 1995. The
available for sale portfolio increased $31.5 million, while the held to maturity
portfolio decreased $35.8 million, as the Bank continued to more actively manage
its MBS portfolio. Premises and equipment, net increased $1.0 million, or 10.8%,
to $10.4 million at December 31, 1996, as the Bank was renovating its new
corporate headquarters. Excess of cost over fair value of net assets acquired
decreased $1.3 million, or 11.0%, to $11.0 million at December 31, 1996, from
$12.3 million at December 31, 1995, as the Bank recognized an impairment
writedown totaling $334,000 on deposits acquired from the RTC in 1991, along
with normal amortization of core deposit premiums.

     LIABILITIES. Deposits decreased $11.7 million, or 1.5%, to $794.6 million
at December 31, 1996, from $806.3 million at December 31, 1995. The decrease was
primarily due to a reduction in the dependence on higher rate certificates of
deposits, accompanied by the outflow of funds into other investment vehicles,
specifically mutual funds and the equity markets. Borrowed funds, which consist
of FHLB-NY advances and repurchase agreements, increased $49.2 million, or
127.1%, to $88.0 million at December 31, 1996, from $39.0 million at December
31, 1995. The Bank repaid $37.2 million in borrowings, while proceeds on new
borrowings totaled $86.4 million during 1996. Due to the decline in deposits,
funding for continued loan production was attained through borrowings. ESOP debt
decreased $100,000 to $646,000 at December 31, 1996, as a result of principal
payments during 1996. Advances by borrowers for taxes and insurance increased
$787,000, or 20.6%, to $4.6 million at December 31, 1996, as a direct
correlation with the growth of the loan portfolio. Other liabilities increased
$765,000, or 13.5%, to $6.4 million at December 31, 1996, from $5.7 million at
December 31, 1995, primarily as a result of an increase in accrued liabilities.

     STOCKHOLDERS' EQUITY. Stockholders' equity increased $3.2 million, or 3.5%,
to $92.9 million at December 31, 1996, from $89.7 million at December 31, 1995.
The increase was primarily attributable to earnings for the year ended December
31, 1996, of $4.7 million, offset by cash dividends of $1.2 million, the
acquisition of shares for the Recognition and Retention Plan ("RRP") totaling
$310,000, and a net change in unrealized loss on securities available for sale
of $168,000. Proceeds from stock options exercised during 1996 totaled $32,000.

     The OTS requires that the Bank meet minimum tangible, core, and risk-based
capital requirements. At December 31, 1996, the Bank exceeded all regulatory
capital requirements.

COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
SEPTEMBER 30, 1996

     RESULTS OF OPERATIONS. Net income for the nine months ended September 30,
1997 was $6.8 million, or $.84 per share, compared with $2.4 million, or $.29
per share, for the corresponding 1996 period. The earnings for 1997 were
affected by an impairment writedown of the core deposit intangible recognized as
of September 30, 1997. An after tax charge of $867,000 was incurred due to this
writedown. Net income for the nine months ended September 30, 1997, excluding
this charge, was $7.6 million, or $.95 per share. The 1996 period was affected
by non-recurring charges incurred due to the special assessment to recapitalize
the SAIF and also due to benefits payable as a result of the passing of the
Bank's long-time President. 

                                       46
Earnings for the 1996 period would have been $6.6 million, or $.82 per share,
without these non-recurring charges.

     INTEREST INCOME. Interest income increased by $4.1 million, or 8.2%, to
$54.6 million for the nine months ended September 30, 1997, compared to $50.5
million for the same period in 1996. Interest on loans increased $3.7 million,
or 13.1%, to $32.2 million for the nine months ended September 30, 1997, from
$28.5 million for the same period in 1996. The increase was due primarily to an
increase in the average size of the loan portfolio to $540.8 million for the
nine month period ended September 30, 1997, from $480.6 million for the same
period in 1996. Interest on mortgage-backed securities held to maturity
decreased $2.1 million, or 14.2%, to $12.6 million for the nine months ended
September 30, 1997, compared to $14.7 million for the same period in 1996. The
decrease was due to the decreased average balance of the mortgage-backed
securities held to maturity portfolio for the nine months of 1997 to $243.3
million, from $289.1 million for the same period in 1996, partially offset by an
increase in the yield on the portfolio to 6.90% for 1997 from 6.77% for 1996.
The decrease in mortgage-backed securities held to maturity balances was due
primarily to principal repayments on existing mortgage-backed securities held to
maturity being utilized to fund loan production. The majority of mortgage-backed
securities purchased over the period were classified as available for sale.
Interest and dividends on investment securities increased $41,000, or 1.4% for
the nine months ended September 30, 1997. Interest on investments and mortgage-
backed securities available for sale increased $2.5 million, or 56.0%, to $6.8
million for the nine months ended September 30, 1997, as compared to $4.4
million for the same period in 1996. The increase was due to an increase in the
average balance of the available for sale portfolio to $144.5 million for the
nine months ended September 30, 1997, from $95.7 million for the same period of
1996 along with an increase in the yield on the portfolio to 6.30% for 1997 from
6.10% in 1996.

     INTEREST EXPENSE. Interest expense increased $2.9 million, or 10.7%, to
$30.6 million for the nine months ended September 30, 1997, compared to $27.6
million for the same period in 1996. Interest expense on deposits decreased
$47,000, or 0.2%, to $25.5 million for the nine month period ended September 30,
1997. Interest expense on borrowed funds increased $3.0 million, or 140.6%, to
$5.1 million for the nine months ended September 30, 1997, compared to $2.1
million for the same period in 1996. The increase was due primarily to the
growth in the average balance of borrowings, which was $111.0 million for the
nine months ended September 30, 1997, as compared to $47.0 million for the
comparable 1996 period. This increase was attributable to management's strategy
to fund the purchase of investment and mortgage-backed securities through the
use of borrowed funds, where accretive to earnings. The interest expense on
borrowings was also affected by an increase in the average cost of borrowings to
6.16% for the nine months ended September 30, 1997, from 6.05% for the
comparable 1996 period.

     NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest income
before provision for loan losses increased $1.2 million, or 5.2%, to $24.0
million for the nine months ended September 30, 1997, compared to $22.9 million
for the same period in 1996. The increase was due to the changes in interest
income and interest expense described above.

     PROVISION FOR LOAN LOSSES. The provision for loan losses increased
$525,000, or 140.0%, to $900,000 for the nine months ended September 30, 1997,
compared to $375,000 for the same period in 1996. The increase in the provision
is primarily due to the increase in the loan portfolio. Net loans increased
$68.6 million between September 30, 1997 and September 30, 1996. The provision
was based upon management's review and evaluation of the loan portfolio, level
of delinquencies, general market and economic conditions, and asset
classification review. In management's opinion, the allowance for loan losses,
totaling $6.0 million, is adequate to cover losses inherent in the portfolio.
Although management considers the allowance for loan

                                       47
losses to be adequate, additional problems could develop and lead to
additional loan loss provisions and asset write-downs.

     OTHER OPERATING INCOME. Other operating income increased $804,000, or
58.2%, to $2.2 million for the nine months ended September 30, 1997, compared to
$1.4 million for the same period in 1996. Fees and service charges increased
$101,000, or 8.9%, to $1.2 million for the nine months ended September 30, 1997,
from $1.1 million for the same period in 1996. This increase was due to a higher
number of demand deposit accounts along with higher service fees. The overall
increase in other operating income was due primarily to an increase of $454,000
in gains on sales of loans and securities available for sale, to $593,000 for
the nine months ended September 30, 1997, from $139,000 for the comparable 1996
period. The increase was due primarily to net gains of $545,000 recognized in
the third quarter of 1997 and such gains were principally attributable to sales
of mortgage-backed securities available for sale. The "Other, net" category of
Other operating income increased $249,000, or 241.7%, to $352,000 for the nine
months ended September 30, 1997, from $103,000 for the same period in 1996. The
changes in that category are primarily due to reduced expense of $131,000
associated with REO operations and increased income of $121,000 realized by the
Bank's wholly owned subsidiary, FSB Financial Corp. FSB Financial Corp. markets
annuities and other financial products to customers of the Bank and receives
commissions on sales.

     OPERATING EXPENSES. Operating expenses decreased $5.5 million, or 27.5%, to
$14.6 million for the nine months ended September 30, 1997, from $20.1 million
for the same period in 1996. The decrease was primarily due to the SAIF
assessment and employee benefit costs. Compensation and employee benefits
decreased $614,000, or 7.7%, to $7.3 million for the nine months ended September
30, 1997, compared to $8.0 million for the same period in 1996. The 1996 period
included a non-recurring charge for benefits payable as a result of the passing
of the Bank's long-time Chairman and President. Equipment expense increased
$341,000, or 44.8%, to $1.1 million for the nine months ended September 30,
1997, from $762,000 million for the same period in 1996. The increase was due to
the write off of certain equipment determined to be obsolete and increased
depreciation expense incurred due to an upgrade of the Bank's computer
equipment. The Bank incurred reduced FDIC insurance premiums in 1997. On
September 30, 1996, the President signed into law the Deposit Insurance Funds
Act of 1996 (the "Funds Act") which, among other things, imposed a one-time
special assessment on SAIF member institutions, including the Bank, to
recapitalize the SAIF. The Bank's special assessment of $5.2 million was
reflected as an expense in the 1996 period. As a result of the Funds Act, the
FDIC substantially lowered the SAIF insurance assessments on SAIF member
institutions. The Bank's assessment rate has now been reduced to 6.4 basis
points from 23 basis points and the corresponding FDIC expense decreased $1.1
million, or 80%, to $285,000 for the nine months ended September 30, 1997, from
$1.4 million for the comparable 1996 period. Amortization of intangibles
increased $794,000, or 69.8%, to $1.9 million for the nine months ended
September 30, 1997, from $1.1 million for the same period in 1996. An impairment
writedown of the core deposit intangible totaling $1.3 million was recognized as
of September 30, 1997, regarding deposits acquired from the RTC in 1995.

     INCOME TAX EXPENSE. Income tax expense totaled $4.0 million for the nine
months ended September 30, 1997, compared to $1.4 million for the comparable
1996 period, which represented an increase of $2.6 million, or 190.0%. The
increase was due primarily to an increase in taxable income. Taxable income was
affected in the 1996 period by several non-recurring charges.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

     RESULTS OF OPERATIONS. Net income for the year ended December 31, 1996,
totaled $4.7 million, a 43.4% decrease from the $8.3 million earned in 1995. The
decrease was primarily attributable to non- 

                                       48
recurring charges for the special assessment to recapitalize the SAIF and the
expenses resulting from the sudden passing of the Bank's long-time President.

     INTEREST INCOME. Interest income for the year ended December 31, 1996,
totaled $68.0 million, an increase of $3.5 million, or 5.4%, from $64.6 million
for the year ended December 31, 1995. The increase was due primarily to an
increase in the average balance of interest-earning assets to $931.2 million for
1996, from $897.8 million for 1995. Interest income on loans increased $3.4
million, or 9.5%, to $38.6 million for the year ended December 31, 1996,
compared to $35.2 million for 1995. The increase was due primarily to the
increase in the average balance of the loan portfolio to $487.6 million for the
year ended December 31, 1996, from $457.8 million for 1995. Interest on 
mortgage-backed securities held to maturity decreased $3.0 million, or 13.5%, to
$19.1 million for the year ended December 31, 1996, from $22.1 million for 1995.
The decrease is primarily due to a reduction in the average size of the 
mortgage-backed securities held to maturity portfolio to $282.0 million for the
year ended December 31, 1996, from $332.2 million for 1995, as the cash flows
from mortgage-backed securities held to maturity were used to provide funding
for loan production and the purchase of investment securities and mortgage-
backed securities available for sale. Interest on investment securities
decreased $577,000, or 12.4%, to $4.1 million for the year ended December 31,
1996, from $4.7 million for 1995. The decrease was primarily due to a reduction
in the average size of the investment securities portfolio to $36.8 million for
the year ended December 31, 1996, from $44.3 million in 1995, offset slightly by
an increase in the average yield on the investment portfolio to 7.45% for 1996,
from 7.15% for 1995. Interest on investment securities and mortgage-backed
securities available for sale increased $3.7 million, or 146.4%, to $6.2 million
for the year ended December 31, 1996, from $2.5 million for 1995. The increase
was primarily due to the increased average size of the available for sale
portfolio to $101.2 million for 1996, from $42.4 million for 1995, accompanied
by an increase in the average yield to 6.13% for 1996, from 5.93% for 1995. The
increased average size was due to the reclassification from held to maturity to
available for sale of $77.5 million in investment and mortgage-backed securities
in December 1995, (see Note 1, "Summary of Significant Accounting Policies" in
the consolidated financial statements) accompanied by the Bank's positioning
more securities in the available for sale category to manage the portfolio more
effectively.

     INTEREST EXPENSE. Total interest expense increased $1.6 million, or 4.4%,
to $37.3 million for the year ended December 31, 1996, compared to $35.7 million
for 1995. Interest expense on deposits increased $237,000, or 0.7%, to $33.9
million for the year ended December 31, 1996. Interest expense on borrowed funds
increased $1.3 million, or 65.6%, to $3.4 million for the year ended December
31, 1996, from $2.0 million for 1995. The increase was due primarily to an
increase in the average balance of FHLB-NY advances and other borrowings to
$55.2 million for 1996, from $33.6 million for 1995, accompanied by a slight
increase in the average rate paid on borrowings to 6.10% for 1996, from 6.06%
for 1995. The Bank continued to utilize borrowings for funding of loan
production and investment securities purchases.

     NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest income
increased $1.9 million, or 6.6%, totaling $30.8 million for the year ended
December 31, 1996, compared to $28.9 million for 1995. The average interest rate
spread for the year ended December 31, 1996, was 2.88%, compared to 2.77% for
1995. The average yield on interest-earning assets increased 12 basis points,
while average interest expense increased only 1 basis point from 1995 to 1996.

     PROVISION FOR LOAN LOSSES. The Bank provided $550,000 for possible loan
losses in 1996, as compared to $310,000 in 1995. The provision was based upon
management's review and evaluation of the loan portfolio, level of
delinquencies, general market and economic conditions, and asset classification
review. The related allowance for loan losses totaled $5.3 million, and was
112.8% of nonaccrual loans at December 31, 1996. This compares to a $5.2 million
allowance for loan losses at December 31, 1995, which

                                       49
was 89.9% of nonaccrual loans. Substantially all of the nonaccrual loans are
secured by first mortgage liens on single-family residential properties. Non-
performing loans decreased $1.2 million, or 20.3%, to $4.8 million at December
31, 1996, compared to $6.0 million at December 31, 1995.

     OTHER OPERATING INCOME. Other operating income, consisting primarily of
deposit product fees, loan servicing fees, gains and losses on loans and
securities sold, and real estate owned operating income and expenses, totaled
$2.0 million for the year ended December 31, 1996, compared to $2.2 million for
1995, which represented a decrease of $176,000, or 8.1%. Net gains on sales of
loans and securities available for sale totaled $236,000 for the year ended
December 31, 1996, from $751,000 for 1995. Although volume of sales increased
during 1996, the Bank continued to minimize its exposure to rising rates by
limiting the duration of the available for sale portfolio, in order to provide a
consistent funding source for continued loan production. Other income,
consisting primarily of income from the Bank's operating subsidiaries, FSB
Financial Corp. and 1000 Woodbridge Center Drive, Inc., gains and losses on
sales of REO, rental income, and REO expenses, totaled $202,000 for the year
ended December 31, 1996, compared to a net expense of $184,000 for the year
ended December 31, 1995, representing an increase of $386,000, or 209.8%. The
increase was due to decreased REO expenses and provisions for possible losses on
REO, increased income from operating subsidiaries, and increased profits on the
sale of REO.

     OPERATING EXPENSE. Operating expenses increased $6.9 million, or 38.5%, to
$24.7 million for the year ended December 31, 1996, from $17.8 million in 1995.
There were several non-recurring expenses during 1996. Compensation and employee
benefit expense increased $1.8 million, or 20.5%, to $10.3 million for the year
ended December 31, 1996, from $8.5 million for 1995. The increase was primarily
due to a non-recurring charge for benefits payable as a result of the passing of
the Bank's President, accompanied by increased salary and benefit costs.
Occupancy expense decreased $8,000 to $2.0 million for the year ended December
31, 1996. The decrease was due primarily to the closing of a branch of the Bank
in November 1996. Equipment expense decreased $153,000, or 12.9%, to $1.0
million for the year ended December 31, 1996. Advertising expense decreased
$118,000, or 21.0%, to $445,000 for the year ended December 31, 1996, from
$563,000 for 1995. The decrease was due primarily to reduced generic marketing
as loan production was attained without additional marketing efforts. Federal
deposit insurance premiums increased $159,000, or 9.3%, to $1.9 million for the
year ended December 31, 1996, from $1.7 million for 1995. The increase was due
primarily to an increase in the average level of insurance-assessable deposits
to $813.3 million for 1996, from $796.1 million for 1995. The Funds Act, which
was signed into law on September 30, 1996, imposed a one-time special assessment
of $5.2 million on the Bank to recapitalize the SAIF (see Note 15, "Special SAIF
Assessment" in the consolidated financial statements). Amortization of
intangibles increased $283,000, or 26.5%, to $1.3 million for the year ended
December 31, 1996, from $1.1 million for 1995. The increase was due primarily an
impairment writedown of the core deposit intangible totaling $334,000 regarding
deposits acquired from the RTC in 1991. General and administrative expenses
decreased $264,000, or 9.7%, to $2.5 million for the year ended December 31,
1996, from $2.7 million for 1995. The decrease was due primarily to lower
outside service bureau expenses.

     INCOME TAX EXPENSE. Income tax expense totaled $2.8 million for the year
ended December 31, 1996, compared to $4.6 million for 1995, which represented a
decrease of $1.8 million, or 39.1%. The decrease was due primarily to a
reduction in taxable income due to the special SAIF assessment and one-time
charges resulting from the passing of the Bank's President in 1996.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994

     RESULTS OF OPERATIONS. Net income for the year ended December 31, 1995,
totaled $8.3 million, unchanged from the $8.3 million earned in 1994. The Bank's
earnings were primarily achieved by an 

                                       50
increase in net interest income and other operating income, offset by higher
operating expenses due primarily to the expenses relating to the acquisition of
branches from the RTC, partially reduced by lower income tax expense.

     INTEREST INCOME. Interest income for the year ended December 31, 1995,
totaled $64.6 million, an increase of $11.7 million, or 22.1%, from $52.9
million for 1994. The increase was primarily due to an increase in the average
balance of interest-earning assets to $897.8 million for 1995, from $774.8
million for 1994, combined with an increase in the average yield on interest-
earning assets to 7.19% for the year ended December 31, 1995, from 6.83% for
1994. Interest income on loans increased $3.1 million, or 9.7%, to $35.2 million
for the year ended December 31, 1995, compared to $32.1 million for 1994. The
increase was due primarily to an increase in the average balance of the loan
portfolio to $457.8 million in 1995, from $413.3 million in 1994. Interest on
mortgage-backed securities held to maturity increased $7.0 million, or 46.4%, to
$22.1 million for the year ended December 31, 1995, compared to $15.1 million
for 1994. The increase is due primarily to an increase in the average size of
the mortgage-backed securities held to maturity portfolio to $332.2 million in
1995, from $267.3 million for 1994, as the proceeds of the branch acquisitions
were used to purchase mortgage-backed securities held to maturity, accompanied
by the increase in the average yield earned on mortgage-backed securities held
to maturity to 6.67% during 1995 from 5.66% during 1994 as a result of upward
adjustments on adjustable-rate mortgage-backed securities. Interest on
investment securities increased $2.5 million, or 113.6%, to $4.7 million for the
year ended December 31, 1995, as compared to $2.2 million for 1994. The increase
was due primarily to the increase in the average balance of the investment
securities portfolio with cash flow provided from the branch acquisition during
1995, accompanied by an increase in the average yield to 7.15% for 1995 from
5.65% for 1994, as a result of purchases of investment securities in the first
half of 1995 when rates were higher. Interest on investments, mortgage-backed
securities and loans available for sale totaled $2.5 million for the year ended
December 31, 1995, as compared to $3.5 million for 1994, which represents a
decrease of $1.0 million, or 28.6%. The decrease was due primarily to the
average yield on the available for sale portfolio decreasing to 5.93% for the
year ended December 31, 1995, from 6.26% for 1994, and a corresponding decrease
in the average balance of the available for sale portfolio during 1995. On
December 15, 1995, the Bank reassessed its classifications of all of its
securities in accordance with the SFAS 115 (see Note 1, "Summary of Significant
Accounting Policies" in the consolidated financial statements). The Bank
classified an additional $77.5 million in investment and mortgage-backed
securities from held to maturity to available for sale.

     INTEREST EXPENSE. Total interest expense increased $10.6 million, or 42.2%,
to $35.7 million for the year ended December 31, 1995, as compared to $25.1
million for 1994. The increase in interest expense on deposits to $33.7 million
for the year ended December 31, 1995, from $23.7 million for 1994, was mainly
attributable to an increase in the average deposit balance outstanding to $773.8
million for 1995, from $673.5 million for 1994, accompanied by higher interest
rates paid on deposits, causing average interest cost to increase to 4.35% for
1995, from 3.52% for 1994. General market interest rates began a trend upward in
1994 and continued increasing through June, 1995. Interest rates trended
downward, which enabled the Bank to reprice certificates of deposits
accordingly. Interest expense on borrowed funds increased $596,000, or 41.4%,
during 1995, and was due to increased borrowings accompanied by higher interest
rates paid on borrowings. The average cost of borrowed funds increased to 6.06%
for 1995, from 4.82% for 1994.

     NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest income
increased slightly during 1995, totaling $28.9 million for the year ended
December 31, 1995, as compared to $27.8 for 1994, a $1.1 million, or 4.0%
increase. The average interest rate spread for the year ended December 31, 1995,
was 2.77%, compared to 3.26% for 1994. The spread compression was due to the
upward repricing of certificates of deposit during 1995 outpacing the repricing
of adjustable rate assets, which are subject to 

                                       51
interest rate caps and margins. The average yield on interest-earning assets
increased 36 basis points, but the average interest expense increased 85 basis
points from 1994 to 1995.

     PROVISION FOR LOAN LOSSES. The Bank provided $310,000 for possible loan
losses in 1995, as compared to $300,000 in 1994. The provision was based upon
management's review and evaluation of the loan portfolio, level of
delinquencies, general market and economic conditions, and asset classification
review. The related allowance for loan losses totaled $5.2 million, and was
89.9% of nonaccrual loans at December 31, 1995. This compares to a $5.7 million
allowance for loan losses at December 31, 1994, which was 65.3% of nonaccrual
loans. Substantially all of the nonaccrual loans are secured by first mortgage
liens on single-family residential properties. Non-performing loans decreased
$3.0 million, or 50.0%, to $6.0 million at December 31, 1995, compared to $9.0
million at December 31, 1994.

     OTHER OPERATING INCOME. Other operating income, totaled $2.2 million for
the year ended December 31, 1995, as compared to $1.7 million for 1994, which
represented an increase of $500,000, or 29.4%. The increase was due primarily to
net gains on sales of loans and securities sold to $751,000 for the year ended
December 31, 1995, increased from $40,000 for 1994, as some of the securities
purchased with the proceeds from both the branch acquisitions and the Secondary
Offering were placed in the available for sale portfolio and subsequently sold.
Also included in the net gains on sales of securities available for sale was the
sale of securities which were transferred in accordance with the reassessment of
the securities portfolio as allowed by the SFAS 115 (see Note 1, "Summary of
Significant Accounting Policies" in the consolidated financial statements).
Other income totaled a net expense of $184,000 for the year ended December 31,
1995, as compared to income of $107,000 for 1994. This decrease was due
primarily to increased REO expenses and provisions for possible losses on REO.

     OPERATING EXPENSES. Operating expenses increased $1.8 million, or 11.3%, to
$17.8 million for the year ended December 31, 1995, as compared to $16.0 million
for 1994. The increase was due primarily to increased costs due to the branch
acquisitions during 1995. Compensation and employee benefits increased $342,000,
or 4.2%, to $8.5 million for the year ended December 31, 1995, as compared to
$8.2 million for 1994. Occupancy expenses increased $181,000, or 9.5%, to $2.1
million for the year ended December 31, 1995, compared to $1.9 million for 1994,
due to new branch location costs. Advertising expense increased $137,000, or
32.2% to $563,000 for 1995, compared to $426,000 for 1994, due to increased
advertising to maintain loan volume. Federal deposit insurance premiums
increased $132,000, or 8.3%, to $1.7 million for 1995, compared to $1.6 million
for 1994, due primarily to the increase in the deposit base as a result of the
acquisition from the RTC. Amortization of intangibles totaled $1.1 million for
the year ended December 31, 1995, as compared to $223,000 for 1994, as a result
of the $12.6 million premium paid on the deposits acquired from the RTC during
1995. General and administrative expenses increased $276,000, or 11.0%, to $2.7
million for the year ended December 31, 1995. The increase was due primarily to
certain one-time costs related to the conversion of the deposit data from the
acquired branches to the Bank's data processing system, and increased expenses
in operating subsidiaries.

     INCOME TAX EXPENSE. Income tax expense totaled $4.6 million for the year
ended December 31, 1995, compared to $4.9 million for 1994, which represented a
decrease of $300,000, or 6.1%. The decrease was due primarily to a reduction in
taxable income because of allowable deductions for increases in specific loan
and REO reserves and charge-offs.

LIQUIDITY AND CAPITAL RESOURCES

     The Bank's liquidity is a measure of its ability to generate sufficient
cash flows to meet all of its current and future financial obligations and
commitments. The Bank's primary sources of funds are deposits,

                                       52
proceeds from principal and interest payments on loans and mortgage-backed
securities; sales of loans, mortgage-backed securities and investments available
for sale; maturities of investment securities and short-term investments; and,
to an increasing extent, advances from the FHLB-NY, reverse repurchase
agreements and other borrowed funds. While maturities and scheduled amortization
of loans and mortgage-backed securities are a predictable source of funds,
deposit cash flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition.

     The primary investing activity of the Bank is the origination of one- to
four-family mortgage loans. During the nine months ended September 30, 1997 and
1996, and years ended December 31, 1996, 1995, and 1994, the originated mortgage
loans in the amounts of $104.6 million, $100.9 million, $127.1 million, $98.5
million and $81.8 million, respectively. The Bank originated other loans
totaling $3.4 million, $2.3 million, $3.8 million, $3.8 million and $2.3 million
for the nine months ended September 30, 1997 and 1996, and years ended December
31, 1996, 1995, and 1994, respectively. The Bank also purchased loans and
mortgage-backed and investment securities to reduce excess liquidity not
otherwise used for lending activities. Purchases of mortgage loans totaled $4.7
million and $4.6 million for the nine months ended September 30, 1997 and 1996,
respectively, and $10.1 million and $5.2 million for the years ended December
31, 1996 and 1995, respectively. There were no mortgage loans purchased in 1994.
Purchases of mortgage-backed securities, including those available for sale,
totaled $160.7 million, $141.4 million, $191.3 million, $215.3 million and
$146.6 million for the nine months ended September 30, 1997 and 1996, and years
ended December 31, 1996, 1995, and 1994, respectively. Purchases of investment
securities, including those available for sale, totaled $27.0 million, $44.8
million, $52.7 million, $48.0 million and $37.7 million for the nine months
ended September 30, 1997 and 1996, and years ended December 31, 1996, 1995, and
1994, respectively. Other investing activities include investment in FHLB-NY
stock and federal funds. The investing activities were funded primarily from
principal repayments on loans and mortgage-backed securities of $117.3 million,
$139.2 million, $178.6 million, $119.8 million and $149.4 million for the nine
months ended September 30, 1997 and 1996, and years ended December 31, 1996,
1995, and 1994, respectively. Additionally, proceeds from sales of loans,
mortgage-backed securities and investment securities totaling $128.0 million,
$90.2 million, $124.2 million, $114.8 million and $89.1 million for the nine
months ended September 30, 1997 and 1996, and years ended December 31, 1996,
1995, and 1994, and, to a lesser extent, called or maturing investment
securities totaling $14.0 million, $13.0 million, $19.0 million, $19.0 million
and $11.0 million for the nine months ended September 30, 1997 and 1996, and
years ended December 31, 1996, 1995, and 1994, respectively, provided additional
liquidity.

     The Bank has several other sources of liquidity, including FHLB-NY
advances, which, at September 30, 1997, totaled $33.0 million, of which $15.0
million were due within the following twelve months. If necessary, the Bank has
additional borrowing capacity with the FHLB-NY, including an available overnight
line of credit of up to $48.9 million. The Bank also has other borrowings that
provided additional liquidity, totaling $90.9 million at September 30, 1997,
$25.9 million of which is due in 1998. Other sources of liquidity are investment
and mortgage-backed securities available for sale, totaling $140.4 million at
September 30, 1997.

     The Bank, in the normal course of conducting business, extends credit to
meet the financing needs of its customers through commitments and letters of
credit. At September 30, 1997, the Bank had commitments to originate and
purchase mortgage loans of $25.8 million and to purchase mortgage-backed and
investment securities of $16.9 million. At that date, there were also
commitments under unfunded credit lines totaling $43.0 million and standby
letters of credit totaling $2.1 million. Certificates of deposit that are
scheduled to mature in one year or less totaled $348.3 million at September 30,
1997. Based on historical experience, management estimates that a significant
portion of such deposits will remain with the Bank. The Bank anticipates that it
will have sufficient funds available to meet its current commitments.

                                       53
The Bank is required to maintain an average daily balance of liquid assets
as defined by OTS regulations. This ratio is based upon a percentage of deposits
and short-term borrowings. The required minimum ratio has been reduced to 4.00%,
from 5.00% at September 30, 1997. The Bank's liquidity ratio at September 30,
1997, was 8.17%. The Bank's most liquid assets are cash and cash equivalents,
which include investments in highly liquid, short-term investments. The level of
these assets is dependent upon the Bank's operating, financing, and investing
activities during any given period. As of September 30, 1997, cash and
investments qualifying for liquidity purposes totaled $80.0 million.

IMPACT OF INFLATION AND CHANGING PRICES

     The financial statements of the Bank and notes thereto, presented elsewhere
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 the change in the
relative purchasing power of money over time and due to inflation. The impact of
inflation is reflected in the increased cost of the Bank's operations. Unlike
most industrial companies, nearly all of the assets and liabilities of the Bank
are monetary. As a result, interest rates have a greater impact on the Bank's
performance than does the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the
prices of goods and services.

IMPACT OF NEW ACCOUNTING STANDARDS

     Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. In June 1996, the FASB issued SFAS 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("SFAS 125"). SFAS 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishment of
liabilities. These standards are based on a consistent application of a
financial components approach that focuses on control. Under this approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished. SFAS 125 is effective for transfers that occur after December
31, 1996 and will be applied prospectively except for certain provisions that
were deferred until January 1, 1998, by Statement 127 "Deferral of the Effective
Date of Certain Provisions of FASB No. 125" issued in December 1996. The
adoption of SFAS 125 did not have a material effect on the Bank's financial
position or results of operations.

     Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125. In December 1996, the FASB issued SFAS No. 127, "Deferral of the Effective
Date of Certain Provisions of FASB Statement No. 125" ("SFAS 127"), an amendment
of SFAS 125. SFAS 127 defers for one year the effective date of portions of SFAS
125 that address secured borrowings and collateral for all transactions.
Additionally, SFAS 127 defers for one year the effective date of transfers of
financial assets that are part of repurchase agreements, securities lending and
similar transactions. The adoption of SFAS 127 is not expected to have a
material effect on the Bank's financial position or results of operations.

     Earnings Per Share. In February 1997, the FASB issued Statement 128,
"Earnings Per Share" ("SFAS 128"). SFAS 128 supersedes APB Opinion No. 15,
"Earnings Per Share" and specifies the computation, presentation and disclosure
requirements for earnings per share ("EPS") for entities with publicly held
common stock or potential common stock. SFAS 128 replaces Primary EPS and Fully
Diluted EPS with Basic EPS and Diluted EPS, respectively. SFAS 128 requires dual
presentation of Basic and Diluted EPS on the face of the income statement for
entities with complex capital structures and a reconciliation of information
utilized to calculate Basic EPS to that used to calculate Fully Diluted EPS.

                                       54
SFAS 128 is effective for financial statement periods ending after December 15,
1997. Earlier application is not permitted. After adoption, all prior EPS are
required to be restated to conform with SFAS 128. If the Bank had adopted SFAS
128, Basic EPS would have been $0.85 and $0.30 for the nine months ended
September 30, 1997 and 1996 and $0.60, $1.06 and $1.05 for the years ended
December 31, 1996, 1995 and 1994, respectively. Diluted EPS would have been the
same as earnings per share reported.

     Reporting Comprehensive Income. In June 1997, the FASB issued SFAS 130,
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 established standards
for reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. Under SFAS 130, comprehensive
income is divided into net income and other comprehensive income. Other
comprehensive income includes items previously recorded directly in equity, such
as unrealized gains or losses on securities available for sale. SFAS 130 is
effective for interim periods and annual periods beginning after December 15,
1997. Comparative financial statements for earlier periods are required to be
reclassified to reflect application of the provisions of SFAS 130. The Bank has
not determined the impact, if any, SFAS 130 will have on the Bank's financial
statement presentation.

     Disclosures About Segments of an Enterprise and Related Information. In
June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards
for the way public business enterprises are to report information about
operating segments in annual financial statements and requires those enterprises
to report selected financial information about operating segments in interim
financial reports to shareholders. SFAS 131 is effective for financial
statements for periods beginning after December 15, 1997. The Bank has not yet
determined the impact, if any, SFAS 131 will have on the Bank's financial
statement presentation.

                             BUSINESS OF THE BANK

GENERAL

     The Bank's principal business has been, and continues to be, attracting
retail deposits from the general public and investing those deposits, together
with funds generated from operations and borrowings, primarily in one- to four-
family residential mortgage loans, real estate construction loans, commercial
real estate loans, home equity loans and lines of credit and multi-family
residential mortgage loans. The Bank maintains a significant portfolio of
mortgage-backed securities and also invests in U.S. Government, federal agency
and corporate debt securities and other marketable securities. The Bank's
revenues are derived principally from interest on its mortgage loan and 
mortgage-backed securities portfolios, and interest and dividends on its
investment securities. The Bank's total loan portfolio amounted to $573.0
million at September 30, 1997. One- to four-family residential loans accounted
for 81.8% of total loans, while home equity loans and lines of credit were 7.3%
of total loans. Real estate construction, commercial real estate and multi-
family residential mortgage loans represented in the aggregate 9.8% of total
loans. The Bank also offers a variety of consumer loans. In addition, the Bank
had investments in mortgage-backed securities totalling $350.5 million, or 33.6%
of total assets at September 30, 1997.

MARKET AREA AND COMPETITION

     The Bank has 17 branch offices in central New Jersey, 13 of which are
located in Middlesex County, three in Monmouth county and one in Union County.
The Bank's deposit gathering base is concentrated in the communities surrounding
its offices. The majority of the Bank's loan originations are derived from north
and central New Jersey, which is a part of the New York City metropolitan area
and which has historically benefitted from having a large number of corporate
headquarters and a concentration of financial services- 

                                       55
related industries. The area also has a well-educated employment base and a
large number of industrial, service and high-technology businesses. In the late
1980's and early 1990's, however, due in part to the effects of a prolonged
decline in the national and regional economy, layoffs in the financial services
industry and corporate relocations, the New York/New Jersey metropolitan area
experienced reduced levels of employment. These events, in conjunction with a
surplus of available commercial and residential properties, resulted in an
overall decline during this period in the underlying values of properties
located in New Jersey. However, New Jersey's real estate market has stabilized
in recent years. Whether such stabilization will continue is dependent, in large
part, upon the general economic health of the United States and other factors
beyond the Bank's control and, therefore, cannot be estimated.

     The Bank faces significant competition both in making loans and in
attracting deposits. The State of New Jersey has a high density of financial
institutions, many of which are branches of significantly larger institutions
which have greater financial resources than the Bank, all of which are
competitors of the Bank to varying degrees. The Bank's competition for loans
comes principally from commercial banks, savings banks, savings and loan
associations, credit unions, mortgage banking companies and insurance companies.
Its most direct competition for deposits has historically come from commercial
banks, savings banks savings and loan associations and credit unions. The Bank
faces additional competition for deposits from short-term money market funds,
other corporate and government securities funds and from other financial
institutions such as brokerage firms and insurance companies.

LENDING ACTIVITIES

     Loan and Mortgage-Backed Securities Portfolio Compositions. The Bank's loan
portfolio consists primarily of conventional first mortgage loans secured by 
one-to four-family residences and, to a lesser extent, multi-family residences
and commercial real estate. At September 30, 1997, the Bank's loan portfolio
totalled $573.0 million, of which $468.8 million, or 81.8% were one- to four-
family residential mortgage loans. At that date, the Bank's loan portfolio also
included $41.9 million of home equity loans and lines of credit generally
secured by second liens on one- to four-family residential property, $18.3
million of construction loans, $31.6 million of commercial real estate loans,
and $6.2 million of multi-family residential mortgage loans, which represented
7.3%, 3.2%, 5.5% and 1.1%, respectively, of total loans receivable. Of the
mortgage loan portfolio outstanding at that date, 36.0% were fixed-rate loans
and 64.0% were ARM loans. Other loans held by the Bank, which consist of loans
on deposit accounts, commercial business, personal, automobile and credit card
loans, totalled $6.2 million, or 1.1% of total loans outstanding at September
30, 1997. The Bank does not anticipate maintaining a credit card portfolio in
the foreseeable future.

     The majority of the loans originated by the Bank are held for investment.
However, the Bank sells 30 year, fixed-rate, conforming loans to the Federal
Home Loan Mortgage Corporation ("Freddie Mac") and institutional investors from
time to time, and retains servicing rights. All loans are sold without recourse.
At September 30, 1997, the Bank's servicing portfolio was $94.5 million.

     The Bank also invests in mortgage-backed securities and other mortgage-
backed products such as collateralized mortgage obligations ("CMOs"). At
September 30, 1997, mortgage-backed securities aggregated $350.5 million, or
33.6% of total assets, of which 59.4% were secured by ARM loans. The majority of
the Bank's mortgage-backed securities are insured or guaranteed by Freddie Mac,
the Government National Mortgage Association ("GNMA"), or Fannie Mae ("FNMA").
CMOs totalled $61.7 million, or 17.7% of the Bank's total mortgage-backed
securities portfolio at September 30, 1997, the majority of which were backed or
guaranteed by federal agencies. At September 30, 1997, the Bank had $228.2
million in mortgage-backed securities held for investment, $4.1 million of which
had contractual 

                                       56
maturities of less than one year. The actual maturity of a mortgage-backed
security varies, depending on when the underlying mortgages are repaid or
prepaid. Prepayments of the underlying mortgages may shorten the life of the
investment, thereby affecting its yield to maturity and the related market value
of the mortgage-backed security. The actual prepayments of the underlying
mortgages depend on many factors, including the type of mortgages, the coupon
rates, the age of the mortgages, the geographical location of the underlying
real estate collateralizing the mortgages, levels of market interest rates, and
general economic conditions. As part of the Bank's asset/liability management
strategy and for increased liquidity, the Bank holds a portion of its mortgage-
backed securities portfolio available for sale. At September 30, 1997, mortgage-
backed securities available for sale had an amortized cost of $122.0 million and
a market value of approximately $122.4 million.

                                       57
The following table sets forth the composition of the Bank's loan and
mortgage-backed securities portfolio in dollar amounts and as a percentage of
the portfolio at the dates indicated.
AT DECEMBER 31,
                                                                       ------------------------------------------------------------
                                            AT SEPTEMBER 30, 
                                                 1997                         1996                    1995                 1994
                                          -----------------------      ---------------------    --------------------  --------------

                                                          PERCENT                   PERCENT                 PERCENT   
                                          AMOUNT          OF TOTAL      AMOUNT      OF TOTAL    AMOUNT      OF TOTAL  AMOUNT  
                                          ----------- ------------     ----------  ----------   ----------  --------- ---------
                                                                        (DOLLARS IN THOUSANDS)
Mortgage loans(1):
 One-to-four family.....................   $468,829        81.82%       $428,463     83.14%      $390,641    84.20%    $363,449
 Home equity loans......................     41,895         7.31          39,140      7.60         33,456     7.21       30,768
 Construction(2)........................     18,255         3.19          12,871      2.50          7,612     1.64        3,177
 Commercial real estate.................     31,569         5.51          21,209      4.11         17,322     3.73       13,370
 Multi-family...........................      6,225         1.09           7,876      1.53          9,675     2.09        7,779
 A.I.D.(3)..............................         --           --              --        --            165     0.04          178
                                           --------       ------        --------    ------       --------   ------     --------
       Total mortgage loans.............    566,773        98.92         509,559     98.88        458,871    98.91      418,721
Other loans.............................      6,208         1.08           5,772      1.12          5,055     1.09        4,027
                                           --------       ------        --------    ------       --------   ------     --------
       Total loans receivable...........    572,981       100.00%        515,331    100.00%       463,926   100.00%     422,748
                                                          ======                    ======                  ======
Less:
Net deferred loan fees..................       (198)                          95                      499                   953
  and premiums and discounts
Allowance for loan losses...............      5,982                        5,322                    5,247                 5,745
                                           --------                     --------                 --------              --------
  Total loans receivable, net...........   $567,197                     $509,914                 $458,180              $416,050
                                           ========                     ========                 ========              ========
Mortgage loans:
  ARM...................................   $362,631        63.98%       $309,600     60.76%      $275,109    59.95%    $242,499
  Fixed-rate............................    204,142        36.02         199,959     39.24        183,762    40.05      176,222
                                           --------       ------        --------    ------       --------   ------     --------
       Total mortgage loans.............   $566,773       100.00%       $509,559    100.00%      $458,871   100.00%    $418,721
                                           ========       ======        ========    ======       ========   ======     ========
Mortgage-backed securities(4):
 CMOs...................................   $ 61,670        17.73%       $ 40,095     10.81%      $ 65,399    17.41%    $ 81,009
 FHLMC..................................    199,984        57.50         248,525     67.00        259,994    69.22      198,377
 GNMA...................................     18,509         5.32          27,999      7.54         31,570     8.41       10,029
 FNMA...................................     67,623        19.45          54,339     14.65         18,644     4.96       18,573
                                           --------       ------        --------    ------       --------   ------     --------
Total mortgage-backed securities........    347,786       100.00%        370,958    100.00%       375,607   100.00%     307,988
                                            =======       =======                   =======                 =======
Net premiums and discounts..............      2,414                        2,094                   1,634                  1,153
Net unrealized gain (loss) on mortgage-
backed securities available for sale....        329                          128                     241                 (1,511)
                                           --------                     --------                --------                 --------
Net mortgage-backed securities..........   $350,529                     $373,180                $377,482                 $307,630
                                           ========                     ========                ========                 ========
------------------------------------------------------------------------------
                                                                               1993                      1992
                                                                    --------------------------  ------------------------
                                                     PERCENT                       PERCENT                   PERCENTAGE
                                                     OF TOTAL       AMOUNT         OF TOTAL     AMOUNT       OF TOTAL
                                                ----------------   -----------  -------------  ------------ ------------
Mortgage loans(1):
 One-to-four family.....................              85.98%        $366,914       86.56%       $370,280       87.30%
 Home equity loans......................               7.28           27,676        6.53          25,734        6.07
 Construction(2)........................               0.75            3,920        0.92           5,514        1.30
 Commercial real estate.................               3.16           12,559        2.96           8,585        2.02
 Multi-family...........................               1.84            7,335        1.73           7,436        1.75
 A.I.D.(3)..............................               0.04              191        0.05             202        0.05
                                                     ------         --------      ------        --------      ------
       Total mortgage loans.............              99.05          418,595       98.75         417,751      98.49
Other loans.............................               0.95            5,306        1.25           6,410       1.51
                                                     ------         --------      ------        --------     ------
       Total loans receivable...........             100.00%         423,901      100.00%        424,161     100.00%
                                                     ======                       ======                     ======

Less:
Net deferred loan fees
  and premiums and discounts............                               1,397                       2,375
Allowance for loan losses...............                               5,899                       5,751
                                                                    --------                    --------
  Total loans receivable, net...........                            $416,605                    $416,035
                                                                    ========                    ========
Mortgage loans:
  ARM...................................              57.91%        $240,424       57.44%       $256,248      61.34%
  Fixed-rate............................              42.09          178,171       42.56         161,503      38.66
                                                     ------         --------      ------        --------      ------
       Total mortgage loans.............             100.00%        $418,595      100.00%       $417,751      100.00%
                                                     ======         ========      ======        ========      ======
Mortgage-backed securities(4):
 CMOs...................................              26.30%        $ 74,523       27.64%       $ 51,397      19.89%
 FHLMC..................................              64.41          166,245       61.66         182,278      70.54
 GNMA...................................               3.26           13,578        5.04          18,664       7.22
 FNMA...................................               6.03           15,280        5.66           6,065       2.35
                                                     ------         --------      ------        --------     ------
Total mortgage-backed securities........             100.00%         269,626      100.00%        258,404     100.00%
                                                     ======                       ======                     ======
Net premiums and discounts..............                               2,238                       1,055
Net unrealized gain (loss) on mortgage-.                                 637                          --
backed securities available for sale....                            --------                    --------
Net mortgage-backed securities..........                            $272,501                    $259,459
                                                                    ========                    ========
_________________________________________
(1)  Includes $287,000, $424,000, $150,000, $1.6 million and $2.3 million in 
     mortgage loans available for sale for 1996, 1995, 1994, 1993 and 1992,  
     respectively.                                                           
(2)  Net of loans in process of $26.2 million, $12.3 million, $3.8 million, $3.9
     million, $6.3 million and $4.6 million at September 30, 1997, December 31,
     1996, 1995, 1994, 1993 and 1992, respectively.
(3)  Agency for International Development. Represented a participation interest
     in a $15.0 million aggregate loan to the Korea National Housing
     Corporation, a government-sponsored housing development project.
(4)  Includes $122.4 million, $120.8 million, $89.3 million, $24.4 million,
     $28.3 million and $3.5 million in mortgage-backed securities available for
     sale at September 30, 1997 and December 31, 1996, 1995, 1994, 1993 and
     1992, respectively.

                                       58
The following table sets forth the Bank's loan originations and principal
repayments for the periods indicated.
FOR THE NINE MONTHS                                        
                                                                      ENDED SEPTEMBER 30,         FOR THE YEARS ENDED DECEMBER 31,
                                                                   -------------------------  --------------------------------------
                                                                       1997       1996            1996         1995        1994     
                                                                   ------------ ------------  ------------- ------------ -----------
                                                                                               (IN THOUSANDS)
Mortgage loans(1):
   At beginning of period......................................     $ 504,142     $453,125        $453,125    $412,023     $411,299
                                                                    ---------     --------        --------    --------     --------
       Mortgage loans originated:
       One- to four-family.....................................        76,212       78,523          99,956      75,505       64,976
       Home equity loans.......................................        11,253       12,649          15,290      10,679        9,549
       Construction............................................         5,383        4,938           5,258       5,262        5,355
       Commercial real estate..................................        11,550        1,066           4,943       5,043        1,334
       Multi-family............................................           167        3,743           1,650       1,976          547
                                                                     --------     --------        --------    --------     --------
         Total mortgage loans originated and purchased.........       104,565      100,919         127,097      98,465       81,761
   Mortgage loans purchased....................................         4,665        4,631          10,118       5,181           --
                                                                    ---------     --------        --------    --------     --------
       Total mortgage loans originated.........................       109,230      105,550         137,215     103,646       81,761

   Mortgage loans sold.........................................        (3,036)      (6,198)         (6,932)     (6,343)      (5,387)

   Principal repayments........................................       (48,095)     (57,321)        (77,060)    (52,193)     (73,883)

   (Increase) decrease in premiums/discounts...................           293          247             404         454          444
     and deferred loan fees
   Net (increase) decrease in allowance for loan losses........          (660)         156             (75)        498          154
   Mortgage loans transferred to real estate owned.............          (885)      (2,105)         (2,535)     (4,960)      (2,365)

                                                                    ---------     --------        --------    --------     --------
   At end of period............................................     $ 560,989     $493,454        $504,142    $453,125     $412,023
                                                                    =========     ========        ========    ========     ========
Other loans:
   At beginning of period......................................     $   5,772     $  5,055        $  5,055    $  4,027     $  5,306
   Other loans originated......................................         3,364        2,343           3,835       3,828        2,278
   Other loans sold............................................            --           --              --          --         (238)

   Principal repayments........................................        (2,928)      (2,380)         (3,118)     (2,800)      (3,319)

                                                                    ---------     --------        --------    --------     --------
   At end of period............................................     $   6,208     $  5,018        $  5,772    $  5,055     $  4,027
                                                                    =========     ========        ========    ========     ========
Mortgage-backed securities(2):
   At beginning of period......................................     $ 373,180     $377,482        $377,482    $307,630     $272,501
   Mortgage-backed securities purchased........................       160,663      141,397         191,327     215,292      146,629
   Mortgage-backed securities sold.............................      (116,430)     (73,011)        (96,147)    (81,792)     (35,905)
   Amortization of premium.....................................          (794)        (756)           (977)       (615)      (1,227)
   Net change in unrealized gain (loss) on.....................           202       (1,362)           (113)      1,752       (2,148)
    mortgage-backed securities available for sale
   Principal repayments........................................       (66,292)     (79,493)        (98,392)    (64,785)     (72,220)
                                                                    ---------     --------        --------    --------     --------
   At end of period............................................     $ 350,529     $364,257        $373,180    $377,482     $307,630
                                                                    =========     ========        ========    ========     ========
__________________________________________
(1) Includes $149,000, $287,000, $424,000 and $150,000 in mortgage loans
    available for sale for the nine months ended September 30, 1996, and the
    years ended December 31, 1996, 1995 and 1994, respectively.
(2) Includes $122.4 million, $93.4 million, $120.7 million, $89.1 million and
    $25.9 million in mortgage-backed securities available for sale for the nine
    months ended September 30, 1997 and 1996, and for the years ended December
    31, 1996, 1995 and 1994, respectively.

                                       59
Loan Maturity. The following table sets forth the maturity or period of
repricing of the Bank's loan portfolio at September 30, 1997. Demand loans,
loans having no stated schedule of repayments and no stated maturity, and
overdrafts are reported as due within one year. Adjustable and floating rate
loans are included in the period in which interest rates are next scheduled to
adjust rather than in which they contractually mature, and fixed rate loans are
included in the period in which the final contractual repayment is due. The
table does not include the effect of future principal prepayments. Principal
prepayments and scheduled principal amortization on loans totalled $51.0
million, $80.2 million and $55.0 million for the nine months ended September 30,
1997 and the years ended December 31, 1996 and 1995, respectively.
AT SEPTEMBER 30, 1997
                                   ------------------------------------------------------------------------------------------------
                                                     ONE YEAR        THREE         FIVE YEARS     TEN YEARS      TWENTY
                                    ONE YEAR         TO THREE       YEARS TO         TO TEN       TO TWENTY       YEARS
                                    OR LESS           YEARS        FIVE YEARS        YEARS          YEARS        OR MORE      TOTAL 
                                   -----------  ------------- ----------------- -------------- ------------ -------------- ---------
                                                                        (IN THOUSANDS)
Mortgage loans:
  One-to four-family............     $101,491         $89,064      $ 97,755       $ 98,545        $67,589      $14,385     $468,829
  Home equity loans.............       13,786           1,057         4,957          9,544         12,551           --       41,895
  Construction(1)...............       18,255              --            --              --            --           --       18,255
  Commercial real estate........        3,259          5,427         2,518           3,765         15,342        1,258       31,569
  Multi-family..................           --            352         4,689             536            648           --        6,225
                                     --------        -------      --------        --------        -------      -------     --------
    Total mortgage loans........      136,791         95,900       109,919         112,390         96,130       15,643      566,773
Other loans.....................        2,983          1,876           978              --            371           --        6,208
                                      -------       --------      --------        --------        -------     --------     --------
    Total loans.................     $139,774        $97,776      $110,897        $112,390        $96,501      $15,643     $572,981
                                     ========        =======      ========        ========        =======      =======     
  Net deferred loan fees and unearned discounts........................................................................         198
  Allowance for loan losses............................................................................................      (5,982)

                                                                                                                           --------
Loans receivable, net..................................................................................................    $567,197
                                                                                                                           ========
____________________________________________
(1) Net of loans in process of $26.2 million.

     The following table sets forth at September 30, 1997 the dollar amount of
loans contractually due or repricing after September 30, 1998, and whether such
loans have fixed interest rates or adjustable interest rates.
DUE OR REPRICING AFTER SEPTEMBER 30, 1998
                                                      ----------------------------------------------------------  
                                                         FIXED                 ADJUSTABLE                TOTAL
                                                      ----------             ------------             ----------
                                                                             (IN THOUSANDS)
Mortgage loans:
  One- to four-family........................           $148,842                 $218,496               $367,338
  Multi-family...............................                162                    6,063                  6,225
  Home equity loans..........................             28,109                       --                 28,109
  Commercial real estate.....................             24,400                    3,910                 28,310
  Other loans................................              3,225                       --                  3,225
                                                        --------                 --------               --------
Total loans receivable.......................            204,738                  228,469                433,207
Mortgage-backed securities(1)................            125,405                  221,709                347,114
                                                        --------                 --------               --------
Total loans receivable and
 mortgage-backed securities..................           $330,143                 $450,178               $780,321
                                                        ========                 ========               ========
___________________________________________
(1) Includes $122.0 million in mortgage-backed securities available for sale, at
    amortized cost.

     One- to Four-Family Mortgage Loans. The Bank offers fixed- and adjustable-
rate first mortgage loans secured by one- to four-family residences in New
Jersey. Typically, such residences are single family homes that serve as the
primary residence of the owner. Loan originations are generally obtained from
existing or past customers, members of the local community, and referrals from
attorneys, established builders, and realtors within the Bank's market area. In
addition, one- to four-family residential mortgage loans are also originated in
the Bank's market area through loan originators who are employees of the Bank

                                       60
and are compensated on a commission basis. Originated mortgage loans in the
Bank's portfolio include due-on-sale clauses which provide the Bank with the
contractual right to deem the loan immediately due and payable in the event that
the borrower transfers ownership of the property without the Bank's consent.

     At September 30, 1997, 81.8% of total loans receivable consisted of one-to
four-family residential loans. The Bank currently offers ARM loans, with an
initial fixed rate for one, three, five, seven or ten year periods, which it
then converts into a one-year ARM. The Bank's ARM loans may carry an initial
interest rate which is less than the fully-indexed rate for the loan. The
initial discounted rate is determined by the Bank in accordance with market and
competitive factors. The majority of the Bank's ARM loans adjust by a maximum of
2.00% per year, with a lifetime cap on increases of up to 6.00%. ARM loans are
originated for a term of up to 30 years. In the past, the Bank offered three
year ARM loans that reset every three years at a margin over the three year U.S.
Treasury Index. Interest rates charged on fixed-rate loans are competitively
priced based on market conditions and the Bank's cost of funds. The Bank's 
fixed-rate mortgage loans currently are made for terms of 10 through 30 years.
In previous years, the Bank offered balloon mortgages of five and seven years.

     Generally, ARM loans pose credit risks different than risks inherent in
fixed-rate loans, primarily because as interest rates rise, the payments of the
borrower rise, thereby increasing the potential for delinquency and default. At
the same time, the marketability of the underlying property may be adversely
affected by higher interest rates. In order to minimize risks, borrowers of one-
year ARM loans are qualified at the starting interest rate plus 2.00% or the
fully-indexed rate, whichever is lower. The Bank does not originate ARM loans
which provide for negative amortization. At present, the Bank offers Limited
Documentation loans that do not require income verification but do require full
asset verification.

     The Bank generally originates one- to four-family residential mortgage
loans in amounts up to 95% of the appraised value or selling price of the
mortgaged property, whichever is lower. The Bank requires private mortgage
insurance for all loans originated with loan-to-value ratios exceeding 80%.
Generally, the minimum one- to four-family loan amount is $25,000, and the
maximum loan amount is $500,000. The Bank typically charges an origination fee
of up to 3.00% on one- to four-family residential loans.

     Home Equity Loans and Lines of Credit. The Bank originates home equity
loans secured by one- to four-family residences. These loans generally are
originated as fixed-rate loans with terms from five to 15 years. Home equity
loans are primarily made on owner-occupied, one- to four-family residences and
primarily to the Bank's first mortgage customers. These loans are generally
subject to a 80% loan-to-value limitation, including any other outstanding
mortgages or liens where the first mortgage lien is held by the Bank, and 75% on
all other loans. The Bank currently offers home equity loans for qualified
borrowers with a loan-to-value ratio of up to 90%. The Bank obtains private
mortgage insurance for some of these types of loans, depending on the
underwriting and first lien position. The Bank is currently offering "Helping
Hand" home equity loans for low income borrowers, with maximum terms of five
years, with loan-to-value ratios of up to 90% and a maximum loan amount of
$10,000. Generally, the Bank's minimum equity loan is $5,000 and the maximum
equity loan is $200,000. As of September 30, 1997, the Bank had $28.2 million in
fixed-rate home equity loans outstanding.

     The Bank also offers a variable rate home equity line of credit which
extends a credit line based on the applicant's income and equity in the home.
Generally, the credit line, when combined with the balance of the first mortgage
lien, may not exceed 80% of the appraised value of the property at the time of
the loan commitment where the first mortgage lien is held by the Bank, and 75%
on all other loans. Home equity lines of credit are secured by a mortgage on the
underlying real estate. The Bank presently charges no origination fees for these
loans. A borrower is required to make monthly payments of principal and
interest,

                                       61
at a minimum of $100.00 plus interest, based upon a 15 or 20 year amortization
period. Generally, the interest rate charged is the prime rate of interest (as
published in The Wall Street Journal) plus up to 2.0%. The loans have a 6.0%
lifetime cap on the amount the interest rate may increase. During 1996, the Bank
introduced a credit line product which is based on a 10 year amortization and
the interest rate charged is the prime rate of interest. These loans also have a
6.0% lifetime cap. The Bank offers a teaser-rate on both home equity line of
credit products. The Bank's home equity lines of credit outstanding at September
30, 1997 totalled $13.7 million against total available credit lines of $14.3
million.

     Construction Lending. At September 30, 1997, construction loans totalled
$18.3 million, or 3.2%, of the Bank's total loans outstanding. Construction
loans, in the form of lines of credit, are primarily made to developers known by
the Bank. Available credit lines totalled $26.2 million at September 30, 1997.
The current policy of the Bank is to charge interest rates on its construction
loans which float at margins of up to 2.0% above the prime rate (as published in
The Wall Street Journal). The Bank's construction loans improve the interest
rate sensitivity of its earning assets. The Bank's construction loans typically
have original principal balances that are larger than its one- to four-family
mortgage loans, with the majority of the loans ranging from available lines of
credit of $125,000 to $6.2 million. At September 30, 1997, the Bank had 21
construction loans, six of which had a principal balance outstanding of $1.0
million or more, with the largest loan balance being $4.5 million. At September
30, 1997, all of the Bank's construction lending portfolio consisted of loans
secured by property located in the State of New Jersey, for the purpose of
constructing one- to four-family homes.

     The Bank will originate construction loans on unimproved land in amounts up
to 60% of the lower of the appraised value or the cost of the land. The Bank
also originates loans for site improvements and construction costs in amounts up
to 75% of actual costs or sales price where contracts for sale have been
executed. Generally, construction loans are offered for one year terms with up
to four six-month options to extend the original term. Typically, additional
loan origination fees are charged for each extension granted, although in some
cases these fees have been waived. The Bank requires an appraisal of the
property, credit reports, and financial statements on all principals and
guarantors, among other items, on all construction loans.

     Construction lending, by its nature, entails additional risks as compared
with one- to four-family mortgage lending, attributable primarily to the fact
that funds are advanced upon the security of the project under construction
prior to its completion. As a result, construction lending often involves the
disbursement of substantial funds with repayment dependent on the success of the
ultimate project and the ability of the borrower or guarantor to repay the loan.
Because of these factors, the analysis of prospective construction loan projects
requires an expertise that is different in significant respects from that which
is required for residential mortgage lending. The Bank addresses these risks
through its underwriting procedures. At September 30, 1997, none of the Bank's
construction loans were classified as substandard. See "-- Delinquencies and
Classified Assets - Non-performing Assets" for further discussion.

     Commercial Real Estate. At September 30, 1997, the Bank had 53 loans
secured by commercial real estate, totalling $31.6 million, or 5.5%, of the
Bank's total loan portfolio. Commercial real estate loans are generally
originated in amounts up to 70% of the appraised value of the mortgaged
property. The Bank's commercial real estate loans are permanent loans secured by
improved property such as office buildings, retail stores, including small
shopping centers, medical offices, small industrial facilities, warehouses and
other non-residential buildings. The largest commercial real estate loan at
September 30, 1997 was a participation loan originated in 1995 on a medical arts
building with a balance of $3.8 million at that date. All commercial real estate
loans in portfolio are secured by properties located within New Jersey.

                                       62
The Bank's commercial real estate loans are generally made for terms of up
to 15 years. These loans typically are based upon a payout over a period of 10
to 25 years. To originate commercial real estate loans, the Bank requires a
security interest in personal property, standby assignment of rents and leases
and some level of personal guarantees, if possible. The Bank has established its
loan-to-one borrower limitation, which was $13.5 million as of September 30,
1997, as its maximum commercial real estate loan amount.

     Loans secured by commercial real estate properties are generally larger and
involve a greater degree of risk than residential mortgage loans. Because
payments on loans secured by commercial real estate properties are often
dependent on successful operation or management of the properties, repayment of
such loans may be subject, to a greater extent, to adverse conditions in the
real estate market or the economy. The Bank seeks to minimize these risks by
limiting the number of such loans, lending only to established customers and
borrowers otherwise known or recommended to the Bank, generally restricting such
loans to New Jersey, and obtaining personal guarantees, if possible.

     Multi-Family Mortgage Loans. The Bank originates multi-family mortgage
loans in its primary lending area. As of September 30, 1997, $6.2 million, or
1.1%, of the Bank's total loan portfolio consisted of multi-family residential
loans. Substantially all of the Bank's multi-family loan portfolio is comprised
of loans on garden apartments and participations in senior citizen homes with
the Thrift Institutions Community Investment Corp ("TICIC"). The largest multi-
family loan at September 30, 1997 had an outstanding balance of $1.9 million.
The second largest multi-family loan at that date had an outstanding balance of
$1.4 million. Large multi-family loans, such as these two loans, are originated
on the basis of the Bank's underwriting standards for commercial real estate
loans. The Bank also participates with other savings institutions to provide
financing for projects within the state of New Jersey via the TICIC. The Bank
has four participation loans outstanding with the TICIC at September 30, 1997,
totaling $2.2 million, which are secured by four senior citizen complexes and
one garden apartment complex.

     Other Lending. The Bank also offers other loans, primarily loans secured by
savings accounts and commercial, business, personal and automobile loans. At
September 30, 1997, $6.2 million or 1.1% of the loan portfolio consisted of such
other loans.

     Loan Approval Authority and Underwriting. All loans secured by real estate
must have the approval or ratification of the members of the Loan Committee,
which consists of two directors and at least two senior officers engaged in the
lending area. The Loan Committee meets at least monthly to review and ratify
management's approval of loans made within the scope of its authority since the
last committee meeting, and to approve mortgage loans made in the excess of
$750,000, but not greater than $1.0 million. Real estate loans in excess of $1.0
million require prior Board approval. Prior Board approval is also required for
the origination of consumer and business loans in excess of $100,000 for
unsecured loans, and $500,000 for secured loans.

     One- to four-family residential mortgage loans are generally underwritten
according to Freddie Mac guidelines, except as to loan amount and certain
documentation. For all loans originated by the Bank, upon receipt of a completed
loan application from a prospective borrower, a credit report is then requested,
income, assets and certain other information are verified and, if necessary,
additional financial information is requested. An appraisal of the real estate
intended to secure the proposed loan is required, which is currently performed
by appraisers designated and approved by the Board of Directors. It is the
Bank's policy to obtain appropriate insurance protections, including title and
flood insurance, on all real estate first mortgage loans. Borrowers must also
obtain hazard insurance prior to closing. Borrowers generally are required to
advance funds for certain items such as real estate taxes, flood insurance and
private mortgage insurance, when applicable.

                                       63
LOAN SERVICING. The Bank generally retains the servicing rights on loans it
has sold. The Bank receives fees for these servicing activities, which include
collecting and remitting loan payments, inspecting the properties and making
certain insurance and tax payments on behalf of the borrowers. The Bank was
servicing $94.5 million and $101.2 million of mortgage loans for others at
September 30, 1997 and December 31, 1996, respectively. The Bank received
$218,000 and $325,000 in servicing fees for the nine months ended September 30,
1997 and the year ended December 31, 1996, respectively.

     LOAN PURCHASES AND SALES. The Bank is a Freddie Mac qualified servicer in
good standing, and may sell any of its conforming loans originated, subject to
Freddie Mac requirements, and retain the servicing rights. As a part its
asset/liability management, the Bank will sell loans, on occasion, in order to
reduce or minimize potential interest rate and credit risk. To account for such
sales, the Bank has established an available for sale category and carries loans
available for sale at the lower of cost or market. As of September 30, 1997, the
Bank did not have any mortgage loans classified as available for sale. Mortgage
loans sold totalled $3.0 million and $6.2 million for the nine months ended
September 30, 1997 and the year ended December 31, 1996, respectively. From time
to time, the Bank may also purchase mortgage loans in order to maintain stable
interest income, if and when management believes it is prudent to do so. The
Bank purchased $4.7 million and $10.1 million in mortgage loans from third-party
corespondents for the nine months ended September 30, 1997 and the year ended
December 31, 1996, respectively. The Bank underwrote the loans and verified
documentation prior to purchase and has representations and warranties on same
for a one year period, including repayment of remaining premiums if a loan
prepays within the first 12 months.

DELINQUENCIES AND CLASSIFIED ASSETS

     DELINQUENT LOANS. In the late 1980s and early 1990s, the Bank experienced
an increase in loans delinquent 90 days or more. The increase occurred primarily
with single family residential loans, which the Bank attributes, in large part,
to the decline in economic conditions in the Northeast, the weakness of the New
Jersey real estate market and the national recession. Since 1992, delinquent
loans have decreased, due to an improving economy and continued stabilization of
the New Jersey real estate market. The aggregate principal balances of one- to
four-family loans delinquent 90 days or more had declined to $3.9 million, at
September 30, 1997, from $4.6 million at September 30, 1996. At September 30,
1997, one-to four- family loans delinquent 90 days or more consisted of 42
loans. There can be no assurances, however, that such declines will continue, or
that increases will not occur.

                                       64
Delinquent Loans and Nonaccrual Loans.  The following table sets forth
information regarding loans and loans delinquent 90 days or more, and REO. At
September 30, 1997, REO totaled $1.4 million and consisted of 14 properties. It
is the policy of the Bank to cease accruing interest on loans 90 days or more
past due with loan-to-value ratios in excess of 55% and to charge off all
accrued interest. For the nine months ended September 30, 1997, the amount of
additional interest income that would have been recognized on nonaccrual loans
if such loans had continued to perform in accordance with their contractual
terms was $198,000.
AT SEPTEMBER 30,                                       AT DECEMBER 31,
                                     ------------------------    -----------------------------------------------------------------
                                        1997          1996          1996          1995          1994          1993          1992
                                     -----------  -----------    ------------  -----------  ------------  ------------  ----------
                                                                         (DOLLARS IN THOUSANDS)
Non-accrual mortgage loans..........    $3,547        $4,538        $4,716        $5,838       $ 8,636       $10,631       $14,564
Non-accrual other loans.............        14             6             4            --           160           453           150
                                        ------        ------        ------        ------       -------       -------       -------
     Total non-accrual loans........     3,561         4,544         4,720         5,838         8,796        11,084        14,714
                                        ------        ------        ------        ------       -------       -------       -------
Loans 90 days or more delinquent....       379            72            93           200           248           463         1,120
     and still accruing.............    ------        ------        ------        ------       -------       -------       -------

  Total non-performing loans........     3,940         4,616         4,813         6,038         9,044        11,547        15,834
                                        ------        ------        ------        ------       -------       -------       -------
  Total real estate owned, net of...     1,398         1,918         1,517         3,131         1,633         2,039         1,282
      related allowance for loss....    ------        ------        ------        ------       -------       -------       -------

Total non-performing assets.........    $5,338        $6,534        $6,330        $9,169       $10,677       $13,586       $17,116
                                        ======        ======        ======        ======       =======       =======       =======
Non-performing loans to
     total loans receivable, net....      0.69%         0.93%         0.94%         1.32%         2.17%         2.77%         3.81%

Total non-performing assets to
 total assets.......................      0.51%         0.67%         0.64%         0.97%         1.34%         1.73%         2.25%
Classification of Assets.  Federal regulations provide for the
classification of loans and other assets such as debt and equity securities
considered by the OTS to be of lesser quality as "substandard," "doubtful," or
"loss" assets. An asset is considered "substandard" if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. "Substandard" assets include those characterized by
the "distinct possibility" that the Bank will sustain "some loss" if the
deficiencies are not corrected. Assets classified as "doubtful" have all of the
weaknesses inherent in those classified "substandard," with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as "loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted. Assets
that do not expose the savings institution to risk sufficient to warrant
classification in one of the aforementioned categories, but which possess some
weaknesses, are required to be designated "special mention" by management. Loans
designated as special mention are generally loans that, while current in
required payment, have exhibited some potential weaknesses that, if not
corrected, could increase the level of risk in the future. Pursuant to the
Bank's internal guidelines, all loans 90 days past due are classified
substandard, doubtful, or loss.

                                       65
The following table sets forth the aggregate amount of the Bank's special
mention and classified assets at the dates indicated.
AT SEPTEMBER 30,           AT DECEMBER 31,        
                                 ----------------------  ------------------------------
                                      1997      1996       1996       1995       1994  
                                 ----------- ----------  --------- ---------- ---------
                                                     (IN THOUSANDS)
Special mention.............    $  811    $  242     $  290     $1,348     $   747
     Substandard assets..........     5,720     6,983      6,037      6,287      10,117
     Doubtful assets.............       121       181        167        253          78
                                     ------    ------     ------     ------     -------
        Total special mention and                                                      
           classified assets.....  
                                     $6,652    $7,406     $6,494     $7,888     $10,942
                                     ======    ======     ======     ======     =======
As of September 30, 1997, the Bank had no single special mention or
classified asset with a balance of greater than $240,000.

     Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
adequacy of the allowance, including an assessment of known and inherent risks
in its loan portfolio, review of individual loans for adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and consideration of current economic conditions. Such
evaluation, which includes a review of all loans on which full collectibility
may not be reasonably assured, considers the fair value of the underlying
collateral, economic conditions, historical loan loss experience, and other
factors that warrant recognition in providing for an adequate loan loss
allowance. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for loan
losses and valuation of real estate owned. Such agencies may require the Bank to
recognize additions to the allowance based on their judgments about information
available to them at the time of their examination.

     The Bank provided $900,000 and $375,000 in provision for loan losses for
the nine months ended September 30, 1997 and 1996, respectively. The Bank
provided $550,000 to the allowance for loan losses for 1996, compared with
$310,000 in 1995. The Bank determined, after performing its asset classification
review, that the allowance was adequate and within industry standards. At
September 30, 1997, the total allowance was $6.0 million, which amounted to 1.1%
of total loans receivable, net and 112.1% of nonperforming assets. Management
will continue to maintain an allowance for loan losses consistent with
regulatory expectations for non-performing assets, and will also adhere to the
Bank's policy of evaluating the risks inherent in its loan portfolio and the New
Jersey economy. The Bank will continue to monitor the level of its allowance for
loan losses in order to maintain it at a level which management considers
adequate to provide for potential loan losses.

     The following table sets forth activity in the Bank's allowance for loan
losses for the periods indicated.
AT OR FOR THE NINE
                                                MONTHS ENDED
                                               SEPTEMBER 30,                    AT OR FOR THE YEAR ENDED DECEMBER 31,
                                           --------------------- ------------------------------------------------------------------
                                             1997         1996         1996           1995          1994         1993         1992
                                           ---------  ---------- --------------- -------------- ------------ ------------ ---------
                                                                             (DOLLARS IN THOUSANDS)
Balance at beginning of period............  $5,322       $5,247        $5,247        $ 5,745       $5,899       $ 5,751      $3,865
Provision for loan losses.................     900          375           550            310          300         1,200       2,400
Charge-offs...............................    (240)        (534)         (585)        (1,044)        (490)       (1,087)       (520)

Recoveries................................      --            3           110            236           36            35           6
                                            ------       ------        ------        -------       ------       -------      ------
Balance at end of period..................  $5,982       $5,091        $5,322        $ 5,247       $5,745       $ 5,899      $5,751
                                            ======       ======        ======        =======       ======       =======      ======
66
The following tables set forth the Bank's percent of allowance for loan
losses to total allowance for loan losses and the percent of loans to total
loans in each of the categories listed at the dates indicated.
AT SEPTEMBER 30,
                                                 ---------------------------------------------------------------------------------
                                                                 1997                                       1996
                                                 ---------------------------------------     -------------------------------------
                                                                                PERCENT                                   PERCENT
                                                                               OF LOANS                                  OF LOANS
                                                               PERCENT OF       IN EACH                   PERCENT OF      IN EACH
                                                               ALLOWANCE       CATEGORY                   ALLOWANCE      CATEGORY
                                                                TO TOTAL       TO TOTAL                    TO TOTAL      TO TOTAL
                                                   AMOUNT      ALLOWANCE         LOANS        AMOUNT      ALLOWANCE        LOANS
                                                  --------    -----------     ----------     --------    -----------    ----------
                                                                                    (DOLLARS IN THOUSANDS)
One-to four-family...........................   $3,592          60.05%         81.82%      $3,465          68.06         83.35
   Home equity loans............................      442           7.39           7.31          310           6.09          7.73
   Construction.................................      791          13.22           3.19          597          11.73          2.49
   Commercial real estate.......................      540           9.03           5.51          322           6.32          4.25
   Multi-family.................................       64           1.07           1.09           89           1.75          1.18
       Total mortgage loans.....................    5,429          90.76          98.92        4,783          93.95         99.00
Consumer loans..................................      192           3.21           1.08          157           3.09          1.00
Other...........................................       64           1.07             --           16           0.31            --
Unallocated.....................................      297           4.96             --          135           2.65            --
                                                   ------         ------         ------       ------         ------        ------
       Total allowance for loan losses..........   $5,982         100.00%        100.00%      $5,091         100.00%       100.00%
                                                   ======         ======         ======       ======         ======        ======
DECEMBER 31,
                                                 ----------------------------------------
                                                                 1996
                                                 ---------------------------------------
                                                                                PERCENT
                                                                               OF LOANS
                                                               PERCENT OF       IN EACH
                                                               ALLOWANCE       CATEGORY
                                                                TO TOTAL       TO TOTAL
                                                   AMOUNT      ALLOWANCE         LOANS
                                                  --------    -----------     ----------
                                                          (DOLLARS IN THOUSANDS)
One-to four-family...........................   $3,641          68.42%         83.14%
   Home equity loans............................      437           8.21           7.60
   Construction.................................      577          10.84           2.50
   Commercial real estate.......................      347           6.52           4.11
   Multi-family.................................       89           1.67           1.53
       Total mortgage loans.....................    5,091          95.66          98.88
Consumer loans..................................      174           3.27           1.12
Other...........................................       13           0.24             --
Unallocated.....................................       44           0.83             --
                                                   ------         ------         ------
       Total allowance for loan losses..........   $5,322         100.00%        100.00%
                                                   ======         ======         ======
AT DECEMBER 31,
                            -------------------------------------------------------------------------------------------------------
                                          1995                             1994                               1993
                            ---------------------------------  --------------------------------  ----------------------------------
                                                     PERCENT                           PERCENT                             PERCENT
                                                    OF LOANS                          OF LOANS                            OF LOANS
                                       PERCENT OF    IN EACH             PERCENT OF    IN EACH              PERCENT OF     IN EACH
                                       ALLOWANCE    CATEGORY             ALLOWANCE    CATEGORY              ALLOWANCE     CATEGORY
                                        TO TOTAL    TO TOTAL              TO TOTAL    TO TOTAL               TO TOTAL     TO TOTAL
                             AMOUNT    ALLOWANCE      LOANS     AMOUNT   ALLOWANCE      LOANS     AMOUNT    ALLOWANCE       LOANS
                            --------  -----------  ----------  -------- -----------  ----------  --------  -----------   ----------
One- to four-family........  $3,842       73.22%      84.20%   $4,408       76.73%      85.98%   $4,238        71.84%       86.56%
   Home equity loans.......     348        6.63        7.21       301        5.24        7.28       219         3.71         6.53
Construction...............     301        5.74        1.64       181        3.15        0.75       566         9.59         0.92
Commercial real estate.....     173        3.30        3.73       100        1.74        3.16        44         0.75         2.96
Multi-family...............      97        1.85        2.09        55        0.96        1.84        26         0.44         1.73
A.I.D......................      --          --        0.04        --          --        0.04        --           --         0.05
                             ------      ------      ------    ------      ------      ------    ------       ------       ------
  Total mortgage loans.....   4,761       90.74       98.91     5,045       87.82       99.05     5,093        86.33        98.75
Consumer loans.............     147        2.80        1.09       208        3.62        0.95       263         4.46         1.25
Other......................      49        0.93          --        14        0.24          --       145         2.46           --
Unallocated................     290        5.53          --       478        8.32          --       398         6.75           --
                             ------      ------      ------    ------      ------      ------    ------       ------       ------
    Total allowance for
       loan losses.........  $5,247      100.00%     100.00%   $5,745      100.00%     100.00%   $5,899       100.00%      100.00%
                             ======      ======      ======    ======      ======      ======    ======       ======       ======
---------------------------------
                                          1992
                            ---------------------------------
                                                     PERCENT
                                                    OF LOANS
                                       PERCENT OF    IN EACH
                                       ALLOWANCE    CATEGORY
                                        TO TOTAL    TO TOTAL
                             AMOUNT    ALLOWANCE      LOANS
                            --------  -----------  ----------
One- to four-family........  $4,148       72.13%      87.30%
   Home equity loans.......     201        3.50        6.07
Construction...............     661       11.49        1.30
Commercial real estate.....      30        0.52        2.02
Multi-family...............      26        0.45        1.75
A.I.D......................      --          --        0.05
                             ------       -----       -----
  Total mortgage loans.....   5,066       88.09       98.49
Consumer loans.............     217        3.77        1.51
Other......................     135        2.35          --
Unallocated................     333        5.79          --
                             ------       -----       -----
    Total allowance for
       loan losses.........  $5,751      100.00%     100.00%
                             ======      ======      ======
67
INVESTMENT ACTIVITIES

     The Investment Policy of the Bank, which is established by the Board of
Directors and reviewed by the Investment Committee, is designed primarily to
provide and maintain liquidity, to generate a favorable return on investments
without incurring undue interest rate and credit risk and to complement the
Bank's lending activities. The Policy currently provides for investment,
available for sale and trading portfolios. In order to enhance the Bank's
liquidity and flexibility, total return, or minimize interest rate risk,
securities may be acquired for the available for sale portfolio. Investment
securities and mortgage-backed securities, other than those designated as
available for sale or trading, are comprised of debt securities that the Bank
has the positive intent and ability to hold to maturity. Investment securities
held to maturity are carried at cost, adjusted for amortization of premiums and
accretion of discounts using the level-yield method over the estimated lives of
the securities. At September 30, 1997, the Bank had investment securities held
to maturity in the aggregate amount of $41.0 million, with a market value of
$41.1 million.

     New Jersey state-chartered savings institutions have the authority to
invest in various types of liquid assets, including United States Treasury
obligations, securities of various federal agencies, certain certificates of
deposit of insured banks and savings institutions, certain bankers' acceptances,
repurchase agreements and loans on federal funds. Subject to various
restrictions, state-chartered savings institutions may also invest a portion of
their assets in commercial paper, corporate debt securities and asset-backed
securities.

     In November 1995, the Financial Accounting Standards Board ("FASB") issued
"Special Report -- A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities," which provided the Bank with
an opportunity to reassess the appropriateness of the classifications of all its
securities, and on December 15, 1995, the Bank reclassified $13.0 million in
amortized cost of investment securities from held to maturity to available for
sale. At September 30, 1997, investment securities available for sale had a net
unrealized loss of $27,000.

     INVESTMENTS AVAILABLE FOR SALE. The Bank maintains a portfolio of
investments available for sale to reduce interest rate and market value risk.
These investments, designated as available for sale at purchase, are marked to
market in accordance with SFAS No. 115. The Bank's Investment Policy designates
what type of securities may be contained in the available for sale portfolio.
This portfolio of available for sale investments is reviewed and priced at least
monthly. As of September 30, 1997, the market value of investment securities
available for sale was $18.0 million, with an amortized cost basis of $18.1
million, and was composed of U.S. Treasury and agencies securities, and
corporate debt obligations. The available for sale portfolio had a weighted
average contractual maturity of 4.75 years. A substantial portion of the
investment portfolio is comprised of callable agency notes, which have a variety
of call options available to the issuer at predetermined dates. The investment
portfolio's yield is enhanced by the addition of callable agency notes, due to
the issuer's flexibility in repricing their funding source, while creating
reinvestment risk to the Bank. At September 30, 1997, $52.0 million, or 88.2% of
the total investment portfolio, including securities available for sale, were
callable.

                                       68
INVESTMENT PORTFOLIO. The following table sets forth certain information
regarding the carrying and market values of the Bank's investment portfolio at
the dates indicated:
AT SEPTEMBER 30,                           AT DECEMBER 31,
                                                                    --------------------------------------------------------------
                                                        1997                1996                 1995                 1994
                                               -------------------- -------------------- -------------------- --------------------
                                                AMORTIZED   MARKET   AMORTIZED  MARKET    AMORTIZED   MARKET   AMORTIZED   MARKET
                                                  COST      VALUE      COST      VALUE      COST       VALUE     COST       VALUE
                                               ---------- --------- ---------- --------- ---------- --------- ---------- ---------
                                                                                  (IN THOUSANDS)
Investment securities held to maturity:
   U.S. Government and agency
    obligations..............................    $40,959  $41,108     $38,955  $38,980      $39,003  $39,617     $23,997  $22,774
                                                 =======  =======     =======  =======      =======  =======     =======  =======
Investment securities available for sale:
   U.S. Government and agency
    obligations..............................    $13,972  $13,943     $12,964  $12,836      $ 1,000  $   996     $13,884  $13,206
   Corporate obligations.....................      4,079    4,081       2,000    1,995        1,041    1,062          --       --
                                                 -------  -------     -------  -------      -------  -------     -------  -------
  Total investment securities
   available-for-sale........................    $18,051  $18,024     $14,964  $14,831      $ 2,041  $ 2,058     $13,884  $13,206
                                                 =======  =======     =======  =======      =======  =======     =======  =======

Other interest-earning investments:
  Federal funds sold.........................    $17,925  $17,925     $ 1,850  $ 1,850      $17,875  $17,875     $ 4,375  $ 4,375
  FHLB-NY stock..............................      8,045    8,045       7,428    7,428        6,276    6,276       5,691    5,691
                                                 -------  -------     -------  -------      -------  -------     -------  -------
  Total other interest-earning investments...    $25,970  $25,970     $ 9,278  $ 9,278      $24,151  $24,151     $10,066  $10,066
                                                 =======  =======     =======  =======      =======  =======     =======  =======
69
The table below sets forth certain information regarding the contractual
maturities, amortized costs, market values and weighted average yields for the
Bank's investment portfolio at September 30, 1997.
AT SEPTEMBER 30, 1997
                                       -------------------------------------------------------------------------------
                                                                      MORE THAN ONE YEAR        MORE THAN FIVE YEARS
                                           ONE YEAR OR LESS             TO FIVE YEARS               TO TEN YEARS
                                       ------------------------    -----------------------     -----------------------
                                                      WEIGHTED                   WEIGHTED                    WEIGHTED
                                        AMORTIZED      AVERAGE      AMORTIZED     AVERAGE       AMORTIZED     AVERAGE
                                           COST         YIELD         COST         YIELD          COST         YIELD
                                       -----------    ---------    -----------   ---------     -----------   ---------
                                                                                         (DOLLARS IN THOUSANDS)
Investment securities held
  to maturity:
    U.S. Government and Agency
      obligations....................    $    --           --%       $14,991        6.81%        $19,972        7.31%
                                         -------       ------        -------      ------         -------      ------
    Total investment securities
      held to maturity...............    $    --           --%       $14,991        6.81%        $19,972        7.31%
                                         =======       ======        =======      ======         =======      ======

Investment securities
  available for sale:
    U.S. Government and Agency
      obligations....................    $    --           --%       $10,972        6.11%        $ 3,000        6.75%
    Corporate obligations............         --           --          2,000        5.95           2,079        6.15
                                         -------       ------        -------      ------         -------      ------
    Total investment securities
      available for sale.............    $    --           --%       $12,972        6.09%        $ 5,079        6.51%
                                         =======       ======        =======      ======         =======      ======

Other interest-earning investments:
    Federal funds sold...............    $17,925         5.79%       $    --          --%        $    --          --%
    FHLB-NY stock (1)................      8,045         6.75             --          --              --          --
                                         -------       ------        -------      ------         -------      ------
    Total other interest-earning
      investments....................    $25,970         6.09%       $    --          --%        $    --          --%
                                         =======       ======        =======      ======         =======      ======
----------------------------------------------------------------

                                          MORE THAN TEN YEARS                   TOTAL
                                       ------------------------    ------------------------------------
                                                      WEIGHTED                                WEIGHTED
                                        AMORTIZED      AVERAGE      AMORTIZED      MARKET      AVERAGE
                                           COST         YIELD         COST         VALUE        YIELD
                                       -----------    ---------    -----------   ----------   ---------
Investment securities held
  to maturity:
    U.S. Government and Agency
      obligations....................     $5,996         8.02%       $40,959       $41,108       7.23%
                                          ------       ------        -------       -------     ------
    Total investment securities
      held to maturity...............     $5,996         8.02%       $40,959       $41,108       7.23%
                                          ======       ======        =======       =======     ======

Investment securities
  available for sale:
    U.S. Government and Agency
      obligations....................     $   --           --%       $13,972       $13,943       6.25%
    Corporate obligations............         --           --          4,079         4,081       6.05
                                          ------       ------        -------       -------     ------
    Total investment securities
      available for sale.............     $   --           --%       $18,051       $18,024        620%
                                          ======       ======        =======       =======     ======

Other interest-earning investments:
    Federal funds sold...............     $   --           --%       $17,925       $17,925       5.79%
    FHLB-NY stock (1)................         --           --          8,045         8,045       6.75
                                          ------       ------        -------       -------     ------
    Total other interest-earning
      investments....................     $   --           --%       $25,970       $25,970       6.09%
                                          ======       ======        =======       =======     ======
____________________
(1)  FHLB-NY stock does not have a stated maturity.

                                       70
SOURCES OF FUNDS

     GENERAL. The Bank's primary source of funds are deposits; proceeds from
principal and interest payments on loans and mortgage-backed securities; sales
of loans, mortgage-backed securities and investments available for sale;
maturities of investment securities and short-term investment; and, to an
increasing extent, advances from the FHLB-NY, reverse repurchase agreements and
other borrowed funds.
                                   
     DEPOSITS. The Bank offers a variety of deposit accounts having a range of
interest rates and terms. The Bank's deposits principally consist of fixed-term
certificates, passbook savings, money market, Individual Retirement Accounts
("IRAs") and Negotiable Order of Withdrawal ("NOW") accounts. The flow of
deposits is significantly influenced by general economic conditions, changes in
money market and prevailing interest rates and competition. The Bank's deposits
are typically obtained from the areas in which its offices are located. The Bank
relies primarily on customer service and long-standing relationships to attract
and retain these deposits. At September 30, 1997, $121.9 million of the Bank's
deposit balance consisted of IRAs. Also at that date, $76.5 million, or 9.45%,
of the Bank's deposit balance consisted of deposit accounts with a balance
greater than $100,000. The Bank does not currently accept brokered deposits.

     The Bank seeks to maintain a high level of stable core deposits by
providing convenient and high quality service through its extended branch
network. To further this objective, the Bank acquired six branch offices from
the RTC in 1991 for a deposit premium of $509,000, which was written off in
1996. Of those six offices, the Bank continues to operate four of the offices,
and transferred the deposits of the other two offices into existing First
Savings branches. During October 1997, the Bank entered into an agreement to
sell its Eatontown branch, with the transfer of deposit liabilities and physical
branch location scheduled for late February 1998. The Bank acquired two
additional branches from the RTC in 1995 with deposits of approximately $112.8
million for a premium of $12.6 million. The Bank's strategy was to strengthen
its market area within Middlesex County, and to provide better service to those
communities within which these branches reside. During the years 1995 and 1994,
the Bank's deposit base grew $11.9 million and $2.7 million, respectively,
excluding the $112.8 million in deposits acquired in 1995. The percentage
increase for those periods was 1.7% and 0.4%, respectively. During 1996,
deposits decreased $11.7 million, or 1.5%, to $794.6 million. The decrease was
due to increased competition and premium interest rates being paid by other
institutions. For the nine months ended September 30, 1997, deposits increased
$14.9 million, or 1.9%, due to partial retention of interest credited.

                                       71
The following table presents the deposit activity of the Bank for the
periods indicated:
FOR THE NINE MONTHS                   
                                                     ENDED SEPTEMBER 30,                 FOR THE YEAR ENDED DECEMBER 31,
                                                 ----------------------------    ---------------------------------------------------

                                                    1997              1996             1996              1995              1994
                                                 ---------          ---------    ----------------   --------------   ---------------

                                                                                  (IN THOUSANDS)
Deposits....................................... $ 1,234,631        $ 1,197,644     $  1,672,325      $  1,374,946      $ 1,295,191
Withdrawals....................................  (1,245,329)        (1,229,251)      (1,718,034)       (1,396,632)      (1,316,030)
Deposits acquired in purchase(1)...............          --                 --               --           112,785               --
                                                -----------        -----------      -----------       -----------      -----------
Withdrawals less than (in excess of) deposits..     (10,698)           (31,607)         (45,709)           91,099          (20,839)
Interest credited..............................      25,552             25,710           33,966            33,626           23,491
                                                -----------        -----------      -----------       -----------      -----------
Total increase (decrease) in deposits.......... $    14,854        $    (5,897)     $   (11,743)      $   124,725      $     2,652
                                                ===========        ===========      ===========       ===========      ===========
_______________________
(1)  Purchase of deposits from the Resolution Trust Corporation.

          The following table presents by various categories, the amount of
certificate accounts outstanding at September 30, 1997 and 1996, and the time to
maturity of the certificate accounts outstanding at September 30, 1997.
AT SEPTEMBER 30,                     MATURITY AT SEPTEMBER 30, 1997
                              ---------------------------    ------------------------------------------------------
                                                                WITHIN       ONE THROUGH
                                  1997           1996          ONE YEAR      THREE YEARS    THEREAFTER     TOTAL
                              ----------     ------------    ------------  --------------- ------------  ----------
                                                                     (IN THOUSANDS)
Certificate accounts:                                      
  3.99% or less..............   $  2,800       $  3,448         $  2,800        $     --       $    --    $  2,800
  4.00% to 4.49%.............         91         16,242               91              --            --          91
  4.50% to 4.99%.............     21,879        153,445           18,687           3,192            --      21,879
  5.00% to 5.49%.............    252,318        156,071          239,457           6,414         6,447     252,318
  5.50% to 5.99%.............    123,762         44,162           70,659          38,693        14,410     123,762
  6.00% to 6.49%.............     23,056         35,379            3,107           4,990        14,959      23,056
  6.50% to 6.99%.............     34,628         49,583           10,288          12,698        11,642      34,628
  7.00% to 7.49%.............      2,594          2,702            2,486              --           108       2,594
  7.50% to 7.99%.............      2,890          2,837              341           1,232         1,317       2,890
  8.00% and greater..........        634            656              388             246            --         634
                                --------       --------         --------         -------       -------    --------
    Total....................   $464,652       $464,525         $348,304         $67,465       $48,883    $464,652
                                ========       ========         ========         =======       =======    ========
72
At September 30, 1997, the Bank had $45.3 million in certificate
accounts in amounts of $100,000 or more maturing as follows:
MATURITY PERIOD                   AMOUNT
               -------------------------------------  ------------------------
                                                       (DOLLARS IN THOUSANDS)
Three months or less.............             $ 8,328
               Over 3 through 6 months..........               6,673
               Over 6 through 12 months.........              20,239
               Over 12 months ..................              10,101
                                                             -------
                     Total......................             $45,341
                                                             =======
73
The following table sets forth the distribution of the Bank's average
accounts for the periods indicated and the weighted average nominal interest
rates on each category of deposits presented.
FOR THE YEAR ENDED DECEMBER 31,

                                    FOR THE NINE MONTHS ENDED
                                       SEPTEMBER 30, 1997                           1996                                  1995
                               -----------------------------------  -------------------------------------  -----------------------
                                            PERCENT                                PERCENT                                PERCENT
                                            OF TOTAL     WEIGHTED                 OF TOTAL      WEIGHTED                 OF TOTAL
                                AVERAGE     AVERAGE      AVERAGE      AVERAGE      AVERAGE       AVERAGE     AVERAGE      AVERAGE
                                BALANCE     DEPOSITS       RATE       BALANCE     DEPOSITS        RATE       BALANCE     DEPOSITS
                               ---------  -----------   ----------  ----------   ----------    ----------  ----------  -----------
Non-interest bearing demand.... $ 21,109        2.62%          --%    $ 19,491       2.42%         --%      $ 16,610      2.10
Money market accounts..........  134,681       16.71         3.30      124,097      15.40        3.28        129,426     16.37
Savings accounts...............  129,334       16.04         2.54      139,045      17.26        2.53        140,122     17.73
NOW accounts...................   57,077        7.08         1.90       54,079       6.71        1.96         50,552      6.40
                                --------      ------                  --------     ------                   --------    ------
      Total....................  342,201       42.45         2.56      336,712      41.79        2.57        336,710     42.60
                                --------      ------                  --------     ------                   --------    ------
Certificate accounts(1):
     Less than six months......  143,604       17.81         5.05      142,332      17.67        4.85        128,984     16.32
     Over 6 through 12 months..  167,818       20.82         5.32      166,356      20.65        5.34        157,267     19.90
     Over 12 through 36 months.   54,425        6.75         5.74       59,192       7.35        5.65         67,921      8.59
     Over 36 months............   98,092       12.17         6.05      101,014      12.54        6.16         99,483     12.59
                                --------      ------                  --------      -----                   --------    ------
      Total certificate
       accounts................  463,939       57.55         5.42      468,894      58.21        5.39        453,655     57.40
                                --------      ------                  --------      ------                   --------   ------
      Total average
       deposits................ $806,140      100.00%        4.21     $805,606     100.00%       4.22       $790,365    100.00
                                ========      ======                  ========     =======                  ========    ======
1994
                                                 ------------------------------------------
                                                               PERCENT
                                      WEIGHTED                 OF TOTAL      WEIGHTED
                                       AVERAGE     AVERAGE     AVERAGE        AVERAGE
                                        RATE       BALANCE     DEPOSITS        RATE
                                      --------    ---------  -----------    ----------
Non-interest bearing demand....           --%      $ 14,002       2.04         --%
Money market accounts..........           3.20      124,917      18.17        2.79
Savings accounts...............           2.55      143,738      20.91        2.51
NOW accounts...................           1.89       43,251       6.29        2.00
                                                   --------      ------
      Total....................           2.57      325,908      47.41        2.44
                                                   --------      ------
Certificate accounts(1):
     Less than six months......           5.05      110,320      16.04        3.26
     Over 6 through 12 months..           5.51      110,130      16.02        3.70
     Over 12 through 36 months.           5.22       52,264       7.60        4.64
     Over 36 months............           6.41       88,875      12.93        6.43
                                                   --------      ------
      Total certificate
       accounts................           5.53      361,589      52.59        4.35
                                                   --------      ------
      Total average
       deposits................           4.27     $687,497     100.00%       3.46
                                                   ========     ======
74
BORROWINGS

     The Bank's policy has been to utilize borrowings as an alternative and/or
less costly source of funds. The Bank obtains advances from the FHLB-NY, which
are collateralized by the capital stock of the FHLB-NY held by the Bank, and
certain mortgage loans and mortgage-backed securities of the Bank. The Bank also
borrows funds via reverse repurchase agreements with the FHLB-NY and primary
broker/dealers. Advances from the FHLB-NY are made pursuant to several different
credit programs, each of which has its own interest rate and maturity. The
maximum amount that the FHLB-NY will advance to member institutions, including
the Bank, for purposes of other than meeting withdrawals, fluctuates from time
to time in accordance with the policies of the FHLB-NY and the OTS. The maximum
amount of FHLB-NY advances permitted to a member institution generally is
reduced by borrowings from any other source. At September 30, 1997, the Bank's
FHLB-NY advances totalled $33.0 million, representing 3.5% of total liabilities.

     During 1997, the Bank continued to borrow funds from primary
broker/dealers. The borrowings are collateralized by designated mortgage-backed
and investment securities. The total of these borrowings at September 30, 1997
was $90.9 million, representing 9.6% of total liabilities. The Bank has the
right to freely substitute collateral as long as the margin is at least 95% of
all outstanding borrowings, including accrued interest.

     The Bank also has an available overnight line-of-credit with the FHLB-NY
for a maximum of $48.9 million. The fee for the line-of-credit for the nine
months ended September 30, 1997 was $500. The Bank may continue to increase
borrowings in the future to fund asset growth. To the extent it does so, the
Bank may experience an increase in its cost of funds.

     The Bank, as part of the Reorganization, established, for eligible
employees, an ESOP which became effective at completion of the 1992 MHC
Reorganization. As part of the initial minority stock offering conducted in
connection with the 1992 MHC Reorganization, the Bank's ESOP borrowed funds
totalling $700,000 from an unrelated third party lender and used the funds to
purchase 7%, or 70,000 shares, of the common stock issued in the offering. On
September 30, 1994, the third party lender was repaid by the Mutual Holding
Company, which refinanced the ESOP loan at the same interest rate. The ESOP debt
as of September 30, 1997 and December 31, 1996 and 1995, was $571,000, $646,000
and $746,000, respectively, and bears an interest rate equal to the prime rate
less 1.50%, as published in The Wall Street Journal, with principal and interest
payable in quarterly installments over a ten-year period. During the nine months
ended September 30, 1997, and the year ended December 31, 1996, $25,000 of
dividends paid on ESOP shares during each of the periods was used to pay down
ESOP debt. Total interest paid on ESOP debt for the nine months ended September
30, 1997 and 1996, was $33,000 and $37,000, respectively, and for the years
ended December 31, 1996, 1995 and 1994 was $48,000, $41,000 and $26,000,
respectively. In July 1995, the Bank completed its 1995 Secondary Offering,
whereby the ESOP purchased an additional 42,000 shares of Common Stock at $13
per share, totalling $546,000. The funds to purchase those shares were borrowed
from the Mutual Holding Company. The borrowing is currently secured by 80,102
shares of the Bank's Common Stock, as adjusted for the 10% stock dividend
declared on September 24, 1997.

     Upon consummation of the Conversion and Reorganization, it is expected that
the Mutual Holding Company's loan to the ESOP will be assumed by the Company,
and that the Company will lend additional funds to the ESOP to enable it to
acquire 8% of the Conversion Stock. See "Management of the Bank--Executive
Compensation--Employee Stock Ownership Plan."

                                       75
The following table sets forth certain information regarding the Bank's borrowed
fundson the dates indicated:
AT OR FOR THE NINE MONTHS ENDED       AT OR FOR THE YEAR ENDED
                                                                        SEPTEMBER 30,                      DECEMBER 31,
                                                           ------------------------------------   -----------------------------
                                                                1997                  1996           1996      1995      1994
                                                           --------------         -------------   ---------  --------  --------
                                                                                    (DOLLARS IN THOUSANDS)
FHLB-NY advances:
     Average balance outstanding...........................    $ 36,200             $19,400        $21,846   $21,231   $29,538
     Maximum amount outstanding at any
        month-end during the period........................      40,000              22,000         30,000    34,000    37,000
     Balance outstanding at end of period..................      33,000              20,000         30,000    19,000    34,000
     Weighted average interest rate during the period......        6.18%               6.18%          6.13%     5.72%     4.74%
     Weighted average interest rate at end of period.......        6.06%               6.17%          6.06%     6.13%     5.22%
Repurchase agreements:
     Average balance outstanding...........................    $ 74,138             $26,862        $32,691   $11,834   $    --
     Maximum amount outstanding at any
       month-end during the period.........................      90,894              49,437         57,994    24,864        --
     Balance outstanding at end of period..................      90,894              49,437         57,994    19,750        --
     Weighted average interest rate during the period......        6.14%               5.91%          6.05%     6.50%       --%
     Weighted average interest rate at end of period.......        5.94%               6.04%          6.02%     6.13%       --%
ESOP debt:
       Average balance outstanding.........................    $    616             $   716        $   704   $   510   $   358
       Maximum amount outstanding at any
         month-end during the period ......................         646                 746            746       796       400
     Balance outstanding at end of period..................         571                 671            646       746       300
     Weighted average interest rate during the period......        7.03%               6.84%          7.74%     8.08%     7.25%
     Weighted average interest rate at end of period.......        7.00%               6.75%          6.75%     7.00%     8.50%
Total borrowings:
       Average balance outstanding.........................    $110,954             $46,978        $55,241   $33,575   $29,896
       Maximum amount outstanding at any
         month-end during the period ......................     124,465              70,108         88,640    59,661    37,325
     Balance outstanding at end of period..................     124,465              70,108         88,640    39,496    34,300
     Weighted average interest rate during the period......        6.16%               6.05%          6.10%     6.06%     4.82%
     Weighted average interest rate at end of period.......        5.98%               6.08%          6.04%     6.15%    5.24%
76
SUBSIDIARY ACTIVITIES

     FSB FINANCIAL CORP. FSB Financial Corp. is a wholly-owned subsidiary of the
Bank. FSB Financial Corp. provides a line of fixed and variable rate annuity
products, along with mutual funds and term life insurance. For the nine months
ended September 30, 1997, FSB Financial Corp. had net income of $140,000.

     1000 WOODBRIDGE CENTER DRIVE, INC. 1000 Woodbridge Center Drive, Inc. is a
wholly-owned subsidiary of the Bank. 1000 Woodbridge Center Drive, Inc. was the
owner of the Bank's corporate center. For the year ended December 31, 1996, 1000
Woodbridge Center Drive, Inc. had a net loss of $110,000. The subsidiary was
inactive as of September 30, 1997.

PROPERTIES

     The Bank conducts its business through its main office and 17 full service
branch offices, all located in central New Jersey. The following table sets
forth certain information concerning the main office and each branch office of
the Bank at September 30, 1997. The aggregate net book value of the Bank's
premises and equipment was $13.3 million at September 30, 1997.

                                       77
DATE LEASED         NET BOOK VALUE AT                         
            LOCATION                    OR ACQUIRED        SEPTEMBER 30, 1997       LEASED OR OWNED 
--------------------------------      ---------------    ----------------------   -------------------
MAIN OFFICE:

339 State Street                           4/29               $1,306,297                Owned       
Perth Amboy, NJ 08861(1)                                                                          
                                                                                                  
CORPORATE HEADQUARTERS:                                                                           
                                                                                                  
1000 Woodbridge Avenue                                                                            
Woodbridge, NJ 07095                       5/94                5,500,548                Owned     
                                                                                                  
BRANCH OFFICES:                                                                                   
                                                                                                  
158 Wyckoff Road                                                                                  
Eatontown, NJ 07724(2)                     7/93                  105,135                Leased     
                                                                                                  
980 Amboy Avenue                                                                                  
Edison, NJ 08837                           6/74                  673,607                Owned     
                                                                                                  
2100 Oak Tree Road                                                                                
Edison, NJ 08820                           4/84                  312,974                Owned     
                                                                                                  
206 South Avenue                                                                                  
Fanwood, NJ 07023                          9/91                  373,090                Owned     
                                                                                                  
Lafayette Road & Ford Avenue                                                                      
Fords, NJ 08863                            4/84                   54,524                Leased     
                                                                                                  
Rt. 35 & Bethany Road                                                                             
Hazlet, NJ 07730                           1/91                   15,755                Leased     
                                                                                                  
101 New Brunswick Avenue                                                                          
Hopelawn, NJ 08861                         6/76                   63,240                Leased     
                                                                                                  
1220 Green Street                                                                                 
Iselin, NJ 08830                          11/84                  644,436                Owned     
                                                                                                  
599 Middlesex Avenue                                                                              
Metuchen, NJ 08840(3)                      1/95                   44,382                Leased     
                                                                                                  
1580 Rt. 35 South                                                                                 
Middletown, NJ 07748                       4/95                  226,162                Leased     
                                                                                                  
97 North Main Street                                                                              
Milltown, NJ 08850(3)                      1/95                1,050,927                Owned     
                                                                                                  
Rt. 9 & Ticetown Road                                                                             
Old Bridge, NJ 08857                       6/79                    7,306                Leased     
                                                                                                  
100 Stelton Road                                                                                  
Piscataway, NJ 08854(4)                    9/91                  298,274                Leased     
                                                                                                  
325 Amboy Avenue                                                                                  
Woodbridge, NJ 07095                       1/70                  236,732                Owned     
                                                                                                  
Rt. 1 & St. Georges Avenue                                                                        
Woodbridge, NJ 07095                       6/80                      570                Leased
_______________
(1)  Includes an adjacent administrative building with a net book value of
     $942,000.
(2)  An agreement has been signed to sell the Eatontown branch. The transaction
     is anticipated to close in February 1998.
(3)  Acquired/leased in conjunction with purchase of deposits of the former
     Carteret Savings Bank from the RTC on January 20, 1995.
(4)  Includes property acquired for future branch site during 1994.

                                       78
LEGAL PROCEEDINGS

     The Bank is involved in various legal actions arising in the normal course
of its business. In the opinion of management, the resolution of these legal
actions are not expected to have a material adverse effect on the Bank's results
of operations.

PERSONNEL

     As of September 30, 1997, the Bank had 208 full-time employees and 33 part-
time employees. The employees are not represented by a collective bargaining
unit and the Bank considers its relationship with its employees to be good. See
"Management of the Bank - Benefit Plans" for a description of certain
compensation and benefit programs offered to the Bank's employees.

                          FEDERAL AND STATE TAXATION

FEDERAL TAXATION

     General.  The Bank and the Company will report their income on a calendar
year basis using the accrual method of accounting and will be subject to federal
income taxation in the same manner as other corporations with some exceptions,
including particularly the Bank's reserve for bad debts discussed below. The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to the
Bank or the Company. The Bank was last audited by the IRS in 1984 and has not
been audited by the New Jersey Division of Taxation ("DOT") in the past five
years.

     Bad Debt Reserve.  Historically, savings institutions such as the Bank
which met certain definitional tests primarily related to their assets and the
nature of their business ("qualifying thrifts") were permitted to establish a
reserve for bad debts and to make annual additions thereto, which may have been
deducted in arriving at their taxable income. The Bank's deductions with respect
to "qualifying real property loans," which are generally loans secured by
certain interest in real property, were computed using an amount based on the
percentage of taxable income method.

     In August 1996, the provisions repealing the current thrift bad debt rules
were passed by Congress as part of "The Small Business Job Protection Act of
1996." The new rules eliminate the 8% of taxable income method for deducting
additions to the tax bad debt reserves for all thrifts for tax years beginning
after December 31, 1995. These rules also require that all thrift institutions
recapture all or a portion of their bad debt reserves added since the base year
(last taxable year beginning before January 1, 1988). The Bank has previously
recorded a deferred tax liability equal to the bad debt recapture and as such,
the new rules will have no effect on net income or federal income tax expense.

     For the tax years beginning after December 31, 1995, the Bank is not
permitted to maintain a tax reserve for bad debts. As of September 30, 1997, the
Bank had an excess amount subject to recapture equal to $12.7 million. The new
rules allow an institution to suspend the bad debt reserve recapture for the
1996 and 1997 tax years if the institution's lending activity for those years is
equal to or greater than the institution's average mortgage lending activity for
the six taxable years preceding 1996. For this purpose, only home purchase and
home improvement loans are included and the institution can elect to have the
tax years with the highest and lowest lending activity removed from the average
calculation. If an institution is permitted to postpone the reserve recapture,
it must begin its six year recapture no later than the 1998 tax year. The
unrecaptured base year reserves will not be subject to recapture as long as the
institution continues to carry on the business of banking. In addition, the
balance of the pre-1988 bad debt reserves continue to 

                                       79
be subject to provisions of present law referred to below that require recapture
in the case of certain excess distributions to shareholders.

     Distributions.  To the extent that the Bank makes "non-dividend
distributions" to the Company that are considered as made (i) from the reserve
for losses on qualifying real property loans, or (ii) from the supplemental
reserve for losses on loans ("Excess Distributions"), then an amount based on
the amount distributed will be included in the Bank's taxable income. Non-
dividend distributions include distributions in excess of the Bank's current and
accumulated earnings and profits, distributions in redemption of stock, and
distributions in partial or complete liquidation. However, dividends paid out of
the Bank's current or accumulated earnings and profits, as calculated for
federal income tax purposes, will not be considered to result in a distribution
from the Bank's bad debt reserve. Thus, any dividends to the Company that would
reduce amounts appropriated to the Bank's bad debt reserve and deducted for
federal income tax purposes would create a tax liability for the Bank. The
amount of additional taxable income created from an Excess Distribution is an
amount that, when reduced by the tax attributable to the income, is equal to the
amount of the distribution. Thus, if, after the Conversion, the Bank makes a
"non-dividend distribution," then approximately one and one-half times the
amount so used would be includable in gross income for federal income tax
purposes, assuming a 34% corporate income tax rate (exclusive of state and local
taxes). See "Regulation" and "Dividend Policy" for limits on the payment of
dividends of the Bank. The Bank does not intend to pay dividends that would
result in a recapture of any portion of its bad debt reserve.

     Corporate Alternative Minimum Tax.  The Internal Revenue Code of 1986, as
amended (the "Code") imposes a tax on alternative minimum taxable income
("AMTI") at a rate of 20%. Only 90% of AMTI can be offset by net operating loss
carryovers of which the Bank currently has none. AMTI is increased by an amount
equal to 75% of the amount by which the Bank's adjusted current earnings exceeds
its AMTI (determined without regard to this preference and prior to reduction
for net operating losses). The Bank does not expect to be subject to the AMT.

     Dividends Received Deduction and Other Matters.  The Company may exclude
from its income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. The corporate dividends received deduction is
generally 70% in the case of dividends received from unaffiliated corporations,
except that if the Company or the Bank own more than 20% of the stock of a
corporation distributing a dividend then 80% of any dividends received may be
deducted.

STATE AND LOCAL TAXATION

     State of New Jersey.  The Bank files New Jersey income tax returns. For New
Jersey income tax purposes, savings institutions are presently taxed at a rate
equal to 3% of taxable income. For this purpose, "taxable income" generally
means federal taxable income, subject to certain adjustments (including the
addition of net interest income on state and municipal obligations). The Bank is
not currently under audit with respect to its New Jersey income tax returns.

     The Company will be required to file a New Jersey income tax return because
it will be doing business in New Jersey. For New Jersey tax purposes, regular
corporations are presently taxed at a rate equal to 9% of taxable income. For
this purpose, "taxable income" generally means Federal taxable income subject to
certain adjustments (including addition of interest income on state and
municipal obligations).

     Delaware Taxation.  As a Delaware holding company not earning income in
Delaware, the Company is exempt from Delaware corporate income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.

                                       80
REGULATION

GENERAL

     The Bank is subject to extensive regulation, examination and supervision by
the Department, as its chartering agency, the OTS, as its federal banking
regulator, and the FDIC, as the deposit insurer. The Bank is a member of the
FHLB System. The Bank's deposit accounts are insured up to applicable limits by
the SAIF managed by the FDIC. The Bank must file reports with the Commissioner
of the Department (the "Commissioner"), the OTS and the FDIC concerning its
activities and financial condition in addition to obtaining regulatory approvals
prior to entering into certain transactions such as mergers with, or
acquisitions of, other financial institutions. There are periodic examinations
by the Department, the OTS and the FDIC to test the Bank's compliance with
various regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such policies, whether by the Department, the OTS, the FDIC or the
Congress, could have a material adverse impact on the Company, the Bank and
their operations. The Company, as a savings and loan holding company, will also
be required to file certain reports with, and otherwise comply with the rules
and regulations of the OTS and of the Securities and Exchange Commission (the
"SEC") under the federal securities laws.

     Any change in the regulatory structure or the applicable statutes or
regulations, whether by the Department, the OTS, the FDIC or the Congress, could
have a material impact on the Company, the Bank, their operations or the
Conversion and Reorganization. Congress has been considering various proposals
to eliminate the federal thrift charter and abolish the OTS. The outcome of such
legislation is uncertain. Therefore, the Bank is unable to determine the extent
to which legislation, if enacted, would affect its business and what charter
alternatives will be available at that time. See "Risk Factors - Financial
Institution Regulation and Possible Legislation."

     Certain of the regulatory requirements applicable to the Bank and to the
Company are referred to below or elsewhere herein. The description of statutory
provisions and regulations applicable to savings associations set forth in this
Prospectus do not purport to be complete descriptions of such statutes and
regulations and their effects on the Bank and the Company and is qualified in
its entirety by reference to such statutes and regulations.

FEDERAL REGULATION OF SAVINGS INSTITUTIONS

     Business Activities.  The activities of savings institutions are governed
by the Home Owners' Loan Act, as amended (the "HOLA") and, in certain respects,
the Federal Deposit Insurance Act ("FDI Act") and the regulations issued by the
agencies to implement these statutes. These laws and regulations delineate the
nature and extent of the activities in which savings associations may engage.

     Loans-to-One Borrower.  Under the HOLA, savings institutions are generally
subject to the national bank limit on loans-to-one borrower. Generally, this
limit is 15% of the Bank's unimpaired capital and surplus, plus an additional
10% of unimpaired capital and surplus, if such loan is secured by readily-
marketable collateral, which is defined to include certain financial instruments
and bullion. At September 30, 1997, the Bank's general policy is to limit loans-
to-one borrower to $13.5 million. At September 30, 1997, the Bank's largest
aggregate amount of loans-to-one borrower totalled $11.1 million.

                                       81
QTL Test.  The HOLA requires savings institutions to meet a QTL test. Under
the QTL test, a savings association is required to maintain at least 65% of its
"portfolio assets" (total assets less: (i) specified liquid assets up to 20% of
total assets; (ii) intangibles, including goodwill; and (iii) the value of
property used to conduct business) in certain "qualified thrift investments"
(primarily residential mortgages and related investments, including certain
mortgage-backed and related securities) in at least nine months out of each 12
month period. A savings association that fails the QTL test must either convert
to a bank charter or operate under certain restrictions. As of September 30,
1997, the Bank maintained 88.8% of its portfolio assets in qualified thrift
investments and, therefore, met the QTL test. Recent legislation has expanded
the extent to which education loans, credit card loans and small business loans
may be considered as "qualified thrift investments."

     Limitation on Capital Distributions.  OTS regulations impose limitations
upon all capital distributions by a savings institution, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to shareholders
of another institution in a cash-out merger and other distributions charged
against capital. The rule establishes three tiers of institutions, which are
based primarily on an institution's capital level and supervisory condition. An
institution, such as the Bank, that exceeds all fully phased-in regulatory
capital requirements before and after a proposed capital distribution ("Tier 1
Bank") and has not been advised by the OTS that it is in need of more than
normal supervision, could, after prior notice to, but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of: (i) 100% of its net earnings to date during the calendar year plus the
amount that would reduce by one-half its "surplus capital ratio" (the excess
capital over its fully phased-in capital requirements) at the beginning of the
calendar year; or (ii) 75% of its net earnings for the previous four quarters.
Any additional capital distributions would require prior OTS approval. In the
event the Bank's capital fell below its capital requirements or the OTS notified
it that it was in need of more than normal supervision, the Bank's ability to
make capital distributions could be restricted. In addition, the OTS could
prohibit a proposed capital distribution by any institution, which would
otherwise be permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice.

     Liquidity.  The Bank is required to maintain an average daily balance of
specified liquid assets equal to a monthly average of not less than a specified
percentage (currently 4%) of its net withdrawable deposit accounts plus short-
term borrowings. Monetary penalties may be imposed for failure to meet these
liquidity requirements. The Bank's average liquidity ratio at September 30, 1997
was 8.17%, which exceeded the applicable requirements. The Bank has never been
subject to monetary penalties for failure to meet its liquidity requirements.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."

     Assessments.  Savings institutions are required by regulation to pay
assessments to the FDIC, the OTS and the New Jersey Department of Banking to
fund the various agency's operations and periodic Bank examinations. The
assessments paid by the Bank to these agencies for the nine months ended
September 30, 1997 and for the years ended December 31, 1996 and 1995 totalled
$251,000, $271,000 and $217,000, respectively.

     Transactions with Related Parties.  The Bank's authority to engage in
transactions with related parties or "affiliates" (i.e., any company that
controls or is under common control with an institution, including the Company
and any non-savings institution subsidiaries that the Company may establish) is
limited by Sections 23A and 23B of the Federal Reserve Act ("FRA"). Section 23A
restricts the aggregate amount of covered transactions with any individual
affiliate to 10% of the capital and surplus of the savings institution and also
limits the aggregate amount of transactions with all affiliates to 20% of the
savings institution's capital and surplus. Certain transactions with affiliates
are required to be secured by collateral in an amount and of a type described in
Section 23A and the purchase of low quality assets from affiliates 

                                       82
is generally prohibited. Section 23B generally requires that certain
transactions with affiliates, including loans and asset purchases, must be on
terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies.

     The Bank's authority to extend credit to executive officers, directors and
10% shareholders ("insiders"), as well as entities such persons control, is
governed by Sections 22(g) and 22(h) of the FRA, and Regulation O thereunder.
Among other things, these regulations require such loans to be made on terms and
conditions substantially the same as those offered to unaffiliated individuals
and not involve more than the normal risk of repayment. Recent legislation
created an exception for loans to insiders made pursuant to a benefit or
compensation program that are widely available to all employees of the
institution and do not give preference to insiders over other employees.
Regulation O also places individual and aggregate limits on the amounts of loans
the Bank may make to insiders based, in part, on the Bank's capital position,
and requires certain board approval procedures to be followed.

     Enforcement.  Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring action
against all "institution-affiliated parties," including stockholders, and any
attorneys, appraisers and accountants who knowingly or recklessly participate in
wrongful action likely to have an adverse effect on an insured institution.
Formal enforcement action may range from the issuance of a capital directive or
cease and desist order to removal of officers or directors, receivership,
conservatorship or termination of deposit insurance. Civil penalties cover a
wide range of violations and can amount to $25,000 per day, or $1 million per
day in especially egregious cases. Under the FDI Act, the FDIC has the authority
to recommend to the Director of the OTS that enforcement action be taken with
respect to a particular savings institution. If action is not taken by the
Director, the FDIC has authority to take such action under certain
circumstances. Federal and state law also establishes criminal penalties for
certain violations.

     Standards for Safety and Soundness.  The FDI Act requires each federal
banking agency to prescribe for all insured depository institutions standards
relating to, among other things, internal controls, information systems and
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, and compensation, fees and benefits and such other
operational and managerial standards as the agency deems appropriate. The
federal banking agencies have adopted final regulations and Interagency
Guidelines Establishing Standards for Safety and Soundness ("Guidelines") to
implement these safety and soundness standards. The Guidelines set forth the
safety and soundness standards that the federal banking agencies use to identify
and address problems at insured depository institutions before capital becomes
impaired. The Guidelines address internal controls and information systems;
internal audit system; credit underwriting; loan documentation; interest rate
risk exposure; asset growth; asset quality; earnings; and compensation, fees and
benefits. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the Guidelines, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard, as required by the FDI Act. The final
regulations establish deadlines for the submission and review of such safety and
soundness compliance plans.

     Capital Requirements.  The OTS capital regulations require savings
institutions to meet three capital standards: a 1.5% tangible capital standard,
a 3% leverage (core capital) ratio and an 8% risk based capital standard. Core
capital is defined as common stockholder's equity (including retained earnings),
certain non-cumulative perpetual preferred stock and related surplus, minority
interests in equity accounts of consolidated subsidiaries less intangibles other
than certain mortgage servicing rights ("MSRs") and credit card relationships.
The OTS regulations require that, in meeting the leverage ratio, tangible and
risk-based capital standards institutions generally must deduct investments in
and loans to subsidiaries engaged in activities not permissible for a national
bank. In addition, the OTS prompt corrective action regulation 

                                       83
provides that a savings institution that has a leverage capital ratio of less
than 4% (3% for institutions receiving the highest CAMEL examination rating)
will be deemed to be "undercapitalized" and may be subject to certain
restrictions. See "- Prompt Corrective Regulatory Action."

     The risk-based capital standard for savings institutions requires the
maintenance of total capital (which is defined as core capital and supplementary
capital) to risk-weighted assets of 8%. In determining the amount of risk-
weighted assets, all assets, including certain off-balance sheet assets, are
multiplied by a risk-weight of 0% to 100%, as assigned by the OTS capital
regulation based on the risks OTS believes are inherent in the type of asset.
The components of core capital are equivalent to those discussed earlier under
the 3% leverage standard. The components of supplementary capital currently
include cumulative preferred stock, long-term perpetual preferred stock,
mandatory convertible securities, subordinated debt and intermediate preferred
stock and, within specified limits, the allowance for loan and lease losses.
Overall, the amount of supplementary capital included as part of total capital
cannot exceed 100% of core capital.

     At September 30, 1997, the Bank met each of its capital requirements, in
each case on a fully phased-in basis. See "Regulatory Capital Compliance" for a
table which sets forth in terms of dollars and percentages the OTS tangible,
leverage and risk-based capital requirements, the Bank's historical amounts and
percentages at September 30, 1997, and pro forma amounts and percentages based
upon the issuance of the shares within the Estimated Price Range and assuming
that a portion of the net proceeds are retained by the Company.

THRIFT RECHARTERING

     Recently enacted legislation provides that the BIF (the deposit insurance
fund that covers most commercial bank deposits) and the SAIF will merge on
January 1, 1999 if there are no more savings associations as of that date.
Several bills have been introduced in the current Congress that would eliminate
the federal thrift charter and the OTS. A bill recently reported by the House
Banking Committee would require federal thrifts to become national banks or
state banks or savings banks within two years after enactment or they would, by
operation of law, become national banks. A national bank resulting from a
converted federal thrift could continue to engage in activities, including
holding any assets, in which it was lawfully engaged on the day before the date
of enactment. Branches operated on the day before enactment could be retained
regardless of their permissibility for national banks. Subject to a
grandfathering provision, all savings and loan holding companies would become
subject to the same regulation and activities restrictions as bank holding
companies. The grandfathering could be lost under certain circumstances, such as
a change in control of the holding company. The legislative proposal would also
abolish the OTS and transfer its functions to the federal bank regulators with
respect to the institutions and to the Board of Governors of the Federal Reserve
Board with respect to the regulation of holding companies. The Bank is unable to
predict whether the legislation will be enacted or, given such uncertainty,
determine the extent to which the legislation, if enacted, would affect its
business. The Bank is also unable to predict whether the SAIF and BIF will
eventually be merged.

PROMPT CORRECTIVE REGULATORY ACTION

     Under the OTS prompt corrective action regulations, the OTS is required to
take certain supervisory actions against undercapitalized institutions, the
severity of which depends upon the institution's degree of capitalization.
Generally, a savings institution that has a total risk-based capital of less
than 8.0% or a leverage ratio or a Tier 1 capital ratio that is less than 4.0%
is considered to be undercapitalized. A savings institution that has a total
risk-based capital less than 6.0%, a Tier 1 risk-based capital ratio of less
than 3.0% or a leverage ratio that is less than 3.0% is considered to be
"significantly undercapitalized" and a savings institution that has a tangible
capital to assets ratio equal to or less than 2.0% is deemed to be "critically

                                       84
undercapitalized." Subject to a narrow exception, the banking regulator is
required to appoint a receiver or conservator for an institution that is
critically undercapitalized. The regulation also provides that a capital
restoration plan must be filed with the OTS within 45 days of the date an
association receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." Compliance with the plan
must be guaranteed by any parent holding company. In addition, numerous
mandatory supervisory actions may become immediately applicable to the
institution depending upon its category, including, but not limited to,
increased monitoring by regulators, restrictions on growth, and capital
distributions and limitations on expansion. The OTS could also take any one of a
number of discretionary supervisory actions, including the issuance of a capital
directive and the replacement of senior executive officers and directors.

INSURANCE OF DEPOSIT ACCOUNTS

     The FDIC has adopted a risk-based insurance assessment system. The FDIC
assigns an institution to one of three capital categories based on the
institution's financial information, as of the reporting period ending seven
months before the assessment period. The capital categories are (1) well
capitalized, (2) adequately capitalized or (3) undercapitalized. An institution
is also placed in one of three supervisory subcategories within each capital
group. The supervisory subgroup to which an institution is assigned is based on
a supervisory evaluation provided to the FDIC by the institution's primary
federal regulator and information that the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds. An institution's assessment rate depends on the capital category and
supervisory category to which it is assigned with the most well capitalized,
healthy institutions receiving the lowest rates.

     Deposits of the Bank are presently insured by the SAIF. Both the SAIF and
the BIF are statutorily required to be recapitalized to a 1.25% of insured
reserve deposits ratio. Until recently, members of the SAIF and BIF were paying
average deposit insurance assessments of between 24 and 25 basis points. The BIF
met the required reserve in 1995, whereas the SAIF was not expected to meet or
exceed the required level until 2002 at the earliest. This situation was
primarily due to the statutory requirement that SAIF members make payments on
bonds issued in the late 1980s by the Financing Corporation ("FICO") to
recapitalize the predecessor to the SAIF.

     In view of the BIF's achieving the 1.25% ratio, the FDIC ultimately adopted
a new assessment rate schedule of from 0 to 27 basis points under which 92% of
BIF members paid an annual premium of only $2,000. With respect to SAIF member
institutions, the FDIC adopted a final rule retaining the previously existing
assessment rate schedule applicable to SAIF member institutions of 23 to 31
basis points. As long as the premium differential continued, it may have had
adverse consequences for SAIF members, including reduced earnings and an
impaired ability to raise funds in the capital markets. In addition, SAIF
members, such as the Bank, could have been placed at a substantial competitive
disadvantage to BIF members with respect to pricing of loans and deposits and
the ability to achieve lower operating costs.

     On September 30, 1996, the President of the United States signed into law
the Deposit Insurance Funds Act of 1996 (the "Funds Act") which, among other
things, imposed a special one-time assessment on SAIF member institutions,
including the Bank, to recapitalize the SAIF. As required by the Funds Act, the
FDIC imposed a special assessment of 65.7 basis points on SAIF assessable
deposits held as of March 31, 1995, payable November 27, 1996. The SAIF Special
Assessment was recognized by the Bank as an expense in the quarter ended
September 30, 1996 and was tax deductible. The SAIF Special Assessment recorded
by the Bank amounted to $5.2 million on a pre-tax basis and $3.3 million on an
after-tax basis.

     The Funds Act also spread the obligations for payment of the FICO bonds
across all SAIF and BIF members. Beginning on January 1, 1997, BIF deposits were
assessed for a FICO payment of 1.3 basis points, 

                                       85
while SAIF deposits pay 6.48 basis points. Full pro rata sharing of the FICO
payments between BIF and SAIF members will occur on the earlier of January 1,
2000 or the date the BIF and SAIF are merged.

     As a result of the Funds Act, the FDIC voted to effectively lower SAIF
assessments to 0 to 27 basis points as of January 1, 1997, a range comparable to
that of BIF members. SAIF members will also continue to make the FICO payments
described above. The FDIC also lowered the SAIF assessment schedule for the
fourth quarter of 1996 to 18 to 27 basis points. Management cannot predict the
level of FDIC insurance assessments on an on-going basis, whether the federal
thrift charter will be eliminated or whether the BIF and SAIF will eventually be
merged.

     The Bank's assessment rate for the nine months ended September 30, 1997 was
6.48 basis points and the regular premium expense for this period was $285,000.

     The FDIC is authorized to raise the assessment rates in certain
circumstances. The FDIC has exercised this authority several times in the past
and may raise insurance premiums in the future. If such action is taken by the
FDIC, it could have an adverse effect on the earnings of the Bank.

     Under the FDI Act, insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.

FEDERAL HOME LOAN BANK SYSTEM

     The Bank is a member of the FHLB System, which consists of 12 regional
FHLBs. The FHLB provides a central credit facility primarily for member
institutions. The Bank, as a member of the FHLB, is required to acquire and hold
shares of capital stock in the FHLB in an amount at least equal to 1% of the
aggregate principal amount of its unpaid residential mortgage loans and similar
obligations at the beginning of each year, or 1/20 of its advances (borrowings)
from the FHLB, whichever is greater. The Bank was in compliance with this
requirement with an investment in FHLB stock at September 30, 1997 of $8.0
million. FHLB advances must be secured by specified types of collateral and all
long-term advances may only be obtained for the purpose of providing funds for
residential housing finance. At September 30, 1997, the Bank had $33.0 million
in FHLB advances and $38.2 million in repurchase agreements with the FHLB.

     The FHLBs are required to provide funds for the resolution of insolvent
thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest on
advances to their members. For the nine months ended September 30, 1997 and the
years ended December 31, 1996 and 1995, dividends from FHLB stock to the Bank
amounted to $382,000, $469,000 and $475,000, respectively. If dividends were
reduced, the Bank's net interest income would likely also be reduced. Further,
there can be no assurance that the impact of recent or future legislation on the
FHLBs will not also cause a decrease in the value of the FHLB stock held by the
Bank.

FEDERAL RESERVE SYSTEM

     The Federal Reserve Board regulations require savings institutions to
maintain noninterest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve Board
regulations generally require that reserves be maintained against aggregate
transaction accounts as follows: for accounts aggregating $47.8 million or less
(subject to adjustment by the Federal 

                                       86
Reserve Board) the reserve requirement is 3%; and for accounts greater than
$47.8 million, the reserve requirement is $1.479 million (subject to adjustment
by the Federal Reserve Board between 8% and 14%) against that portion of total
transaction accounts in excess of $47.8 million. The first $4.7 million of
otherwise reservable balances (subject to adjustment by the Federal Reserve
Board) are exempted from the reserve requirements. The Bank is in compliance
with the foregoing requirements. Because required reserves must be maintained in
the form of either vault cash, a noninterest-bearing account at a Federal
Reserve Bank or a pass-through account as defined by the Federal Reserve Board,
the effect of this reserve requirement is to reduce the Bank's interest-earning
assets. FHLB System members are also authorized to borrow from the Federal
Reserve "discount window," but Federal Reserve Board regulations require
institutions to exhaust all FHLB sources before borrowing from a Federal Reserve
Bank.

NEW JERSEY LAW
     
     The Commissioner regulates, among other things, the Bank's internal
business procedures as well as its deposits, lending and investment activities.
The Commissioner must approve changes to the Bank's Certificate of
Incorporation, establishment or relocation of branch offices, mergers and the
issuance of additional stock. In addition, the Commissioner conducts periodic
examinations of the Bank. Certain of the areas regulated by the Commissioner are
not subject to similar regulation by the FDIC.

     Recent federal and state legislative developments have reduced distinctions
between commercial banks and SAIF-insured savings institutions in New Jersey
with respect to lending and investment authority, as well as interest rate
limitations. As federal law has expanded the authority of federally chartered
savings institutions to engage in activities previously reserved for commercial
banks, New Jersey legislation and regulations ("parity legislation") have given
New Jersey chartered savings institutions, such as the Bank, the powers of
federally chartered savings institutions.

     New Jersey law provides that, upon satisfaction of certain triggering
conditions, as determined by the Commissioner, insured institutions or savings
and loan holding companies located in a state which has reciprocal legislation
in effect on substantially the same terms and conditions as stated under New
Jersey law may acquire, or be acquired by, New Jersey insured institutions or
holding companies on either a regional or national basis. New Jersey law
explicitly prohibits interstate branching.

HOLDING COMPANY REGULATION

     The Company will be a non-diversified unitary savings and loan holding
company within the meaning of the HOLA. As such, the Company will be required to
register with the OTS and will be subject to OTS regulations, examinations,
supervision and reporting requirements. In addition, the OTS has enforcement
authority over the Company and its non-savings institution subsidiaries. Among
other things, this authority permits the OTS to restrict or prohibit activities
that are determined to be a serious risk to the subsidiary savings institution.
The Bank must notify the OTS 30 days before declaring any dividend to the
Company.

     As a unitary savings and loan holding company, the Company generally will
not be restricted under existing laws as to the types of business activities in
which it may engage, provided that the Bank continues to be a QTL. See "-
Federal Regulation of Savings Institutions - QTL Test" for a discussion of the
QTL requirements. Upon any non-supervisory acquisition by the Company of another
savings association, the Company would become a multiple savings and loan
holding company (if the acquired institution is held as a separate subsidiary)
and would be subject to extensive limitations on the types of business
activities in which it could engage. The HOLA limits the activities of a
multiple savings and loan holding company and its non-insured institution
subsidiaries primarily to activities permissible for bank holding companies
under 

                                       87
Section 4(c)(8) of the Bank Holding Company ("BHC") Act, subject to the prior
approval of the OTS, and to other activities authorized by OTS regulation.
Recently proposed legislation would treat all savings and loan holding companies
as bank holding companies and limit the activities of such companies to those
permissible for bank holding companies. See "Risk Factors - Financial
Institution Regulation and Possible Legislation."

     The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5% of
the voting stock of another savings institution, or holding company thereof,
without prior written approval of the OTS; from acquiring or retaining, with
certain exceptions, more than 5% of a non-subsidiary holding company or savings
association. The HOLA also prohibits a savings and loan holding company from
acquiring more than 5% of a company engaged in activities other than those
authorized for savings and loan holding companies by the HOLA; or acquiring or
retaining control of a depository institution that is not insured by the FDIC.
In evaluating applications by holding companies to acquire savings institutions,
the OTS must consider the financial and managerial resources and future
prospects of the company and institution involved, the effect of the acquisition
on the risk to the insurance funds, the convenience and needs of the community
and competitive factors.

     The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, except: (i) the approval of interstate supervisory
acquisitions by savings and loan holding companies, and (ii) the acquisition of
a savings institution in another state if the laws of the state of the target
savings institution specifically permit such acquisitions. The states vary in
the extent to which they permit interstate savings and loan holding company
acquisitions.

FEDERAL SECURITIES LAWS

     The Company has filed with the SEC a registration statement under the
Securities Act of 1933, as amended ("Securities Act"), for the registration of
the Common Stock to be issued pursuant to the Conversion. Upon completion of the
Conversion, the Company's Common Stock will be registered with the SEC under the
Exchange Act. The Company will then be subject to the information, proxy
solicitation, insider trading restrictions and other requirements under the
Exchange Act.

     The registration under the Securities Act of shares of the Common Stock to
be issued in the Conversion does not cover the resale of such shares. Shares of
the Common Stock purchased by persons who are not affiliates of the Company may
be resold without registration. Shares purchased by an affiliate of the Company
will be subject to the resale restrictions of Rule 144 under the Securities Act.
If the Company meets the current public information requirements of Rule 144
under the Securities Act, each affiliate of the Company who complies with the
other conditions of Rule 144 (including those that require the affiliate's sale
to be aggregated with those of certain other persons) would be able to sell in
the public market, without registration, a number of shares not to exceed, in
any three-month period, the greater of (i) 1% of the outstanding shares of the
Company or (ii) the average weekly volume of trading in such shares during the
preceding four calendar weeks. Provision may be made in the future by the
Company to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances.

                           MANAGEMENT OF THE COMPANY

     The Board of Directors of the Company is divided into three classes, each
of which contains approximately one-third of the Board. The directors shall be
elected by the stockholders of the Company for staggered three year terms, or
until their successors are elected and qualified. One class of directors,
consisting of Messrs. Mulkerin, Shein and Burke has a term of office expiring at
the first annual meeting of

                                       88
stockholders, a second class, consisting of Mr. Timpson and Dr. Akey, has a term
of office expiring at the second annual meeting of stockholders, and a third
class, consisting of Messrs. Martin, McLaughlin and Ruegger has a term of office
expiring at the third annual meeting of stockholders. Their names and
biographical information are set forth under "Management of the Bank -
Directors." The Company will hold its first annual meeting of stockholders prior
to consummation of the Conversion and Reorganization. The Company's first annual
meeting of public stockholders is expected to occur in April 1999.

     The following individuals are the executive officers of the Company and
hold the offices set forth below opposite their names.
NAME                       POSITIONS HELD WITH COMPANY
--------------------------         ---------------------------------
John P. Mulkerin                   President and Chief Executive Officer of the
                                   Bank and Company, General Counsel
Christopher P. Martin              Executive Vice President, Chief Operating
                                   and Financial Officer, Corporate Secretary
The executive officers of the Company are elected annually and hold office
until their respective successors have been elected and qualified or until
death, resignation or removal at the discretion of the Board of Directors.

     Since the formation of the Company, none of the executive officers,
directors or other personnel of the Company has received remuneration from the
Company. Information concerning the principal occupations, employment and other
information concerning the directors and officers of the Company during the past
five years is set forth under "Management of the Bank -Biographical
Information."

                            MANAGEMENT OF THE BANK
     DIRECTORS

     The following table sets forth certain information regarding the Board of
Directors of the Bank.
POSITION(S) HELD WITH THE                      DIRECTOR         TERM
        NAME               AGE(1)                  BANK(2)                                SINCE         EXPIRES
-----------------------    ---------   --------------------------------------------    ----------    ------------
Walter K. Timpson            75        Chairman of the Board                              1964            2000
Donald T. Akey, M.D.         75        Director                                           1979            2000
Harry F. Burke               90        Director                                           1970            1999
Keith H. McLaughlin          61        Director                                           1983            1999
John P. Mulkerin             60        President, Chief Executive Officer, General
                                       Counsel and Director                               1996            1998
Philip T. Ruegger, Jr.       70        Director                                           1983            2000
Jeffries Shein               57        Director                                           1985            1998
Christopher P.  Martin       40        Executive Vice President, Chief Financial
                                       and Operating Officer, Corporate Secretary
                                       and Director                                       1997            1998
__________________                             
(1)  As of September 30, 1997.
(2)  All directors of the Bank are also directors of the Company.

                                       89
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

     The following table sets forth certain information regarding the executive
officers of the Bank who are not also directors.
NAME                  AGE(1)                POSITION(S) HELD WITH THE BANK
---------------------------    -------       ------------------------------------------------
John F. Cerulo, Jr.               46         Senior Vice President/Retail Banking
Karen I. Martino                  38         Senior Vice President/Audit and Compliance
Richard Spengler                  36         Senior Vice President/Chief Lending Officer
______________
(1)  As of September 30, 1997.

     Each of the executive officers of the Bank will retain his office in the
Bank until their re-election at the annual meeting of the Board of Directors of
the Bank, held immediately after the first annual meeting of stockholders
subsequent to the Conversion, and until their successors are elected and
qualified or until they are removed or replaced. Officers are subject to re-
election by the Board of Directors annually.

BIOGRAPHICAL INFORMATION

     DIRECTORS

     John P. Mulkerin was named President and Chief Executive Officer and a
member of the Board of Directors of the Bank in June 1996, following the death
of Joseph S. Yewaisis. Mr. Mulkerin joined the Bank in 1987 as Executive Vice
President, Chief Operating Officer and Corporate Secretary. He was named General
Counsel of the Bank in 1993. Mr. Mulkerin also serves as President and Chief
Executive Officer of the Company and is a director of FSB Financial Corp., a
wholly-owned subsidiary of the Bank. Mr. Mulkerin is also a member of the Board
of Directors of Middlesex Water Company, Raritan Bay Medical Center and Daytop
Village Foundation, headquartered in New York.

     Christopher P. Martin is the Executive Vice President, Chief Financial and
Operating Officer and Corporate Secretary. He joined the Bank in 1984 and served
as Controller of the Bank until 1989, when he was named Senior Vice President
and Chief Financial Officer. He was named Executive Vice President in 1994. Mr.
Martin is also the Executive Vice President and Chief Financial Officer of the
Company and he serves as Treasurer and a director of FSB Financial Corp.

     Donald T. Akey, M.D. joined the Board of First Savings in 1979. Dr. Akey is
a surgeon who had practiced in Metuchen, New Jersey, for over forty years. Dr.
Akey retired from active practice in 1993.

     Harry F. Burke joined the Board of First Savings in 1970. Mr. Burke owned
and operated a general insurance agency in Woodbridge, New Jersey prior to the
sale of said business in 1980.

     Keith H. McLaughlin joined the Board of First Savings in 1983. He is the
President and Chief Executive Officer of Raritan Bay Medical Center, which
operates acute care hospitals in Perth Amboy and Old Bridge, New Jersey. Mr.
McLaughlin also serves as a director of the Princeton Insurance Company.

     Philip T. Ruegger, Jr. joined the Board of First Savings in 1983. Mr.
Ruegger is now an investor. Previously, he was President of Northwest
Construction Co., a real estate construction and management firm. Mr. Ruegger
served as director of the National Bank of New Jersey, a commercial bank, from
1968 through 1981.

                                       90
Jeffries Shein joined the Board of First Savings in 1985. He is a partner
with Jacobson, Goldfarb and Tanzman Associates, L.L.C., a commercial real estate
brokerage firm. Mr. Shein serves on the Board of Directors of Middlesex Water
Co. and is Chairman of the Board of Raritan Bay Medical Center.

     Walter K. Timpson was appointed Chairman of the Board of Directors in June
1996, following the death of Mr. Joseph S. Yewaisis. Mr. Timpson has operated a
real estate appraisal firm in Metuchen, New Jersey, for over forty years.

     Each director named above is also a director of the Company.

     EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

     John F. Cerulo, Jr. joined the Bank in 1988 as Senior Vice President -
Retail Banking. Prior to First Savings, Mr. Cerulo worked for another savings
institution for 16 years as a Branch Administrator.

     Karen I. Martino joined the Bank in 1984. She is now Senior Vice President
and Auditor, a position she has held since 1990.

     Richard Spengler joined the Bank in 1983. He was appointed Assistant Vice
President in 1990, and Vice President of Mortgage Operations in 1991. In January
1995, Mr. Spengler was named Senior Vice President - Chief Lending Officer.
 
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS OF THE BANK AND COMPANY

     The business of the Bank's Board of Directors is conducted through meetings
and activities of the Board and its committees. During the nine months ended as
of September 30, 1997, the Board of Directors held 10 regular meetings,
including the annual organization meeting, and five special meetings. During the
nine months ended September 30, 1997, no director attended fewer than 75% of the
total meetings of the Board of Directors of the Bank and committees on which
such director served.

     The Audit Committee consists of Directors Akey (Chairman), Burke,
McLaughlin, Ruegger and Timpson. The Audit Committee met four times during the
nine months ended September 30, 1997. The Audit Committee reviews audit programs
and results of audits of compliance, departmental internal controls and
operating procedures.

     The Nominating Committee consists of the entire Board of Directors except
those directors standing for election. The Nominating Committee meets annually
to select the nominees for the Board of Directors. The Board of Directors met
once in its capacity as a nominating committee during the nine months ended
September 30, 1997.

     The Compensation Committee consists of Directors Timpson (Chairman),
McLaughlin, Ruegger and Shein. The Compensation Committee meets at least
annually to review the performance and remuneration of the officers and
employees of the Bank. The committee reviews and approves all compensation
programs to be implemented by the Bank. The Compensation Committee met twice in
its capacity as a compensation committee during the nine months ended September
30, 1997.

                                       91
DIRECTOR COMPENSATION

     Nonemployee directors receive $750 for each Board of Directors meeting
attended, plus a $1,750 monthly retainer. Nonemployee directors serving on the
committees are paid $300 for each meeting attended.

     DIRECTORS' DEFERRED FEE PLAN. Directors may elect to defer all or part of
their fees under the Agreement for Deferment of Directors' Fees (the "Deferral
Fee Agreement"). The fees so deferred are recorded on the books of the Bank as a
liability in the year the fees are earned; however, the Bank does not
specifically fund the amount so deferred. The Bank pays the deferred fees to the
directors not earlier than the time they cease to be a director, retirement or
when they attain age 65 (or some other age specifically elected by the
director), unless the Bank determines it serves its best interests or the best
interests of the director to disburse these funds at an earlier date.

     The Bank also maintains the First Savings Bank, SLA Directors' Deferred Fee
Stock Unit Plan (the "Deferred Fee Stock Unit Plan"). During the Bank's 1992 and
1995 stock offerings, Directors who had deferred fees under the Deferred Fee
Agreement had the opportunity to elect to defer the fees under the Deferred Fee
Stock Unit Plan. Each Director who elected to participate in the Deferred Fee
Stock Unit Plan had his deferred fees credited with a number of shares of Common
Stock based on the fair market value of the stock. Messrs. Burke, McLaughlin,
Martin, Ruegger, Shein and Timpson currently participate in the Plan. It is
expected that Directors will again be able to defer fees previously earned into
the Deferred Fee Stock Unit Plan in connection with the Offerings.

     RETIREMENT PLAN. First Savings also maintains a nonqualified, unfunded
retirement plan for directors who are not employees, have served as a director
for five (5) years, and who retire from the Board of Directors within the time
specified under the Retirement Plan. Benefits, in general, are equal either to
all or a portion of the current annual retainer received by Board members,
depending upon the director's age and length of service at retirement. Benefits
are paid monthly, commencing in the month following the director's retirement
from the Board and ending in the month following the director's death.

     STOCK OPTION PLAN FOR OUTSIDE DIRECTORS. During 1992, the Board of
Directors adopted the First Savings Bank, SLA 1992 Stock Option Plan for Outside
Directors (the "Directors' Stock Option Plan") of the Bank and its affiliates.
Under the terms of the Director's Stock Option Plan, 100,399 shares of the
Common Stock have been reserved for issuance to current directors who are not
employees of the Bank. The Directors' Stock Option Plan is a self administering
plan and provides that each member of the Board of Directors of the Bank who is
not an officer or employee of the Bank or the Mutual Holding Company will be
granted non-statutory stock options to purchase 16,733 shares of the Common
Stock (based on adjustments for four 10% stock dividends and a two-for-one stock
split). All stock options granted under this plan are currently exercisable at
an exercise price of $3.413 per share, as adjusted the four stock dividends and
the stock split. As of September 30, 1997, 33,466 options had been exercised
under this plan.

     INCENTIVE PLAN. During 1995, the Board of Directors adopted the First
Savings Bank, SLA 1996 Omnibus Incentive Plan for directors, officers and
certain employees of the Bank and its affiliates. Under the terms of the
Incentive Plan, 21,780 shares of the Common stock have been reserved for
issuance to current directors who are not employees of the Bank. The portion of
the Incentive Plan granting awards to directors is self administering and
provides that each member of the Board of Directors who is not an officer or
employee of the Bank or the Holding Company will be granted non-statutory
options to purchase 3,630 shares of the Bank's Common Stock at an exercise price
of $13.02 per share. Stock options granted under this plan vest in equal
installments over a three-year period from the date of issuance.

                                       92
EXECUTIVE COMPENSATION

     Summary Compensation Table. The following table sets forth certain
information as to the total remuneration paid by the Bank to the Chief Executive
Officer and other executive officers who received salary and bonuses in excess
of $100,000 during the year ended December 31, 1996 ("Named Executive
Officers"). In addition, the table sets forth information regarding total
remuneration for the years ended December 31, 1996, 1995 and 1994.
------------------------------------------------------------------------------------------------------------------------------------

                                                                                          LONG-TERM COMPENSATION
                                                                             -------------------------------------------------------

                                                ANNUAL COMPENSATION(1)                    AWARDS           PAYOUTS
                                          ------------------------------------------------------------------------------------------

                                                                    OTHER                     SECURITIES      
                                                                    ANNUAL      RESTRICTED    UNDERLYING    LTIP       ALL OTHER
                                           SALARY                COMPENSATION  STOCK AWARDS  OPTIONS/SARS  PAYOUTS    COMPENSATION
NAME AND PRINCIPAL POSITIONS        YEAR   (1)(2)      BONUS(3)       (4)          (5)           (6)         (7)         (8)(9)
------------------------------------------------------------------------------------------------------------------------------------
Joseph S. Yewaisis(10)              1996  $185,770      $  --       $    --      $    --            --     $    --        $17,742
  Chairman of the Board,            1995   330,000       99,000          --           --            --          --         17,122
  President and Chief Executive     1994   315,000       94,500          --           --            --          --         14,615
  Officer
 
John P. Mulkerin (11)               1996   202,250       67,500          --       66,138        13,915          --         19,813
  President, Chief Executive        1995   152,000       30,400          --           --            --          --         17,062
  Officer and General Counsel       1994   145,000       29,000          --           --            --          --         14,128
 
Christopher P. Martin(12)           1996   160,460       54,000          --       66,138        13,915          --         18,905
  Executive Vice President, Chief   1995   125,000       25,000          --           --            --          --         14,168
  Financial Officer, Chief          1994   110,000       22,000          --           --            --          --         10,718
  Operating Officer and Corporate 
  Secretary
 
Richard Spengler                    1996   100,000       15,000          --       17,875         2,420          --         13,042
  Senior Vice President, Lending    1995    74,480       11,250          --           --            --          --          7,995
                                    1994    63,000        7,875          --           --            --          --          6,020
_________________________
(1)    Includes directors' fees paid to Mr. Mulkerin in 1996.
(2)    Includes amounts of salary deferred pursuant to the Bank's Incentive
       Savings Plan for Employees of First Savings Bank, SLA 401(k).
(3)    Includes bonuses granted pursuant to the Bank's Annual Incentive Plan.
       Under this plan, bonuses are awarded by the Compensation Committee of the
       Board of Directors based upon achieving certain predetermined profit
       levels and other identifiable goals.  See "Compensation Committee
       Report."
(4)    The Bank provides certain executive officers with the use an automobile,
       club dues and certain other benefits, which, in the aggregate, do not
       exceed the lesser of either $50,000, or 10% of the total annual salary
       and bonus reported for any of the named executive officers.
(5)    Pursuant to the 1996 Incentive Plan, Messrs. Mulkerin, Martin and
       Spengler were awarded 4,477 shares, 4,477 shares and 1,210 shares of
       Common stock, respectively, in November 1996, as adjusted for a 10% stock
       dividend paid on October 30, 1997, which had a market value of $75,300,
       $75,300 and $19,600, respectively, at December 31, 1996.  The dollar
       amounts set forth in the table represent the market value of the shares
       awarded on the date of grant.  A committee of non-employee directors
       determines the date on which plan share awards vest.  Pursuant to the
       award agreements, the awards will vest over a three-year period from the
       date of grant.
(6)    The Bank maintains the 1992 Incentive Stock Option Plan for the benefit
       of officers and employees.  All options granted pursuant to the 1992
       Incentive Stock Option Plan became exercisable as of July 10, 1993.  The
       Bank also maintains the 1996 Incentive Plan for the benefit of officers
       and directors.  Messrs. Mulkerin, Martin and Spengler were awarded 13,915
       shares, 13,915 shares and 2,420 shares subject to options, respectively,
       under the 1996 Incentive Plan, as adjusted for a 10% stock dividend paid
       on October 30, 1997.  Options granted become exercisable in equal
       installments at an annual rate of 33-1/3% beginning November 19, 1997.
(7)    For 1996, 1995 and 1994, the Bank had no long-term incentive plan;
       accordingly, there were no payouts or awards under any long-term
       incentive plan.
(8)    Includes $4,950, $3,847 and $3,000 contributed by the Bank in 1996 to the
       accounts of Messrs. Mulkerin, Martin and Spengler, respectively, under
       the Incentive Savings Plan for Employees of First Savings Bank, SLA
       401(k).
(9)    Includes $15,063, $15,063 and $10,042, contributed by the Bank pursuant
       to the Bank's Employee Stock Ownership Plan ("ESOP") in 1997 allocated
       for the benefit of Messrs. Mulkerin, Martin and Spengler.
(10)   Mr. Yewaisis passed away on May 29, 1996.
(11)   Mr. Mulkerin was appointed to the positions of President and Chief
       Executive Officer on June 12, 1996.
(12)   Mr. Martin was appointed to the added positions of Chief Operating
       Officer and Corporate Secretary on June 12, 1996.

                                       93
1996 Incentive Plan. On April 24, 1996, the Bank's stockholders approved
the First Savings Bank, SLA 1996 Omnibus Incentive Plan under which all
employees of the Bank are eligible to receive awards. The 1996 Incentive Plan
provides discretionary awards to officers and key employees, as determined by a
committee of non-employee directors. Stock options were awarded to officers
under the 1996 Incentive Plan on November 19, 1996. The following table lists
all grants of stock options under the Incentive Plan to the Named Executive
Officers for fiscal 1996 and contains certain information about the potential
value of those options based upon certain assumptions regarding the appreciation
of the Bank's stock over the life of the stock option.

                       OPTIONS GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
                                                                                           VALUE AT ASSUMED
                                                                                        ANNUAL RATES OF STOCK
                                                                                          PRICE APPRECIATION
                                 INDIVIDUAL GRANTS                                          FOR OPTIONS(1)
--------------------------------------------------------------------------------------  ---------------------
                            NUMBER OF                                                                               
                            SECURITIES      % OF TOTAL                                                              
                            UNDERLYING      OPTION/SARS                                                             
                           OPTIONS/SARS      GRANTED TO      EXERCISE OR                                            
                             GRANTED        EMPLOYEES IN      BASE PRICE    EXPIRATION                              
       NAME                (2)(3)(4)(5)     FISCAL YEAR       PER SHARE       DATE(6)       5%         10%             
------------------------  --------------  ---------------  --------------  -----------  ----------  ---------
John P. Mulkerin             13,915             21.1%          $14.773       11/19/06    $129,504    $326,844     
Christopher P. Martin        13,915             21.1            14.773       11/19/06     129,504     326,844     
Richard Spengler              2,420              3.7            14.773       11/19/06      22,523      56,843
__________________________
(1)  The amounts represent certain assumed rates of appreciation. Actual gains,
     if any, on stock exercises and Common Stock holdings are dependent on the
     future performance of the Common Stock and overall stock market conditions.
     There can be no assurance that the amounts reflected in this table will be
     realized. All stock options and their respective prices reflect the 10%
     stock dividend paid on October 30, 1997.
(2)  Options granted pursuant to the Incentive Plan become exercisable in equal
     installments at an annual rate of 33 1/3% beginning on November 19, 1997.
(3)  The purchase price may be paid in cash or in Common Stock.
(4)  Under limited circumstances, such as death or disability of an employee,
     the employee (or his beneficiary) may request that the Bank, in exchange
     for the employee's surrender of an option, pay to the employee (or
     beneficiary) the amount by which the fair market value of the Common Stock
     exceeds the exercise price of the option on the date of the employee's
     termination of employment. It is within the Bank's discretion to accept or
     reject such a request.
(5)  To the extent possible, options will be treated as incentive options.
(6)  The option term is ten years.

                                       94
The following table provides certain information with respect to the number
of shares of Common Stock acquired upon exercise of stock options and the value
realized thereon. Also reported is the number of shares of Common Stock
represented by outstanding stock options at December 31, 1996, held by named
executive officers and the values for "in-the-money" options which represent the
positive spread between the exercise price of any existing stock option and the
year-end price of the Common Stock.

                       FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES          VALUE OF UNEXERCISED IN-THE-
                                    UNDERLYING UNEXERCISED              MONEY OPTIONS AT                     
                                    OPTIONS AT DECEMBER 31,          DECEMBER 31, 1996 (1)(2)                      
                                            1996(1)                                    
                              --------------------------------    --------------------------------
 
           NAME                EXERCISABLE      UNEXERCISABLE      EXERCISABLE      UNEXERCISABLE
--------------------------    -------------    ---------------    -------------    ---------------
John P. Mulkerin..........          2,130             13,915         $ 28,540            $28,460
                                                                                                
Christopher P. Martin.....          8,785             13,915          117,740             28,460
                                                                                                
Richard Spengler..........             --              2,420               --              4,950
___________________________
     (1)  All options granted under the 1992 Incentive Stock Option Plan were
          issued on July 10, 1992, and exercisable on July 10, 1993, at an
          option price of $3.413 per share. All options granted under the 1996
          Incentive Plan were issued on November 19, 1996, at an option price of
          $14.773 per share. Options granted to Messrs. Mulkerin and Martin are
          exercisable at the rate of 4,638 shares per year commencing on
          November 19, 1997. Options granted to Mr. Spengler are exercisable at
          the rate of 807 shares per year commencing on November 19, 1997. All
          options will immediately vest upon a change in control.
     (2)  The market value of the Common Stock at December 31, 1996, was $18.50
          per share.

     The 1996 Incentive Plan was implemented by the Bank and the Mutual Holding
Company as a means of providing employees and outside directors, respectively,
of the Bank and the Mutual Holding Company with a proprietary interest in the
Bank in a manner designed to encourage such persons to remain with the Bank and
the Company. In November 1996, the 1996 Incentive Plan acquired 18,000 shares of
Bank Common Stock from authorized but unissued shares (21,780 shares as adjusted
for two 10% stock dividends).

     A Committee of the Board of Directors of the Bank and the Company comprised
of nonemployee directors administers the 1996 Incentive Plan, and makes awards
to executive officers pursuant to the Plan. Awards under the 1996 Incentive Plan
become immediately vested in the event of death, disability, retirement or a
change in control of the Bank or its successors.

     Officers, directors and employees of the Bank were awarded a total of
18,000 shares of Bank Common Stock during the year ended December 31, 1996
(21,780 as adjusted for two 10% stock dividends paid on October 30, 1997). Of
the total, 21,780 shares of Bank Common Stock acquired by the 1996 Incentive
Plan, 14,524 shares were unallocated at November 30, 1997. At the completion of
the Conversion and Reorganization, the unallocated shares will be converted into
shares of Company Common Stock in accordance with the applicable Exchange Ratio
and will be available for grants to participants in the 1996 Incentive Plan.

                                       95
Adoption of Existing Bank Plans by Company. The Company has approved
adoption of the Bank's existing 1992 Stock Option Plans and 1996 Incentive Plan
(collectively the "Plans") as plans of the Company upon consummation of the
Conversion and Reorganization and will issue Common Stock in lieu of Bank Common
Stock to such Plans pursuant to the terms of such Plans. As of the effective
date of the Conversion and Reorganization, rights outstanding under the Plans
shall be assumed by the Company and thereafter shall be rights only for shares
of Company Common Stock, with each such right being for a number of shares of
Common Stock equal to the number of shares of Bank Common Stock that were
available thereunder immediately prior to such effective date times the Exchange
Ratio, and the price of each such right shall be adjusted to reflect the
Exchange Ratio and so that the aggregate purchase price of the right is
unaffected, but with no change in other terms or conditions of such right. The
Company shall make appropriate amendments to the Plans to reflect the adoption
of the Plans by the Company without adverse effect upon the rights outstanding
thereunder. In addition, the Bank's Incentive Savings Plan for Employees of
First Savings Bank, SLA (the "401(k) Plan"), will be amended to permit
participants to invest in the Common Stock of the Company. Currently, the 401(k)
Plan has an employer stock fund which enables participants to invest in Bank
Common Stock.

EMPLOYMENT AGREEMENTS

     The Mutual Holding Company and the Bank currently have employment
agreements with Messrs. Mulkerin and Martin. Effective upon the Conversion and
Reorganization, the Company intends to enter into employment agreements
(collectively, the "Employment Agreements") with Messrs. Mulkerin and Martin
(the "Executives"). The Bank's contracts will remain in effect. The Employment
Agreements are subject to the review and approval of the Company, and the review
of the OTS and may be amended as a result of such review. Review of the
compensation arrangements by the OTS does not indicate, and should not be
construed to indicate that the OTS has passed upon the merits thereof. The
Employment Agreements are intended to ensure that the Bank and the Company will
be able to maintain a stable and competent management base after the Conversion
and Reorganization. The continued success of the Bank and the Company depends to
a significant degree on the skills and competence of Messrs. Mulkerin and
Martin.

     The proposed Employment Agreements are expected to provide for a three-year
term for the Executives. The Bank's Employment Agreements provide that,
commencing on the first anniversary date and continuing each anniversary date
thereafter, the Board of Directors of the Bank reviews the agreements and the
Executive's performance for purposes of determining whether to extend the
agreements with the Bank for an additional year such that the remaining terms
would be the amount of the original terms. It is expected that the Company
Employment Agreement would automatically extend daily, such that the remaining
terms would be the amount of the original term unless written notice of non-
renewal is given by the Board of Directors of the Company after conducting a
performance evaluation of the executive. The base annual salary which will be
effective for the Employment Agreement for Messrs. Mulkerin and Martin will be
$260,000 and $210,000, respectively. In addition to the base salary, the
proposed Employment Agreements would provide for, among other things,
participation in stock benefit plans and other fringe benefits applicable to
executive personnel. The Employment Agreements provide for termination by the
Bank or the Company for "cause," as defined in the agreements, at any time. In
the event the Bank or the Company would choose to terminate the Executive's
employment for reasons other than for "cause," or in the event of the
Executive's resignation from the Bank and the Company upon: (i) failure to re-
elect the Executive to his current offices; (ii) a material change in the
Executive's functions, duties or responsibilities; (iii) a relocation of the
Executive's principal place of employment by more than 25 miles; (iv)
liquidation or dissolution of the Bank or the Company; or (v) a breach of the
agreement by the Bank or the Company, the Executive or, in the event of death,
his beneficiary, would be entitled to receive the remaining base salary payments
due to the Executive and the contributions that would have been made on the
Executive's behalf to any employee benefit plans of the Bank or the Company
during the remaining term of the agreement. The Bank and the 

                                       96
Company would also continue and pay for the Executive's life, health and
disability coverage for the remaining term of the Employment Agreements.

     Under the current and proposed Employment Agreements, if voluntary or
involuntary termination follows a "change in control" of the Bank or the
Company, as defined in the proposed Employment Agreements, the Executive or, in
the event of death, his beneficiary, would be entitled to a payment equal to the
greater of: (1) the payments due for the remaining term of the agreement; or (2)
a severance payment equal to three times the average of the five preceding
taxable years' compensation, in the case of the Company's proposed Employment
Agreement, and three times the average of the three preceding taxable years'
compensation in the case of the Bank's existing Employment Agreements. It is
also expected that the Company, like the Bank, would also continue the
Executive's life, health, and disability coverage for 36 months. Notwithstanding
that both agreements would provide for a severance payment in the event of a
change in control, the Executive would only be entitled to receive a severance
payment under one agreement.

     Payments to the Executives under the Bank's proposed Employment Agreements
are expected to be guaranteed by the Company in the event that payments or
benefits are not paid by the Bank. Payment under the Company's Employment
Agreements would be made by the Company. All reasonable costs and legal fees
paid or incurred by the Executive pursuant to any dispute or question of
interpretation relating to the Employment Agreements would be paid by the Bank
or Company, respectively, if the Executive is successful on the merits pursuant
to a legal judgment, arbitration or settlement. The Bank's Employment Agreement
provides, and it is expected that the Company's Employment Agreement would
provide, that the Bank and Company indemnify the Executive to the fullest extent
allowable under federal and Delaware law, respectively. In the event of a
"change in control" of the Bank or Company, the total amount of payments that
would be due under the Employment Agreements, based solely on cash compensation
paid to Messrs. Mulkerin and Martin in the past fiscal year and excluding any
benefits under any employee benefit plan which may be payable, would be
approximately $709,000 and $567,000, respectively.

CHANGE IN CONTROL AGREEMENTS

     Effective upon the Conversion and Reorganization, the Bank and the Company
intend to enter into Change in Control Agreements ("CIC Agreements") with
__________________. Such agreements will have terms ranging from one to three
years. The proposed CIC Agreements are expected to provide that commencing on
the first anniversary date and continuing on each anniversary thereafter, the
Bank's CIC Agreements may be renewed by the Board of Directors for an additional
year while the term of the Company's CIC Agreements shall be extended on a daily
basis unless written notice of non-renewal is given by the Board of Directors of
the Company. It is also expected that the CIC Agreements with the Company will
provide that in the event voluntary or involuntary termination follows a change
in control of the Bank or the Company, the officer would be entitled to receive
a severance payment equal to one to three times the officer's average annual
compensation for the five years preceding termination, depending on the term of
the officers' CIC Agreement. It is also expected that the Bank's CIC Agreement
would have a similar change in control provision; however, the officer would
only be entitled to receive a severance payment under one agreement. The Company
and the Bank would also continue, and pay for, the officer's life, health and
disability coverage for 12 to 36 months following termination. Payments to the
officer under the Bank's CIC Agreements would be guaranteed by the Company in
the event that payments or benefits are not paid by the Bank. In the event of a
change in control of the Bank or Company, the total payments that would be due
under the CIC Agreements, based solely on the cash compensation paid to the
officers covered by the CIC Agreements over the past three fiscal years and
excluding any benefits under any employee benefit plan which may be payable,
would be approximately $___ million.

                                       97
EMPLOYEE SEVERANCE COMPENSATION PLAN

     It is anticipated that the Bank's Board of Directors will, subsequent to
the Conversion and Reorganization, establish the First Savings Bank, SLA
Employee Severance Compensation Plan ("Severance Plan") which would provide
eligible employees with severance pay benefits in the event of a change in
control of the Bank or the Company following Conversion and Reorganization.
Management personnel with employment or CIC Agreements would not be eligible to
participate in the Severance Plan. Generally, all employees would be eligible to
participate in the Severance Plan. It is expected that under the Severance Plan,
in the event of a change in control of the Bank or the Company, eligible
employees who are terminated from or terminate their employment within one year
of the change in control (for reasons specified under the Severance Plan), would
be entitled to receive a severance payment. The participant would be entitled to
a cash severance payment equal to one-twelfth of then-current annual
compensation for each year of service up to a maximum of 100% of annual
compensation. Such payments may tend to discourage takeover attempts by
increasing costs to be incurred by the Bank in the event of a takeover. In the
event the provisions of the Severance Plan were triggered, the total amount of
payments that would be due thereunder, based solely upon salary levels at
December 31, 1996, would be approximately $___ million.

BENEFITS

     Pension Plan. On January 1, 1993, the Bank became a participant in the
Financial Institutions Retirement Fund, a multiple-employer defined benefit
plan. All employees who attain the age of 21 years and complete one year of
service are eligible to participate in this Plan. Retirement benefits are based
upon a formula utilizing years of service and average compensation. Participants
are vested 100% upon the completion of five years of service.

     Financial Institutions Retirement Fund does not segregate its assets,
liabilities or costs by participating employer. Therefore, disclosure of the
accumulated benefit obligations, plan assets and the components of annual
pension expense attributable to the Bank cannot be ascertained.

     First Savings is required to make an annual contribution to the plan based
upon the actuarial estimated provided by the actuary. During the nine months
ended September 30, 1997, this amounted to $143,000, which includes past
conversion costs from prior plan year revaluations.

                                       98
The following table illustrates annual pension benefits at age 65 under the
most advantageous plan provisions available at various levels of compensation
and years of service. The benefits listed in the table are not subject to a
deduction for Social Security or any other offset amount.
YEARS OF SERVICE                
                          ---------------------------------------------- 
                                                                         
             AVERAGE          10         15         20       25 AND OVER  
          --------------  ---------  ---------  ----------   -----------
$ 20,000......   $ 4,000    $ 6,000    $  8,000     $ 10,000    
          $ 30,000......     6,000      9,000      12,000       15,000    
          $ 50,000......    10,000     15,000      20,000       25,000    
          $ 75,000......    15,000     22,500      30,000       37,500    
          $100,000......    20,000     30,000      40,000       50,000    
          $150,000......    30,000     45,000      60,000       75,000    
          $200,000......    40,000     60,000      80,000      100,000    
          $300,000 and                                                    
          over(1).......    60,000     90,000     130,000(2)   130,000(2)
________________
(1)  Under current law, the average final compensation for computing benefits
     under the Pension Plan cannot exceed $160,000 (indexed for inflation).
     However, benefits are not reduced below the level of benefits accrued as of
     December 31, 1992.
(2)  Under current law, the maximum benefit is limited to $130,000 per year
     beginning in 1998.
(3)  The compensation utilized for formula purposes include salary amounts
     listed under "Summary Compensation Table."

     The following table sets forth the years of credited service as of December
31, 1996, for each of the individuals named in the Executive Compensation Table.
YEARS OF CREDITED
                                                 SERVICE 
                                           -------------------
John P. Mulkerin                      9
               Christopher P. Martin                13
               Richard Spengler                     14
Supplemental Executive Retirement Plan. Effective as of January 1, 1994,
the Board of Directors revised a previously existing plan entitled the
Retirement Benefit Maintenance Plan (the "Maintenance Plan") and restated it as
the First Savings Bank, SLA Supplemental Executive Retirement Plan ("SERP"). The
SERP provides a post-employment supplemental retirement benefit for participants
who retire on or after their "Normal Retirement Age" (age 65) equal to (i)
seventy-five percent (75%) of the participant's base salary during the twelve
months prior to retirement, (ii) less the amount of the participant's "Pension
Plan Annual Benefit" and "Primary Social Security Benefit," as defined in the
plan. The plan allows for benefits, reduced according to actuarial
considerations, for early retirement. The SERP is not a tax-qualified employee
benefit plan. Pursuant to the SERP, the estimated additional annual benefits
payable upon retirement at normal retirement age for Messrs. Mulkerin and Martin
are $107,600 and $47,900, respectively.

                                       99
The Bank intends to implement an additional supplemental executive
retirement plan to provide for supplemental benefits to certain employees whose
benefits under the ESOP and/or 401(k) Plan are reduced by limitations imposed by
the Code. From time to time, the Board will designate which employees may
participate in this additional supplemental executive retirement plan. This
supplemental executive retirement plan will also be an "unfunded" promise to pay
supplemental benefits in the future and any amount set aside to pay the benefits
under the plan remain subject to the claims of the Bank's general creditors
until they are paid to plan participants. The Bank may establish a grantor trust
in connection with the plan to satisfy the obligations of the Bank under the
plan. The grantor trust would be permitted to invest in a wide-variety of
investments, including Company Common Stock.

     Employee Stock Ownership Plan and Trust. The Bank established the First
Savings Bank, SLA Employee Stock Ownership Plan (the "ESOP") and related trust
for eligible employees in connection with the 1992 MHC Reorganization. Employees
employed with the Bank as of January 1, 1992 and employees of the Company or the
Bank employed after such date, who have been credited with at least 1,000 hours
during a 12-month period and who have attained the age of 21 participate in the
ESOP.

     In July 1992, the ESOP borrowed $700,000 from an unaffiliated lender to
purchase 70,000 shares of Bank Common Stock issued in the 1992 MHC
Reorganization ("1992 ESOP Loan"). In connection with the Bank's 1995 Secondary
Issuance, the ESOP purchased an additional 42,000 shares of Bank Common Stock at
$13.00 per share. The ESOP borrowed an additional $546,000 from the MHC to fund
the purchase of the shares. The MHC also assumed the 1992 ESOP Loan. Upon
consummation of the Conversion and Reorganization, the Public Bank Shares held
by the ESOP will convert into Common Stock of the Company based upon the
Exchange Ratio, and the Company expects to refinance the MHC's existing loan to
the ESOP. See "The Conversion and Reorganization - Effect on Existing
Compensation Plans" and "Use of Proceeds."

     In connection with the establishment of the ESOP, a Committee of the Board
of Directors was appointed to administer the ESOP (the "ESOP Committee"). A
trustee for the ESOP was appointed prior to the 1992 MHC Reorganization and
continuing thereafter. The ESOP Committee may instruct the trustee regarding
investment of funds contributed to the ESOP. The ESOP trustee, subject to its
fiduciary duty, must vote all allocated shares held in the ESOP in accordance
with the instructions of the participating employees. Under the ESOP, allocated
shares for which no instructions are given and unallocated shares will be voted
by the trustee in a manner calculated to most accurately reflect the
instructions it has received from participants regarding the allocated stock,
provided such vote is in accordance with the provisions of ERISA.

     The ESOP intends to purchase 8% of the Conversion Stock issued in the
Conversion. As part of the Conversion and in order to fund the ESOP's purchase
of the Conversion Stock to be issued in the Conversion, the ESOP intends to
borrow funds either from the Company or a third-party lender equal to 8% of the
aggregate purchase price of the Conversion Stock. In either case, the loan will
be repaid principally from the Company's or the Bank's contribution's to the
ESOP over a period of 15 years and the collateral for the loan will be the
Common Stock purchased by the ESOP. This loan will be in addition to the
existing ESOP loans, which will continue to be repaid over their original terms.
Subject to receipt of any necessary regulatory approvals or opinions, the Bank
may make contributions to the ESOP for repayment of the loan since the
participants are all employees of the Bank, or to reimburse the Company for
contributions made by it. Contributions to the ESOP will be discretionary,
however, the Company or the Bank intend to make annual contributions to the ESOP
in an aggregate amount at least equal to the principal and interest requirement
on the debt. The interest rate for the loan is expected to be the current market
rate.

     Shares purchased by the ESOP will initially be pledged as collateral for
the loan, and will be held in a suspense account until released for allocation
among participants as the loan is repaid. The pledged shares will be released
annually from the suspense account in an amount proportional to the repayment of
the ESOP loan for each plan year. The released shares will be allocated among
the accounts of participants on the basis of the participant's compensation for
the year of allocation. Participants will vest in their ESOP

                                      100
accounts after five years of credited service. Participants also vest completely
in their accounts if their service terminates due to death, early retirement,
permanent disability or a change in control. Forfeitures will be reallocated
among remaining participating employees, in the same proportion as
contributions. Benefits may be payable upon death, retirement, early retirement,
disability or separation from service. The contributions to the ESOP are not
fixed, so benefits payable under the ESOP cannot be estimated.

     Stock-Based Incentive Plan. Following the Conversion and Reorganization,
the Board of Directors of the Company intends to adopt one or more stock-based
benefit plans to provide stock options, awards of restricted stock and certain
related rights to eligible officers, employees, and directors of the Company and
Bank. The Company anticipates granting stock options and restricted stock awards
under a single plan. However, it is possible separate plans could be established
for directors and employees (including officers).

     At a meeting of stockholders of the Company following the Conversion and
Reorganization, which under applicable OTS regulations may be held no earlier
than six months after the completion of the Conversion and Reorganization, the
Board of Directors intends to present the Stock-Based Incentive Plan or any
separate plan(s) to stockholders for approval. The Company has reserved an
amount equal to 10% of the shares of Common Stock issued in the Conversion and
Reorganization, or 1,424,207 shares (based upon the issuance of 14,242,072
shares), for stock options, and 4% of the shares of Common Stock issued in the
Conversion, or 569,682 shares (based upon the issuance of 14,242,072 shares),
for restricted stock awards. OTS regulations provide that no individual officer
or employee of the Bank may receive more than 25% of the stock options available
under the Stock-Based Incentive Plan (or any separate plan for officers and
employees) and non-employee directors may not receive more than 5% individually,
or 30% in the aggregate, of the stock options available under the Stock-Based
Incentive Plan (or any separate plan for directors). OTS regulations also
provide that no individual officer or employee of the Bank may receive more than
25% of the restricted stock awards available under the Stock-Based Incentive
Plan (or any separate plan for officers and employees) and non-employee
directors may not receive more than 5% individually, or 30% in the aggregate, of
the restricted stock awards available under the Stock-Based Incentive Plan (or
any separate plan for directors). The Bank expects to contribute funds to a
trust established in connection with the Stock-Based Incentive Plan (or any
separate plan(s)) to enable the plan to acquire, in the aggregate, an amount
equal to 4% of the shares of Common Stock issued in the Conversion, or 569,682
shares (based upon the issuance of 14,242,072 shares). These shares would be
acquired through open market purchases, if permitted, or from authorized but
unissued shares. The Board intends to appoint an independent fiduciary to serve
as trustee of a trust to be established in connection with the Stock-Based
Incentive Plan. In the event that additional authorized but unissued shares are
acquired by the Stock-Based Incentive Plan after the Conversion and
Reorganization, the interests of existing shareholders would be diluted. See
"Pro Forma Data."

     The grants of stock options and restricted stock awards will be designed to
attract and retain qualified personnel in key positions, provide officers and
key employees with a propriety interest in the Company as an incentive to
contribute to the success of the Company and reward key employees for
outstanding performance. All employees of the Company and its subsidiaries,
including the Bank, will be eligible to participate in the Stock-Based Incentive
Plan (or any separate plan for employees). It is expected that the committee
administering the plan will determine which officers and employees will be
granted stock options, restricted stock awards and related rights, including
limited rights. The committee will also determine whether stock options will be
incentive or non-statutory stock options, the number of shares subject to each
stock option and restricted stock award, the exercise price of each non-
statutory stock option, whether stock options may be exercised by delivering
other shares of Common Stock, and when stock options become exercisable or
restricted stock awards vest. Only employees may receive grants of Incentive
Stock Options. Therefore, under the Stock-Based Incentive Plan (or any separate
plan for directors), directors may receive only grants of Non-Statutory Stock
Options.

                                      101
The Stock-Based Incentive Plan (or any separate plan for employees) will
provide for the grant of: (i) options to purchase the Common Stock intended to
qualify as incentive stock options under Section 422 of the Code ("Incentive
Stock Options"); (ii) options that do not so qualify ("Non-Statutory Stock
Options"); and (iii) limited option rights ("Limited Option Rights"). Limited
Option Rights are exercisable only upon a change in control of the Bank or the
Company. Upon exercise of Limited Option Rights in the event of a change in
control, the employee or director will be entitled to receive a lump sum cash
payment equal to the difference between the exercise price of any unexercised
option, whether exercisable or unexercisable at such time, and the fair market
value of the shares of common stock subject to the stock option on the date of
exercise of the right in lieu of purchasing the stock underlying the stock
option. It is anticipated that all stock options granted contemporaneously with
stockholder approval of the Stock-Based Incentive Plan will qualify as Incentive
Stock Options to the extent permitted under Section 422 of the Code. Unless
sooner terminated, the Stock-Based Incentive Plan will be in effect for a period
of ten years from the earlier of adoption by the Board of Directors or approval
by the Company's Stockholders. Subject to stockholder approval, the Company
intends to grant stock options with Limited Option Rights under the Plan at an
exercise price equal to at least the fair market value of the underlying Common
Stock on the date of grant.

     An individual will not be deemed to have received taxable income upon the
grant or exercise of any Incentive Stock Option, provided that such shares
received through the exercise of such option are not disposed of by the employee
for at least one year after the date the stock is received in connection with
the stock option exercise and two years after the date of grant of the stock
option (a "disqualifying disposition"). No compensation deduction will be
available to the Company as a result of the grant or exercise of Incentive Stock
Options unless there has been a disqualifying disposition. In the case of a Non-
Statutory Stock Option and in the case of a disqualifying disposition of an
Incentive Stock Option, an individual will realize ordinary income upon exercise
of the stock option (or upon the disqualifying disposition) in an amount equal
to the amount by which the exercise price exceeds the fair market value of the
Common Stock purchased by exercising the stock option on the date of exercise.
The amount of any ordinary income realized by an optionee upon the exercise of a
Non-Statutory Stock Option or due to a disqualifying disposition of an Incentive
Stock Option will be a deductible expense to the Company for tax purposes. In
the case of Limited Rights, the option holder will have to include the amount
paid to him or her upon exercise in his gross income for federal income tax
purposes in the year in which the payment is made and the Company will be
entitled to a deduction for federal income tax purposes of the amount paid.

     Under the Stock-Based Incentive Plan (or any separate plans for directors
and employees), restricted stock awards and related Limited Stock Rights, would
be granted in the form of shares of Common Stock held by the plans. Awards will
be non-transferable and non-assignable. Allocations and grants of restricted
stock awards, and related Limited Stock Rights, to officers and employees may be
made in the form of base grants and/or performance grants (the vesting of which
would be contingent upon performance goals established by the committee
administering the plan). In establishing any performance goals, the committee
may utilize the annual financial results of the Bank, actual performance of the
Bank as compared to targeted goals such as the ratio of the Bank's net worth to
total assets, the Bank's return on average assets or average equity, or such
other performance standards as determined by the committee with the approval of
the Board of Directors.

     Limited Stock Rights would be exercisable by participants upon a change in
control of the Company or Bank as described in the plan. Subject to OTS
regulations, upon the exercise of a Limited Stock Right, the recipient will be
entitled to receive a cash payment equal to the fair market value of all
unvested stock awards in exchange for any rights to such unvested stock awards.

     When a participant becomes vested with respect to restricted stock awards,
the participant will realize ordinary income equal to the fair market value of
the Common Stock at the time of vesting (unless the participant made an election
pursuant to Section 83(b) of the Code). The amount of income recognized by the
participants will be a deductible expense for tax purposes for the Bank. When
restricted stock awards

                                      102
become vested and shares of Common Stock are actually distributed to
participants, the participants would receive amounts equal to any accrued
dividends with respect thereto. Prior to vesting, recipients of stock awards may
direct the voting of the shares awarded to them. Shares not subject to grants
and shares allocated subject to the achievement of performance goals will be
voted by the trustee in proportion to the directions provided with respect to
shares subject to grants. Vested shares will be distributed to recipients as
soon as practicable following the day on which they vest.

     If the Stock-Based Incentive Plan (or any separate plans for employees and
directors) is adopted in the form described above, stock awards would become
vested and stock options would become vested and exercisable in the manner
specified by the Company, subject to applicable OTS regulations, which require
that stock options and restricted stock awards begin vesting no earlier than one
year from the date of shareholder approval of the plan and thereafter vest at a
rate of no more than 20% per year. Stock options could be exercisable for three
months following the date on which the employee or director ceases to perform
services for the Bank or the Company, except that in the event of death or
disability, options accelerate and become fully vested and could be exercisable
for up to one year thereafter or such longer period as determined by the
Company. In the case of death or disability, stock options may be exercised for
a period of 12 months. However, any Incentive Stock Options exercised more than
three months following the date the employee ceases to perform services as an
employee would be treated as a Non-Statutory Stock Option. In the event of
retirement, if the optionee continues to perform services as a director or
consultant on behalf of the Bank, the Company or an affiliate, unvested options
would continue to vest in accordance with their original vesting schedule until
the optionee ceases to serve as a consultant or director. In the event of death,
disability or normal retirement, the Company, if requested by the optionee, or
the optionee's beneficiary, could elect, in exchange for vested options, to pay
the optionee, or the optionee's beneficiary in the event of death, the amount by
which the fair market value of the Common Stock exceeds the exercise price of
the options on the date of the employee's termination of employment.

     Applicable OTS regulations currently do not permit accelerated vesting in
the event of a change in control of stock options or stock awards granted under
a plan adopted within one year after conversion. Subject to any applicable
regulatory requirements, the Stock-Based Incentive Plan (or any separate plans
for employees and directors) may be amended subsequent to the expiration of the
one-year period following the Conversion and Reorganization to provide for
accelerated vesting of previously granted options in the event of a change in
control of the Company or the Bank. A change in control would generally be
considered to occur when a person or group of persons acting in concert acquires
beneficial ownership of 20% or more of any class of equity security of the
Company or the Bank or in the event of a tender or exchange offer, merger or
other form of business combination, sale of all or substantially all of the
assets of the Company or the Bank or contested election of directors which
resulted in the replacement of a majority of the Board of Directors by persons
not nominated by the directors in office prior to the contested election.

TRANSACTIONS WITH CERTAIN RELATED PERSONS

     The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") required that all loans or extensions of credit to executive officers
and directors be made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
the general public and not involve more than the normal risk of repayment or
present other unfavorable features. In addition, loans made to a director or
executive officer in excess of the greater of $25,000, or 5% of the Bank's
capital and surplus (up to a maximum of $500,000) must have been approved in
advance by a majority of the disinterested members of the Board of Directors.

     The Bank currently makes loans to executive officers and directors on the
same terms and conditions offered to the general public. The Bank's policy
provides that all loans made by the Bank to its executive officers and directors
be made in the ordinary course of business, on substantially the same terms,
including collateral, as those prevailing at the time for comparable
transactions with other persons and may not involve

                                      103
more than the normal risk of collectibility or present other unfavorable
features. The Bank may, in the future, determine to offer loans to executive
officers and directors on terms not available to the public, but available to
other employees, in accordance with recently modified regulations.

     Prior to the enactment of FIRREA, the Bank provided loans to Directors and
executive officers at reduced rates and/or with points waived or reduced. There
were no loans to the Bank's current executive officers and directors that
exceeded $500,000 as of September 30, 1997. The largest principal amount
outstanding on a pre-FIRREA basis loan during the nine months ended September
30, 1997 was a first mortgage loan of $149,000, and the amount outstanding and
the interest rate on such loan on such date were $147,000 and 8.00%,
respectively. All other loans that exceeded $60,000 at any time during fiscal
year 1997 to executive officers, directors, immediate family members of
executive officers and directors, or organizations with which executive officers
and directors are affiliated, were made in the ordinary course of business, on
substantially the same terms including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons.

                                      104
BENEFICIAL OWNERSHIP OF CAPITAL STOCK

BENEFICIAL OWNERSHIP OF BANK COMMON STOCK

     The following table includes, as of November 30, 1997, certain information
as to the Bank Common Stock beneficially owned by (i) the only persons or
entities, including any "group" as that term issued in Section 13(d)(3) of the
Exchange Act, who or which was known to the Bank to be the beneficial owner of
more than 5% of the issued and outstanding Bank Common Stock, (ii) the directors
of the Bank, (iii) certain executive officers of the Bank, and (iv) all
directors and executive officers of the Bank as a group. For information
concerning proposed subscriptions by directors and executive officers and the
anticipated ownership of Common Stock by such persons upon consummation of the
Conversion and Reorganization, see "-Subscriptions by Executive Officers and
Directors."
AMOUNT AND NATURE OF                          
     NAME OF BENEFICIAL                            BENEFICIAL                  PERCENT OF   
     OWNER OR NUMBER OF                         OWNERSHIP AS OF                   BANK      
      PERSONS IN GROUP                   NOVEMBER 30, 1997(1)(3)(4)(5)        COMMON STOCK  
----------------------------------       -----------------------------        ------------
First Savings Bancshares,  MHC (2)                                                       
1000 Woodbridge Center Drive
Woodbridge, NJ 07095                               4,134,812                      51.6%  
Walter K. Timpson                                    137,426                       1.7   
Donald T. Akey, M.D.                                  29,453                       0.4   
Harry F. Burke                                        54,855                       0.7   
Keith H. McLaughlin                                   65,145                       0.8   
Philip T. Ruegger, Jr.                               153,588                       1.9   
Jeffries Shein                                       206,132                       2.6   
John P. Mulkerin                                      87,544                       1.1   
Christopher P. Martin                                 50,543                       0.6   
John F. Cerulo, Jr.                                   12,479                       0.2   
Karen I. Martino                                       9,035                       0.1   
Richard Spengler                                      23,655                       0.3   
All Directors and Executive                                                              
Officers as a Group (11 persons)                     829,855                      10.4%
__________________
(1)  In accordance with Rule 13d-3 under the Exchange Act, a person is deemed to
     be the beneficial owner for purposes of this table, of any shares of Common
     Stock if he has shared voting or investment power with respect to such
     security, or has a right to acquire beneficial ownership at any time within
     60 days from the date as to which beneficial ownership is being determined.
     As used herein, "voting power" is the power to vote or direct the voting of
     shares and "investment power" is the power to dispose or direct the
     disposition of shares. Includes all shares held directly as well as by
     spouses and minor children, in trust and other indirect ownership, over
     which shares the named individuals effectively exercise sole or shared
     voting and investment power.
(2)  The Bank's executive officers and directors are also executive officers
     and directors of First Savings Bancshares, MHC.
(3)  Based upon filings made pursuant to the Exchange Act and information
     furnished by the respective individuals. Under regulations promulgated
     pursuant to the Exchange Act, shares of Bank Common Stock are deemed to be
     beneficially owned by a person if he directly or indirectly has or shares
     (i) voting power, which includes the power to vote or to direct the voting
     of the shares, or (ii) investment power, which includes the power to
     dispose or to direct the disposition of the shares. Unless otherwise
     indicated, the named beneficial owner has sole voting and dispositive power
     with respect to the shares.
(4)  Under applicable regulations, a person is deemed to have beneficial
     ownership of any shares of Bank Common Stock which may be acquired within
     60 days of November 30, 1997 pursuant to the exercise of outstanding stock
     options. Shares of Bank Common Stock which are subject to stock options are
     deemed to be outstanding for the purpose of computing the percentage of
     outstanding Bank Common Stock owned by such person or group or group but
     not deemed outstanding for the purpose of computing the percentage of Bank
     Common Stock owned by any other person or group.
(5)  Includes the following amount of unvested shares of restricted stock
     awarded under the 1996 Incentive Plan which may be voted by the recipient
     pending vesting and distribution: 726 shares to each of Messrs. Akey,
     Burke, McLaughlin, Ruegger and Shein; 2,985 shares to both Messrs. Mulkerin
     and Martin; and 807 shares to each of Mr. Cerulo, Ms. Martino and Mr.
     Spengler. Includes options to purchase stock pursuant to the Bank's 1992
     Stock Option Plans which were vested as of November 30, 1997: 17,943 shares
     to each of Messrs. Timpson, McLaughlin, Ruegger and Shein, 1,210 shares to
     each of Messrs. Akey and Burke; 6,768 shares to Mr. Mulkerin; 4,638 shares
     to Mr. Martin; and 807 shares to each of Messrs. Cerulo, Spengler and Ms.
     Martino.

                                      105
SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS

     The following table sets forth, for each of the Company's directors and
executive officers and for all of the directors and executive officers as a
group, (i) the number of Exchange Shares to be held upon consummation of the
Conversion and Reorganization, based upon their beneficial ownership of the Bank
Common Stock as of November 30, 1997, (2) the proposed purchases of Conversion
Stock, assuming sufficient shares are available to satisfy their subscriptions,
and (3) the total amount of Common Stock to be held upon consummation of the
Conversion and Reorganization, in each case assuming that 12,384,495 shares of
Conversion Stock are sold, which is the midpoint of the Valuation Price Range.
PROPOSED PURCHASES OF          TOTAL COMMON STOCK          
                               NUMBER OF           CONVERSION STOCK(1)               TO BE HELD        
                                                ------------------------      -------------------------- 
                           EXCHANGE SHARES TO                    NUMBER         NUMBER        PERCENTAGE
                           BE HELD (2)(3)(4)      AMOUNT       OF SHARES      OF SHARES       OF TOTAL 
                        ------------------      -----------    ---------      -----------   ------------
Walter K. Timpson               355,379           $ 50,000        5,000        360,379           1.52%
Donald T. Akey, M.D.             82,343             30,000        3,000         85,343           0.36 
Harry F. Burke                  158,359             50,000        5,000        163,359           0.68
Keith H. McLaughlin             139,079            156,000       15,500        154,079           0.64
Philip T. Ruegger,              403,745            250,000       25,000        428,745           1.79
 Jr.                     
Jeffries Shein (5)              560,983                  0            0        566,983           2.34
John P. Mulkerin                232,791            250,000       25,000        257,791           1.07
Christopher P.                  128,439            200,000       20,000        148,439           0.62
 Martin                  
John F. Cerulo, Jr.              32,513             60,000        6,000         38,513           0.16
Karen I. Martino                 22,206             25,000        2,500         24,706           0.10
Richard Spengler                 75,957             40,000        4,000         69,957           0.29
                              ---------           --------       ------      ---------          -----  
All Directors and             
 Executive Officers           
  as a Group (11 persons)     2,181,794         $1,105,000      110,500      2,292,294           9.55%
                              =========           ========       ======      =========          =====
____________________
(1)  Includes proposed subscriptions, if any, by associates. Does not include
     subscription orders by the ESOP. Intended purchases by the ESOP are
     expected to be 8% of the shares issued in the Conversion.
(2)  Excludes shares which may be received upon the exercise of outstanding
     stock options. Based upon the Exchange Ratio of 2.9925 Exchange Shares for
     each Public Bank Share at the midpoint of the Valuation Price Range, the
     persons named in the table would have options to purchase Common Stock as
     follows: Mr. Timpson, 60,936 shares; Dr. Akey, 10,862 shares; Mr. Burke,
     10,862 shares; Mr. McLaughlin, 60,936 shares; Mr. Ruegger, 60,936 shares; 
     Mr. Shein, 60,936 shares; Mr. Mulkerin, 48,014 shares; Mr. Martin, 41,640
     shares; Mr. Cerulo, 7,241 shares; Ms. Martino, 7,241 shares; Mr. Spengler,
     7,241 shares; and all directors and executive officers as a group, 376,845
     shares.
(3)  Excludes the following amount of shares awarded under the 1996 Incentive
     Plan, which have not yet vested based upon the above Exchange Ratio, in the
     following amounts: Mr. Timpson, 2,172 shares; Dr. Akey, 2,172 shares; Mr.
     Burke, 2,172 shares; Mr. McLaughlin, 2,172 shares; Mr. Ruegger, 2,172
     shares; Mr. Shein, 2,172 shares; Mr. Mulkerin, 8,932 shares; Mr. Martin,
     8,932 shares; Mr. Cerulo, 2,414 shares; Ms. Martino, 2,414 shares; Mr.
     Spengler, 2,414 shares; and all directors and executive officers as a
     group, 38,138 shares.
(4)  Excludes stock options and awards to be granted under the Company's 1998
     Stock Option Plan and 1998 Stock Program if such plans are approved by
     stockholders at an annual or special meeting of shareholders at least six
     months following the Conversion and Reorganization. See "Management of the
     Bank - New Benefits Resulting from the Conversion and Reorganization."
(5)  Due to the purchase limitations, Mr. Shein may be precluded from purchasing
     any shares in the Offerings.

                                      106
THE CONVERSION AND REORGANIZATION

     THE BOARDS OF DIRECTORS OF THE MUTUAL HOLDING COMPANY, THE BANK AND THE
COMPANY HAVE APPROVED THE PLAN OF CONVERSION, AS HAS THE OTS, SUBJECT TO
APPROVAL BY THE MEMBERS OF THE MUTUAL HOLDING COMPANY AND THE STOCKHOLDERS OF
THE BANK ENTITLED TO VOTE ON THE MATTER AND THE SATISFACTION OF CERTAIN OTHER
CONDITIONS. SUCH OTS APPROVAL, HOWEVER, DOES NOT CONSTITUTE A RECOMMENDATION OR
ENDORSEMENT OF THE PLAN BY SUCH AGENCY.

GENERAL

     On October 24, 1997 the Boards of Directors of the Mutual Holding Company
and the Bank unanimously adopted, subject to approval by the OTS, the Plan
pursuant to which the Mutual Holding Company will convert to a stock form of
organization; the Company will offer and sell the Conversion Stock; and the
Company will issue Common Stock in exchange for the Public Bank Shares. The Plan
was subsequently amended on December 16, 1997. It is intended that all of the
outstanding capital stock of the Bank will be held by the Company, which is
incorporated under Delaware law. The Plan was approved by the OTS, subject to,
among other things, approval of the Plan by the Members of the Mutual Holding
Company and the stockholders of the Bank. A special meeting of members and a
special meeting of stockholders has been called for this purpose to be held on
____________, 1998.

     The Company has received approval of the OTS to become a savings and loan
holding company and to acquire all of the Common Stock of the Bank to be issued
in the Conversion and Reorganization. The Company plans to retain 50% of the net
proceeds from the sale of the Conversion Stock, with all the remaining proceeds
contributed to the Bank. The Conversion and Reorganization will be effected only
upon completion of the sale of all of the shares of Conversion Stock of the
Company to be issued pursuant to the Plan.

     The Plan provides generally that (i) the Mutual Holding Company will
convert to the stock form of organization and (ii) the Company will offer shares
of Conversion Stock for sale in the Subscription Offering to the Bank's Eligible
Account Holders, the ESOP, Supplemental Eligible Account Holders, and Other
Members. Concurrently, shares will be offered in a Community Offering with a
first preference given to the holders of the Public Bank Shares. It is
anticipated that all shares not subscribed for in the Subscription and Community
Offerings will be offered for sale by the Company to the general public in a
Syndicated Community Offering. The Primary Parties have the right to accept or
reject, in whole or in part, any orders to purchase shares of the Conversion
Stock received in the Community Offering or in the Syndicated Community
Offering. See "-Community Offering" and "- Syndicated Community Offering."

     The aggregate price of the shares of Conversion Stock to be issued in the
Conversion within the Estimated Price Range, currently estimated to be between
$105.3 million and $142.4 million, will be determined based upon an independent
appraisal, prepared by FinPro of the estimated pro forma market value of the
Common Stock of the Company. All shares of Conversion Stock to be issued and
sold in the Conversion and Reorganization will be sold at the same price. The
independent appraisal will be affirmed or, if necessary, updated at the
completion of the Subscription and Community Offerings, if all shares are
subscribed for, or at the completion of the Syndicated Community Offering. The
appraisal has been performed by FinPro, a consulting firm experienced in the
valuation and appraisal of savings institutions. See "- Stock Pricing and
Exchange Ratio" for additional information as to the determination of the
estimated pro forma market value of the Conversion Stock.

                                      107
The following is a brief summary of pertinent aspects of the Conversion.
The summary is qualified in its entirety by reference to the provisions of the
Plan. A copy of the Plan is available for inspection at each branch of the Bank
and at the Northeast Region and Washington, D.C. offices of the OTS. The Plan is
also filed as an Exhibit to the Registration Statement of which this Prospectus
is a part, copies of which may be obtained from the SEC. See "Additional
Information."

PURPOSES OF THE CONVERSION AND REORGANIZATION

     The Mutual Holding Company, as a federally-chartered mutual holding
company, does not have stockholders and has no authority to issue capital stock.
As a result of the Conversion and Reorganization, the Mutual Holding Company
will be restructured into the form used by holding companies of commercial
banks, other business entities and a growing number of savings institutions. The
Conversion and Reorganization will enhance the ability of the Company and the
Bank to access capital markets, expand current operations, acquire other
financial institutions or branch offices, provide affordable home financing
opportunities to the communities the Bank serves or diversify into other
financial services to the extent allowable by applicable law and regulation.

     The stock holding company form of organization would provide additional
flexibility to diversify the Bank's business activities through existing or
newly formed subsidiaries, or through acquisitions of or mergers with both
mutual and stock institutions, as well as other companies. Although there are no
current arrangements, understandings or agreements regarding any such
opportunities, the Company will be in a position after the Conversion and
Reorganization, subject to regulatory limitations and the Company's financial
position, to take advantage of any such opportunities that may arise. See "Use
of Proceeds."

     While the Bank currently has the ability to raise additional capital
through the sale of additional shares of its common stock, that ability is
limited by the mutual holding company structure which, among other things,
requires that the Mutual Holding Company own a majority of the outstanding
shares of its savings institution subsidiary's common stock. The Conversion and
Reorganization will significantly increase the Bank's capital position to a
level whereby the Bank will be better positioned to take advantage of business
opportunities as they arise. At September 30, 1997, the Bank had stockholders'
equity, determined in accordance with generally accepted accounting principles
("GAAP"), of $99.2 million, or 9.5% of total assets. Assuming that the Company
contributes 50% of net proceeds at the maximum of the Estimated Price Range to
the Bank, the Bank's GAAP capital will increase to $161.4 million, or a ratio of
GAAP capital to adjusted assets, on a pro forma basis, of 14.58% after the
Conversion and Reorganization. The investment of the net proceeds from the sale
of the Conversion Stock is expected to provide the Bank with additional income
to increase further its capital position. The additional capital may also assist
the Bank in offering new programs and expanded services to its customers. See
"Use of Proceeds."

     If the Bank had undertaken a standard conversion involving the formation of
a stock holding company in 1992 when it reorganized into mutual holding company
form, applicable OTS regulations would have required a greater amount of common
stock to be sold than the $10.0 million raised in the 1992 MHC Reorganization,
and in light of then prevailing market conditions there was uncertainty as to
whether the greater amount of common stock could have been sold. A standard
conversion in 1995 also would have immediately eliminated all aspects of the
mutual form of organization. In light of current market conditions for the
stocks of savings institutions and their holding companies and the Bank's
financial condition, the Boards of Directors of the Bank and the Mutual Holding
Company believe that it is in the best interests of such companies and their
respective stockholders and members to raise additional capital at this time,
and that the most feasible way to do so is through the Conversion and
Reorganization.

                                      108
After completion of the Conversion and Reorganization, the unissued common
and preferred stock authorized by the Company's Certificate of Incorporation
will permit the Company, subject to market conditions and regulatory approval of
an offering, to raise additional equity capital through further sales of
securities, and to issue securities in connection with possible acquisitions. At
the present time, the Company has no plans with respect to additional offerings
of securities, other than the issuance of additional shares upon exercise of
stock options or the possible issuance of authorized but unissued shares for
restricted stock awards under the Stock-Based Incentive Plan. Following the
Conversion and Reorganization, the Company will also be able to use stock-
related incentive programs to attract and retain executive and other personnel
for itself and its subsidiaries. See "Management of the Bank - Executive
Compensation."

DESCRIPTION OF THE CONVERSION

     The Boards of Directors of the Bank and the Mutual Holding Company adopted
the Plan on October 24, 1997. Thereafter, the Bank caused the Company to be
incorporated under Delaware law as a first-tier, wholly owned subsidiary of the
Bank, and the Board of Directors of the Company adopted the Plan on December 16,
1997. After receipt of all requisite regulatory approvals, the Company will form
First Interim as a first-tier, wholly owned subsidiary of the Company, and the
Board of Directors of First Interim shall adopt the Plan by at least a two-
thirds vote. In addition, the Bank and the Company shall approve the Plan in
their capacities as the sole shareholders of the Company and First Interim,
respectively.

     Pursuant to OTS regulations, the Plan must be approved by the affirmative
vote of at least a majority of the total number of votes eligible to be cast by
Members at the Special Meeting and by holders of at least two-thirds of the
outstanding common stock of the Bank at the Stockholders' Meeting. In addition,
in accordance with current OTS policy, the Plan must be approved by a majority
of the votes cast, in person or by proxy, by the holders of the Public Bank
Shares at the Stockholders' Meeting.

                                      109
The following diagram outlines the current organizational structure of
the parties' ownership interests:
-----------------------------------   ------------------------------------  
    FIRST SAVINGS BANCSHARES, MHC         HOLDERS OF PUBLIC BANK SHARES

-----------------------------------   ------------------------------------ 
                     51.6%                            48.4% 
 
                    ---------------------------------     
                         FIRST SAVINGS BANK, SLA
 
                    ---------------------------------   
 
                                        100%
 
                    ---------------------------------     
                        FIRST SOURCE BANCORP, INC.
 
                    ---------------------------------
 
                                        100%
 
                    ---------------------------------
                     FIRST INTERIM SAVINGS BANK, FSB

                    ---------------------------------
The following diagram reflects the resulting structure of the parties upon
consummation of the Conversion and Reorganization, including (i) the merger of
the Mutual Holding Company (following its conversion into an interim federal
stock savings institution) with and into the Bank, (ii) the merger of First
Interim with and into the Bank, pursuant to which the Public Bank Shares will be
converted into Exchange Shares, and (iii) the offering of Conversion Stock. The
diagram assumes that there are no fractional shares and does not give effect to
purchase of Conversion Stock by holders of Public Bank Shares or the exercise of
outstanding stock options.
------------------------             -----------------------  
            PURCHASERS                           HOLDERS OF
       OF CONVERSION STOCK                 PUBLIC  BANK SHARES  

     ------------------------             -----------------------  

                    51.6%                            48.4%   
                                                      
                   -----------------------------------  
                        FIRST SOURCE BANCORP, INC.

                   -----------------------------------   
 
                                        100%
 
                   -----------------------------------  
                         FIRST SAVINGS BANK, SLA

                   -----------------------------------
EFFECTS OF THE CONVERSION AND REORGANIZATION

     General. Each depositor in the Bank has both a deposit account in the
institution and a pro rata ownership interest in the net worth of the
institution based upon the balance in his account, which interest may only be
realized in the event of a liquidation of the Mutual Holding Company. However,
this ownership interest is tied to the depositor's account and has no tangible
market value separate from such deposit account. Any depositor who opens a
deposit account obtains a pro rata ownership interest in the net worth 

                                      110
of the Mutual Holding Company without any additional payment beyond the amount
of the deposit. A depositor who reduces or closes his account receives a portion
or all of the balance in the account but nothing for his ownership interest in
the net worth of the Mutual Holding Company, which is lost to the extent that
the balance in the account is reduced.

     Consequently, the depositors of the Bank normally have no way to realize
the value of their ownership interest, which has realizable value only in the
unlikely event that the Mutual Holding Company is liquidated. In such event, the
depositors of record at that time, as owners, would share pro rata in any
residual surplus and reserves after other claims, including claims of depositors
to the amounts of their deposits, are paid.

     Upon consummation of the Conversion and Reorganization, permanent
nonwithdrawable capital stock is created to represent the ownership of the net
worth of the Company. THE COMMON STOCK OF THE COMPANY IS SEPARATE AND APART FROM
DEPOSIT ACCOUNTS AND CANNOT BE AND IS NOT INSURED BY THE FDIC OR ANY OTHER
GOVERNMENTAL AGENCY. Certificates are issued to evidence ownership of the
capital stock. The stock certificates are transferable and, therefore, the stock
may be sold or traded if a purchaser is available with no effect on any account
the seller may hold in the Bank.

     Continuity. While the Conversion and Reorganization is being accomplished,
the normal business of the Bank of accepting deposits and making loans will
continue without interruption. The Bank will continue to be subject to
regulation by the OTS and the FDIC. After the Conversion and Reorganization, the
Bank will continue to provide services for depositors and borrowers under
current policies by its present management and staff.

     The Directors serving the Bank at the time of Conversion and Reorganization
will serve initially as Directors of the Bank after the Conversion and
Reorganization. The Directors of the Company will consist initially of
individuals currently serving on the Board of Directors of the Mutual Holding
Company. All officers of the Bank at the time of Conversion and Reorganization
will retain their positions immediately after Conversion and Reorganization.

     Effect on Public Bank Shares. Under the Plan, upon consummation of the
Conversion and Reorganization, the Public Bank Shares shall be converted into
Common Stock based upon the Exchange Ratio without any further action on the
part of the holder thereof. Upon surrender of the Public Bank Shares, Common
Stock will be issued in exchange for such shares.

     Upon consummation of the Conversion and Reorganization, the Public
Stockholders of the Bank, a New Jersey chartered savings association, will
become stockholders of the Company, a Delaware corporation. For a description of
certain changes in the rights of stockholders as a result of the Conversion and
Reorganization, see "Comparison of Stockholders' Rights" below.

     Under New Jersey law, Public Stockholders of the Bank will not have
dissenters' rights or appraisal rights in connection with the Conversion and
Reorganization. See "Comparison of Stockholders' Rights - Dissenters' Rights of
Appraisal."

     Effect on Deposit Accounts. Under the Plan, each depositor in the Bank at
the time of Conversion and Reorganization will automatically continue as a
depositor after the Conversion and Reorganization, and each such deposit account
will remain the same with respect to deposit balance, interest rate and other
terms. Each such account will be insured by the FDIC to the same extent as
before the Conversion (i.e., up to $100,000 per depositor). Depositors will
continue to hold their existing certificates, passbooks and other evidences of
their accounts.

                                      111
Effect on Loans. No loan outstanding from the Bank will be affected by the
Conversion and Reorganization, and the amount, interest rate, maturity and
security for each loan will remain as they were contractually fixed prior to the
Conversion and Reorganization.

     Effect on Voting Rights of Members. At present, all depositors and certain
borrowers of the Bank are members of, and have voting rights in, the Mutual
Holding Company as to all matters requiring membership action. Upon Conversion
and Reorganization, the Mutual Holding Company will cease to exist and
therefore, depositors and borrowers will no longer have membership rights in the
Mutual Holding Company. Upon Conversion and Reorganization, all voting rights in
the Bank will be vested in the Company as the sole stockholder of the Bank.
Exclusive voting rights with respect to the Company will be vested in the
holders of Common Stock. Depositors and borrowers of the Bank will not have
voting rights in the Company after the Conversion and Reorganization except to
the extent that they become stockholders of the Company.

     Tax Effects. The Primary Parties have received an opinion from Muldoon,
Murphy & Faucette with regard to federal income taxation and New Jersey taxation
which provides that the adoption and implementation of the Plan of Conversion
and Agreement and Plan of Reorganization set forth herein will not be taxable
for federal or New Jersey tax purposes to the Primary Parties or the Bank's
Eligible Account Holders, Supplemental Eligible Account Holders or Other
Members, except as discussed below. See "- Tax Aspects."

     Effect on Liquidation Rights. If the Mutual Holding Company were to
liquidate, all claims of creditors (including those of depositors, to the extent
of deposit balances) would be paid first. Thereafter, if there were any assets
remaining, depositors would be entitled to such remaining assets, pro rata,
based upon the deposit balances in their deposit accounts immediately prior to
liquidation. In the unlikely event that the Bank were to liquidate after
Conversion, all claims of creditors (including those of depositors, to the
extent of their deposit balances) would also be paid first, followed by
distribution of the "liquidation account" to certain depositors (see "-
Liquidation Rights"), with any assets remaining thereafter distributed to the
Company as the holder of the Bank's capital stock. Pursuant to the rules and
regulations of the OTS, a post-Conversion merger, consolidation, sale of bulk
assets or similar combination or transaction with another insured savings
institution would not be considered a liquidation and, in such a transaction,
the liquidation account would be assumed by the surviving institution.

EFFECT ON EXISTING COMPENSATION PLANS

     Under the Plan, the Bank's 1992 Stock Option Plans and 1996 Incentive Plan
will become stock benefit plans of the Company and the Bank's 1992 ESOP will
continue as a benefit plan of the Bank and shares of Common Stock will be issued
(or reserved for issuance) pursuant to such benefit plans. See "Management of
the Bank - Benefits."

STOCK PRICING AND EXCHANGE RATIO

     The Plan of Conversion requires that the Aggregate Purchase Price of the
Conversion Stock must be based on the appraised pro forma market value of the
Company's Common Stock, as determined on the basis of an independent valuation.
The Primary Parties have retained FinPro to make such valuation. For its
services in making such appraisal, FinPro will receive a fee of $25,000, plus
reasonable expenses. The Primary Parties have agreed to indemnify FinPro and its
employees and affiliates against certain losses (including any losses in
connection with claims under the federal securities laws) arising out of its
services as appraiser, except where FinPro liability results from its
negligence, willful misconduct or bad faith.

                                      112
An appraisal has been made by FinPro in reliance upon the information
contained in this Prospectus, including the Consolidated Financial Statements.
FinPro also considered the following factors, among others: the present and
projected operating results and financial condition of the Primary Parties and
the economic and demographic conditions in the Mutual Holding Company's and the
Bank's existing marketing area; certain historical, financial and other
information relating to the Mutual Holding Company and the Bank; a comparative
evaluation of the operating and financial statistics of the Bank with those of
other similarly situated publicly-traded savings banks and savings institutions
located in the Mutual Holding Company's and the Bank's primary market area and
northeastern United States; the aggregate size of the offering of the Conversion
Stock; the impact of Conversion and Reorganization on the Mutual Holding
Company's and the Bank's net worth and earnings potential; the proposed dividend
policy of the Company and the Bank; and the trading market for the Bank Common
Stock and securities of comparable institutions and general conditions in the
market for such securities.

     On the basis of the foregoing, FinPro has advised the Primary Parties in
its opinion the estimated pro forma market value of the Company's Common Stock,
after giving effect to the Conversion and Reorganization, was $240.0 million as
of December 18, 1997. Because the holders of the Public Bank Shares will
continue to hold the same aggregate percentage ownership interest in the Company
as they currently hold in the Bank (before giving effect to the payment of cash
in lieu of issuing fractional Exchange Shares, and any shares of Conversion
Stock purchased by the Bank's stockholders in the Offerings or by the ESOP
thereafter), the Appraisal was multiplied by the Mutual Holding Company's
percentage interest in the Bank which corresponds with the amount of Conversion
Stock to be sold in the Offerings (i.e., 51.6%), to determine the midpoint of
the valuation ($123.8 million), and the minimum and maximum of the valuation
were set at 15% below and above the midpoint, respectively, resulting in a range
of $105.3 million to $142.4 million. The Boards of Directors of the Primary
Parties determined that the Conversion Stock would be sold at $10.00 per share,
resulting in a range of 10,526,917 to 14,242,072 shares of Conversion Stock
being offered. Upon consummation of the Conversion and Reorganization, the
Conversion Stock and the Exchange Shares will represent approximately 51.6% and
48.4%, respectively, of the Company's total outstanding shares. The Boards of
Directors of the Primary Parties reviewed FinPro's appraisal report, including
the methodology and the assumptions used by FinPro, and determined that the
Valuation Price Range was reasonable and adequate. The Boards of Directors of
the Primary Parties also established the formula for determining the Exchange
Ratio. Based upon such formula and the Valuation Price Range, the Exchange Ratio
ranged from a minimum of 2.5436 to a maximum of 3.4414 Exchange Shares for each
Public Bank Shares, with a midpoint of 2.9925. Based upon these Exchange Ratios,
the Company expects to issue between 9,873,083 and 13,357,928 shares of Exchange
Shares to the holders of Public Bank Shares outstanding immediately prior to the
consummation of the Conversion and Reorganization. The Valuation Price Range and
the Exchange Ratio may be amended with the approval of the OTS, if required, or
if necessitated by subsequent developments in the financial condition of any of
the Primary Parties or market conditions generally. In the event the Appraisal
is updated to below $204.0 million or above $317.4 million (the maximum of the
Valuation Price Range, as adjusted by 15%), such Appraisal will be filed with
the SEC by post-effective amendment.

     Based upon current market and financial conditions and recent practices and
policies of the OTS, in the event the Company receives orders for Conversion
Stock in excess of $142.4 million (the maximum of the Valuation Price Range) and
up to $163.8 million (the maximum of the Valuation Price Range, as adjusted by
15%), the Company may be required by the OTS to accept all such orders. No
assurances, however, can be made that the Company will receive orders for
Conversion Stock in excess of the maximum of the Valuation Price Range or that,
if such orders are received, that all such orders will be accepted because the
Company's final valuation and number of shares to be issued are subject to the
receipt of an updated appraisal from FinPro, which reflects such an increase in
the valuation and the approval of such increase by the OTS. 

                                      113
There is no obligation or understanding on the part of management to take and/or
pay for any shares of Conversion Stock in order to complete the Offerings.

     The following table sets forth, based upon the minimum, midpoint, maximum
and 15% above the maximum of the Valuation Price Range, the following: (i) the
total number of shares of Conversion Stock and Exchange Shares; (ii) the
percentage of the total Common Stock represented by the Conversion Stock and the
Exchange Shares; and (iii) the Exchange Ratio. The table assumes that there is
no cash paid in lieu of issuing fractional Exchange Shares.
CONVERSION STOCK             EXCHANGE SHARES          TOTAL SHARES                              
                                   TO BE OFFERED(1)            TO BE ISSUED(1)(2)          OF COMMON                               
                               -----------------------       -----------------------                                               
                                                                                          STOCK TO BE         EXCHANGE             
                                 AMOUNT        PERCENT         AMOUNT        PERCENT     OUTSTANDING(1)       RATIO(1)
Minimum.....................   10,526,917         51.6%       9,873,083         48.4%       20,400,000          2.5436             
Midpoint....................   12,384,495         51.6       11,615,505         48.4        24,000,000          2.9925             
Maximum.....................   14,242,072         51.6       13,357,928         48.4        27,600,000          3.4414             
15% above maximum...........   16,378,421         51.6       15,361,579         48.4        31,740,000          3.9576
________________________________
(1)  Assumes that outstanding options to purchase 142,541 shares of Bank Common
     Stock at October 31, 1997 are not exercised prior to consummation of the
     Conversion and Reorganization.
(2)  Based upon 3,881,539 Public Bank Shares outstanding as of October 31, 1997.
     Does not reflect unexercised options.

     SUCH VALUATION, HOWEVER, IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING SUCH SHARES.
FINPRO DID NOT INDEPENDENTLY VERIFY THE CONSOLIDATED FINANCIAL STATEMENTS AND
OTHER INFORMATION PROVIDED BY THE BANK AND THE MUTUAL HOLDING COMPANY, NOR DID
FINPRO VALUE INDEPENDENTLY THE ASSETS OR LIABILITIES OF THE BANK AND THE MUTUAL
HOLDING COMPANY. THE VALUATION CONSIDERS THE BANK AND THE MUTUAL HOLDING COMPANY
AS GOING CONCERNS AND SHOULD NOT BE CONSIDERED AS AN INDICATION OF THE
LIQUIDATION VALUE OF THE BANK AND THE MUTUAL HOLDING COMPANY. MOREOVER, BECAUSE
SUCH VALUATION IS NECESSARILY BASED UPON ESTIMATES AND PROJECTIONS OF A NUMBER
OF MATTERS, ALL OF WHICH ARE SUBJECT TO CHANGE FROM TIME TO TIME, NO ASSURANCE
CAN BE GIVEN THAT PERSONS PURCHASING CONVERSION STOCK OR RECEIVING EXCHANGE
STOCK IN THE CONVERSION AND REORGANIZATION WILL THEREAFTER BE ABLE TO SELL SUCH
SHARES AT PRICES AT OR ABOVE THE PURCHASE PRICE OR IN THE RANGE OF THE FOREGOING
VALUATION OF THE PRO FORMA MARKET VALUE THEREOF. SEE "MARKET FOR THE COMMON
STOCK."

     Following commencement of the Subscription and Community Offerings, the
maximum of the Estimated Price Range may be increased up to 15% and the number
of shares of Conversion Stock to be issued in the Conversion may be increased to
16,378,421 shares due to regulatory considerations or changes in market or
general financial and economic conditions, without the resolicitation of
subscribers. See "- Limitations on Conversion Stock Purchases" as to the method
of distribution and allocation of additional shares that may be issued in the
event of an increase in the Estimated Price Range to fill unfilled orders in the
Subscription and Community Offerings.

     No sale of shares of Conversion Stock may be consummated unless, prior to
such consummation, FinPro confirms to the Primary Parties and the OTS that, to
the best of its knowledge, nothing of a material nature has occurred which,
taking into account all relevant factors, would cause FinPro to conclude that
the value of the Conversion Stock at the price so determined is incompatible
with its estimate of the pro forma market value of the Common Stock at the
conclusion of the Subscription and Community Offerings.

     If the pro forma market value of the Common Stock is either more than 15%
above the maximum of the Estimated Price Range or less than the minimum of the
Estimated Price Range, the Bank and the

                                      114
Company, after consulting with the OTS, may terminate the Plan and return all
funds promptly with interest at the Bank's passbook rate of interest on payments
made by check, bank draft or money order, extend or hold a new Subscription and
Community Offering, establish a new Estimated Price Range, commence a
resolicitation of subscribers or take such other actions as permitted by the OTS
in order to complete the Conversion. In the event that a resolicitation is
commenced, unless an affirmative response is received within a reasonable period
of time, all funds will be promptly returned to investors as described above. A
resolicitation, if any, following the conclusion of the Subscription and
Community Offerings would not exceed 45 days unless further extended by the OTS
for periods of up to 90 days not to extend beyond ____________________, 2000.

     If all shares of Conversion Stock are not sold through the Subscription and
Community Offerings, then the Bank and the Company expect to offer the remaining
shares in a Syndicated Community Offering which would occur as soon as
practicable following the close of the Subscription and Community Offerings but
may commence during the Subscription and Community Offerings subject to prior
rights of subscribers. All shares of Conversion Stock will be sold at the same
price per share in the Syndicated Community Offering as in the Subscription and
Community Offerings. See "--Syndicated Community Offering."

     No sale of shares of Conversion Stock may be consummated unless, prior to
such consummation, FinPro confirms to the Bank, the Company and the OTS that, to
the best of its knowledge, nothing of a material nature has occurred which,
taking into account all relevant factors, including those which would be
involved in a cancellation of the Syndicated Community Offering, would cause
FinPro to conclude that the aggregate value of the Conversion Stock at the
Purchase Price is incompatible with its estimate of the pro forma market value
of the Common Stock of the Company at the time of the Syndicated Community
Offering. Any change which would result in an aggregate purchase price which is
below or more than 15% above the Estimated Price Range would be subject to OTS
approval. If such confirmation is not received, the Primary Parties may extend
the Offerings, extend, reopen or commence new Subscription and Community
Offerings or Syndicated Community Offering, establish a new Estimated Price
Range and commence a resolicitation of all subscribers with the approval of the
OTS or take such other actions as permitted by the OTS in order to complete the
Conversion and Reorganization, or terminate the Plan and cancel the Subscription
and Community Offerings and/or the Syndicated Community Offering. In the event
market or financial conditions change so as to cause the aggregate purchase
price of the shares to be below the minimum of the Estimated Price Range or more
than 15% above the maximum of such range, and the Company and the Bank determine
to continue the Conversion and Reorganization, subscribers will be resolicited
(i.e., be permitted to continue their orders, in which case they will need to
affirmatively reconfirm their subscriptions prior to the expiration of the
resolicitation offering or their subscription funds will be promptly refunded
with interest at the Bank's passbook rate of interest, or be permitted to
decrease or cancel their subscriptions). Any change in the Estimated Price Range
must be approved by the OTS. A resolicitation, if any, following the conclusion
of the Subscription and Community Offerings would not exceed 45 days, or if
following the Syndicated Community Offering, 90 days, unless further extended by
the OTS for periods up to 90 days not to extend beyond ____________, 2000. If
such resolicitation is not effected, the Bank will return all funds promptly
with interest at the Bank's passbook rate of interest on payments made by check,
bank draft or money order.

     Copies of the appraisal report of FinPro including any amendments thereto,
and the detailed memorandum of the appraiser setting forth the method and
assumptions for such appraisal are available for inspection at the main office
of the Bank and the other locations specified under "Additional Information."

                                      115
INTERPRETATION, AMENDMENT AND TERMINATION

     All interpretations of the Plan by the Boards of Directors of the Primary
Parties will be final, subject to the authority of the OTS, including but not
limited to interpretations relating to residence requirements applicable to
subscribers and purchase limitations. The Plan provides that, if deemed
necessary or desirable by the Boards of Directors of the Primary Parties, the
Plan may be substantively amended prior to the solicitation of proxies from
members entitled to vote on the Plan by a two-thirds vote of the Boards of
Directors; amendment of the Plan thereafter requires the approval of the OTS.
The Plan will terminate if the sale of all shares of stock being offered
pursuant to the Plan is not completed prior to 24 months after the date of the
Special Meeting. The Plan may be terminated by a two-thirds vote of the Boards
of Directors of the Primary Parties at any time prior to the Special Meeting,
and thereafter by such a vote with the approval of the OTS.

NUMBER OF SHARES TO BE ISSUED

     Depending upon market or financial conditions following the commencement
of the Subscription and Community Offerings, the total number of shares of
Conversion Stock to be issued in the Conversion and Reorganization may be
increased or decreased without a resolicitation of subscribers, provided that
the product of the total number of shares times the price per share is not below
the minimum of the Estimated Price Range or more than 15% above the maximum of
the Estimated Price Range. Based on a fixed purchase price of $10.00 per share
and the FinPro estimate of the pro forma market value of the Conversion Stock
ranging from a minimum of $105.3 million to a maximum, as increased by 15%, of
$163.8 million, the number of shares of Conversion Stock expected to be issued
is between a minimum of 10,526,917 shares and a maximum, as adjusted by 15%, of
16,378,421 shares. The actual number of shares issued between this range will
depend on a number of factors and shall be determined by the Primary Parties
subject to OTS approval, if necessary.

     In the event market or financial conditions change so as to cause the
aggregate purchase price of the shares to be below the minimum of the Estimated
Price Range or more than 15% above the maximum of the Estimated Price Range and,
if the Plan is not terminated by the Primary Parties after consultation with the
OTS, purchasers will be resolicited (i.e., permitted to continue their orders,
in which case they will need to affirmatively reconfirm their subscriptions
prior to the expiration of the resolicitation offering or their subscription
funds will be promptly refunded, or be permitted to modify or rescind their
subscriptions). Any change in the Estimated Price Range must be approved by the
OTS. If the number of shares issued in the Conversion and Reorganization is
increased due to an increase of up to 15% in the Estimated Price Range to
reflect changes in market or financial condition, persons who subscribed for the
maximum number of shares will not be given the opportunity to subscribe for an
adjusted maximum number of shares, except for the ESOP which will be able to
subscribe for such adjusted amount. See "- Limitations on Conversion Stock
Purchases." Any increase or decrease in the number of shares of Common Stock
will result in a corresponding change in the number of Exchange Shares, so that
upon consummation of the Conversion and Reorganization, the Conversion Stock and
the Exchange Shares will represent approximately 51.6% and 48.4%, respectively,
of the Company's total outstanding shares of Common Stock.

     An increase in the number of shares of Conversion Stock as a result of an
increase in the estimated pro forma market value would decrease both a
subscriber's ownership interest and the Company's pro forma net earnings and
stockholders' equity on a per share basis while increasing pro forma net
earnings and stockholders' equity on an aggregate basis. A decrease in the
number of shares of Conversion Stock would increase both a subscriber's
ownership interest and the Company's pro forma net earnings and stockholders'
equity on a per share basis while decreasing pro forma net earnings and
stockholder's equity on an aggregate basis. For a presentation of the effects of
such changes, see "Pro Forma Data."

                                      116
SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS

     In accordance with the Plan of Conversion, rights to subscribe for the
purchase of Conversion Stock have been granted under the Plan of Conversion to
the following persons in the following order of descending priority: (1) holders
of savings accounts with a balance of $50 or more as of December 31, 1995
("Eligible Account Holders"); (2) the ESOP; (3) holders of savings accounts with
a balance of $50 or more as of December 31, 1997 ("Supplemental Eligible Account
Holders"); and (4) members of the Bank, consisting of depositors of the Bank as
of ___________, 1998, the Voting Record Date, and borrowers with loans
outstanding as of July 10, 1992, which continue to be outstanding as of the
Voting Record Date other than Eligible Account Holders and Supplemental Eligible
Account Holders ("Other Members"). All subscriptions received will be subject to
the availability of Conversion Stock after satisfaction of all subscriptions of
all persons having prior rights in the Subscription Offering and to the maximum
and minimum purchase limitations set forth in the Plan of Conversion and as
described below under "- Limitations on Conversion Stock Purchases."

     Priority 1: Eligible Account Holders. Each Eligible Account Holder will
receive, without payment therefor, first priority, nontransferable subscription
rights to subscribe for in the Subscription Offering up to the greater of the
amount permitted to be purchased in the Community Offering, currently $250,000
of Conversion Stock offered, one-tenth of one percent (.10%) of the total
offering of shares of Conversion Stock or fifteen times the product (rounded
down to the next whole number) obtained by multiplying the total number of
shares of Conversion Stock to be issued by a fraction of which the numerator is
the amount of the Eligible Account Holder's Qualifying Deposit (defined by the
Plan as any savings account in the Bank with a balance of $50 or more as of
December 31, 1995) and the denominator is the total amount of Qualifying
Deposits of all Eligible Account Holders, in each case on the Eligibility Record
Date, subject to the overall purchase limitation and exclusive of an increase in
the shares issued pursuant to an increase in the Estimated Price Range of up to
15%. See "-Limitations on Conversion Stock Purchases."

     In the event that Eligible Account Holders exercise subscription rights for
a number of shares in excess of the total number of shares eligible for
subscription, the shares will be allocated so as to permit each subscribing
Eligible Account Holder to purchase a number of shares sufficient to make his
total allocation equal to the lesser of 100 shares or the number of shares
subscribed for. Thereafter, unallocated shares will be allocated among the
remaining subscribing Eligible Account Holders whose subscriptions remain
unfilled in the proportion that the amounts of their respective Qualifying
Deposits bear to the total amount of Qualifying Deposits of all remaining
Eligible Account Holders whose subscriptions remain unfilled, exclusive of any
increase in the shares issued pursuant to an increase in the Estimated Price
Range of up to 15%.

     To ensure proper allocation of stock, each Eligible Account Holder must
list on his subscription order form all accounts in which he has an ownership
interest. Failure to list an account could result in less shares being allocated
than if all accounts had been disclosed. The subscription rights of Eligible
Account Holders who are also Directors or Officers of the Bank or their
associates will be subordinated to the subscription rights of other Eligible
Account Holders to the extent attributable to increased deposits in the year
preceding December 31, 1994.

     Priority 2: Employee Stock Ownership Plan. To the extent that there are
sufficient shares remaining after satisfaction of the subscriptions by Eligible
Account Holders, the ESOP will receive, without payment therefor, second
priority, nontransferable subscription rights to purchase, in the aggregate, up
to 10% of Conversion Stock issued in the Conversion, including any increase in
the number of shares of Conversion Stock to be issued in the Conversion after
the date hereof as a result of an increase of up to 15% in the maximum of the
Estimated Price Range. The ESOP intends to purchase 8% of the shares to be
issued in the 

                                      117
Conversion or 842,153 shares and 1,139,365 shares, based on the issuance of
10,526,917 shares and 14,242,072 shares, respectively. Subscriptions by the ESOP
will not be aggregated with shares of Conversion Stock purchased directly by or
which are otherwise attributable to any other participants in the Subscription
and Community Offerings, including subscriptions of any of the Bank's directors,
officers, employees or associates thereof. See "Management of the Bank - Benefit
Plans - Employee Stock Ownership Plan and Trust."

     Priority 3: Supplemental Eligible Account Holders. Each Supplemental
Eligible Account Holder will receive, without payment therefor, third priority,
nontransferable subscription rights to subscribe for in the Subscription
Offering up to the greater of the amount permitted to be purchased in the
Community Offering, currently $250,000 of Conversion Stock offered, one-tenth of
one percent (.10%) of the total offering of shares of Conversion Stock or
fifteen times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Conversion Stock to be issued by a
fraction of which the numerator is the amount of the Supplemental Eligible
Account Holder's Qualifying Deposit and the denominator is the total amount of
Qualifying Deposits of all Supplemental Eligible Account Holders, in each case
on the Supplemental Eligibility Record Date, subject to the overall purchase
limitation and exclusive of an increase in the shares issued pursuant to an
increase in the Estimated Price Range of up to 15%. See "- Limitations on
Conversion Stock Purchases."

     In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares in excess of the total number of
shares eligible for subscription, the shares will be allocated so as to permit
each subscribing Supplemental Eligible Account Holder, to the extent possible,
to purchase a number of shares sufficient to make his total allocation equal to
the lesser of 100 shares or the number of shares subscribed for. Thereafter,
unallocated shares will be allocated among the remaining subscribing
Supplemental Eligible Account Holders whose subscriptions remain unfilled in the
proportion that the amounts of their respective Qualifying Deposits bear to the
total amount of Qualifying Deposits of all remaining Supplemental Eligible
Account Holders whose subscriptions remain unfilled, exclusive of any increase
in the shares issued pursuant to an increase in the Estimated Price Range of up
to 15%.

     To ensure proper allocation of stock, each Supplemental Eligible Account
Holder must list on his subscription order form all accounts in which he has an
ownership interest. Failure to list an account could result in less shares being
allocated than if all accounts had been disclosed. The subscription rights
received by Eligible Account Holders will be applied in partial satisfaction to
the subscription rights to be received as a Supplemental Eligible Account
Holder.

     Priority 4: Other Members. To the extent that there are sufficient shares
remaining after satisfaction of subscriptions by the Eligible Account Holders,
the ESOP and the Supplemental Eligible Account Holders, each Other Member will
receive, without payment therefor, fourth priority nontransferable subscription
rights to subscribe for Conversion Stock in the Subscription Offering up to the
greater of the amount permitted to be purchased in the Community Offering,
currently $250,000 of Conversion Stock offered, or one-tenth of one percent
(.10%) of the total offering of shares of Conversion Stock, subject to the
overall purchase limitation and exclusive of an increase in shares issued
pursuant to an increase in the Estimated Price Range of up to 15%. See "-
Limitations on Conversion Stock Purchases."

     In the event that Other Members exercise subscription rights for a number
of shares in excess of the total number of shares eligible for subscription, the
shares will be allocated so as to permit each subscribing Other Member, to the
extent possible, to purchase a number of shares sufficient to make his total
allocation equal to the lesser of 100 shares or the number of shares subscribed
for. Thereafter, unallocated shares will be allocated among the remaining
subscribing Other Members whose subscriptions remain unfilled on a pro 

                                      118
rata basis in the same proportion as a subscribing Other Member's total votes on
the Voting Record Date for the Special Meeting bears to the total votes of all
subscribing Other Members on such date.

     Expiration Date for the Subscription Offering. The Subscription Offering
will expire at ______ .m., New Jersey time, on ___________, 1998, unless
extended for up to 45 days by the Primary Parties or such additional periods
with the approval of the OTS. Subscription rights which have not been exercised
prior to the Expiration Date will become void.

     The Primary Parties will not execute orders until all shares of Conversion
Stock have been subscribed for or otherwise sold. If all shares have not been
subscribed for or sold within 45 days after the Expiration Date, unless such
period is extended with the consent of the OTS, all funds delivered to the Bank
pursuant to the Subscription Offering will be returned promptly to the
subscribers with interest and all withdrawal authorizations will be canceled. If
an extension beyond the 45 day period following the Expiration Date is granted,
the Primary Parties will notify subscribers of the extension of time and of any
rights of subscribers to modify or rescind their subscriptions and have their
funds returned promptly with interest, and of the time period within which
subscribers must affirmatively notify the Primary Parties of their intention to
confirm, modify, or rescind their subscription. If an affirmative response to
any resolicitation is not received by the Company from a subscriber, such order
will be rescinded and all subscription funds will be promptly returned with
interest. Such extensions may not go beyond __________, 2000.

COMMUNITY OFFERING

     To the extent that shares remain available for purchase after satisfaction
of all subscriptions of the Eligible Account Holders, the ESOP, the Supplemental
Eligible Account Holders and Other Members, the Primary Parties have determined
to offer shares pursuant to the Plan to certain members of the general public,
with a preference given to holders of Public Bank Shares, subject to the right
of the Company to accept or reject any such orders, in whole or in part, in
their sole discretion. Such persons, together with associates of and persons
acting in concert with such persons, may purchase up to $250,000 of Conversion
Stock offered subject to the maximum overall purchase limitation and exclusive
of shares issued pursuant to an increase in the Estimated Price Range by up to
15%. See "- Limitations on Conversion Stock Purchases." This amount may be
increased to up to a maximum of 5% of the Conversion Stock offered or decreased
to less than $250,000 of Conversion Stock at the sole discretion of the Primary
Parties. THE OPPORTUNITY TO SUBSCRIBE FOR SHARES OF CONVERSION STOCK IN THE
COMMUNITY OFFERING CATEGORY IS SUBJECT TO THE RIGHT OF THE PRIMARY PARTIES, IN
THEIR SOLE DISCRETION, TO ACCEPT OR REJECT ANY SUCH ORDERS IN WHOLE OR IN PART
EITHER AT THE TIME OF RECEIPT OF AN ORDER OR AS SOON AS PRACTICABLE FOLLOWING
THE EXPIRATION DATE.

     Subject to the foregoing, if the amount of stock remaining is insufficient
to fill the orders of the Public Stockholders after completion of the
Subscription and Community Offerings, such stock will be allocated first to each
holder of Public Bank Shares whose order is accepted by the Bank, in an amount
equal to the lesser of 100 shares or the number of shares subscribed for by each
such Public Stockholder, if possible. Thereafter, unallocated shares will be
allocated among the Public Stockholders whose order remains unsatisfied on a 100
shares per order basis until all such orders have been filled or the remaining
shares have been allocated. To the extent that there are shares remaining after
all subscriptions by Public Stockholders have been filed, shares will be
allocated, applying the same allocation formula described above, to Preferred
Subscribers. If there are any shares remaining, shares will be allocated to
other persons of the general public who purchase in the Community Offering
applying the same allocation described above for Public Stockholders and
Preferred Subscribers.

     Persons in Nonqualified States or Foreign Countries. The Primary Parties
will make reasonable efforts to comply with the securities laws of all states in
the United States in which persons entitled to

                                      119
subscribe for stock pursuant to the Plan reside. However, the Plan provides that
the Primary Parties are not required to offer stock in the Subscription Offering
to any person who resides in a foreign country or resides in a state of the
United States with respect to which both of the following apply: (i) a small
number of persons otherwise eligible to subscribe for shares of Conversion Stock
reside in such state; and (ii) the Primary Parties determines that compliance
with the securities laws of such state would be impracticable for reasons of
cost or otherwise, including but not limited to a request that the Primary
Parties or their officers, directors or trustees register as a broker, dealer,
salesman or selling agent, under the securities laws of such state, or a request
to register or otherwise qualify the subscription rights or Conversion Stock for
sale or submit any filing with respect thereto in such state. Where the number
of persons eligible to subscribe for shares in one state is small, the Primary
Parties will base their decision as to whether or not to offer the Conversion
Stock in such state on a number of factors, including the size of accounts held
by account holders in the state, the cost of registering or qualifying the
shares or the need to register the Company, its officers, directors or employees
as brokers, dealers or salesmen.

MARKETING AND UNDERWRITING ARRANGEMENTS

     The Bank has engaged Sandler O'Neill as a consultant and financial advisor
in connection with the offering of the Conversion Stock, and Sandler O'Neill has
agreed to use its best efforts to assist the Company with the solicitation of
subscriptions and purchase orders for shares of Conversion Stock in the
Offerings. Based upon negotiations between the Primary Parties concerning fee
structure, Sandler O'Neill will receive a equal to 1.15% of the aggregate
Purchase Price of all shares sold in Subscription Offering and Community
Offering, excluding shares purchased by directors, officers, employees and any
immediate family member thereof and the ESOP for which Sandler O'Neill will not
receive a fee. In the event that a selected dealers agreement is entered into in
connection with a Syndicated Community Offering, the Bank will pay a fee (to be
negotiated at such time under such agreement) to such selected dealers, any
sponsoring dealers fees, and a management fee to Sandler O'Neill of 1.15% for
shares sold by a National Association of Securities Dealers, Inc. ("NASD")
member firm pursuant to a selected dealers agreement; provided, however, that
any fees payable to Sandler O'Neill for Conversion Stock sold by them pursuant
to such a selected dealers agreement shall not exceed 1.15% of the Purchase
Price and provided, further, however, that the aggregate fees payable to Sandler
O'Neill and the selected dealers will not exceed 7.0% of the aggregate purchase
price of the Conversion Stock sold by selected dealers. Fees to Sandler O'Neill
and to any other broker-dealer may be deemed to be underwriting fees, and
Sandler O'Neill and such broker-dealers may be deemed to be underwriters.
Notwithstanding the foregoing, in the event the Offerings are not consummated or
Sandler O'Neill ceases, under certain circumstances after the subscription
solicitation activities are commenced, to provide assistance to the Company,
Sandler O'Neill will be entitled to a fee for its management advisory services
in an amount to be agreed upon by the Bank and Sandler O'Neill, and based upon
the amount of services performed by Sandler O'Neill and will also be reimbursed
for its reasonable out-of-pocket expenses as described above. The Primary
Parties have agreed to indemnify Sandler O'Neill for reasonable costs and
expenses in connection with claims or liabilities under applicable federal or
state law, or otherwise, related to or arising out of the Conversion except to
the extent that such claim or liability arose out of or was based upon any
untrue statement of material fact, omission of a material fact related to or
made in reliance upon and in conformity with written information furnished to
the Primary Parties by Sandler O'Neill or such claim or liability was primarily
attributable to the gross negligence, willful misconduct or bad faith of Sandler
O'Neill. Such claims and liabilities could include claims under the federal and
state securities laws. Sandler O'Neill has received advances towards its fees
totaling $25,000. Total marketing fees to Sandler O'Neill are expected to be
$1.1 million and $1.5 million at the minimum and the maximum of the Estimated
Price Range, respectively. See "Pro Forma Data" for the assumptions used to
arrive at these estimates.

                                      120
Sandler O'Neill also will perform proxy solicitation services, conversion
agent services and records management services for the Primary Parties in the
Conversion and is expected to receive a fee for these services of approximately
$10,000. Sandler O'Neill has received advances toward its fees for these
services totaling $5,000.

     Directors and executive officers of the Primary Parties may participate in
the solicitation of offers to purchase Common Stock. Questions of prospective
purchasers will be directed to executive officers or registered representatives.
Other employees of the Bank may participate in the Offering in administrative
capacities or providing clerical work in effecting a sales transaction. Such
other employees have been instructed not to solicit offers to purchase Common
Stock or provide advice regarding the purchase of Common Stock. The Company will
rely on Rule 3a4-1 under the Exchange Act, and sales of Common Stock will be
conducted within the requirements of Rule 3a4-1, so as to permit officers,
directors and employees to participate in the sale of Common Stock. No officer,
director or employee of Primary Parties will be compensated in connection with
his participation by the payment of commissions or other remuneration based
either directly or indirectly on the transactions in the Conversion Stock.

PROCEDURE FOR PURCHASING SHARES IN SUBSCRIPTION AND COMMUNITY OFFERINGS

     To ensure that each purchaser receives a prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of the Exchange Act,
no prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the stock
order form and certification form will confirm receipt or delivery in accordance
with Rule 15c2-8. Stock order and certification forms will only be distributed
with a prospectus.

     To purchase shares in the Subscription and Community Offerings, an executed
stock order form and certification form with the required payment for each share
subscribed for, or with appropriate authorization for withdrawal from the Bank's
deposit account (which may be given by completing the appropriate blanks in the
stock order form), must be received by the Bank at any of its offices by 12:00
noon, New Jersey Time, on the Expiration Date. Stock order forms which are not
received by such time or are executed defectively or are received without full
payment (or appropriate withdrawal instructions) are not required to be
accepted. In addition, the Primary Parties are not obligated to accept orders
submitted on photocopied or facsimilied stock order forms and will not accept
stock order forms unaccompanied by an executed certification form.
Notwithstanding the foregoing, the Company shall have the right, in its sole
discretion, to permit institutional investors to submit irrevocable orders
together with a legally binding commitment for payment and to thereafter pay for
the shares of Conversion Stock for which they subscribe in the Community
Offering at any time prior to 48 hours before the completion of the Conversion.
The Primary Parties have the right to waive or permit the correction of
incomplete or improperly executed forms, but do not represent that they will do
so. Once received, an executed stock order form may not be modified, amended or
rescinded without the consent of the Primary Parties unless the Conversion has
not been completed within 45 days after the end of the Subscription and
Community Offerings, unless such period has been extended.

     In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the Eligibility Record Date (December 31,
1995) and/or the Supplemental Eligibility Record Date (December 31, 1997) and/or
the Voting Record Date (__________, 1998) must list all accounts on the stock
order form giving all names in each account and the account number.

     Payment for subscriptions may be made (i) in cash if delivered in person at
any branch office of the Bank, (ii) by check, bank draft or money order, or
(iii) by authorization of withdrawal from deposit accounts maintained with the
Bank. No wire transfers will be accepted. Interest will be paid on payments made
by 

                                      121
cash, check, bank draft or money order at the Bank's passbook rate of interest
from the date payment is received until the completion or termination of the
Conversion and Reorganization. If payment is made by authorization of withdrawal
from deposit accounts, the funds authorized to be withdrawn from a deposit
account will continue to accrue interest at the contractual rates until
completion or termination of the Conversion and Reorganization, but a hold will
be placed on such funds, thereby making them unavailable to the depositor until
completion or termination of the Conversion and Reorganization.

     If a subscriber authorizes the Bank to withdraw the amount of the purchase
price from his deposit account, the Bank will do so as of the effective date of
the Conversion and Reorganization. The Bank will waive any applicable penalties
for early withdrawal from certificate accounts. If the remaining balance in a
certificate account is reduced below the applicable minimum balance requirement
at the time that the funds actually are transferred under the authorization, the
certificate will be canceled at the time of the withdrawal, without penalty, and
the remaining balance will earn interest at the Bank's passbook rate.

     If the ESOP subscribes for shares during the Subscription Offering, the
ESOP will not be required to pay for the shares subscribed for at the time it
subscribes, but rather, may pay for such shares of Conversion Stock subscribed
for at the Purchase Price upon consummation of the Subscription and Community
Offering, if all shares are sold, or upon consummation of the Syndicated
Community Offering if shares remain to be sold in such offering; provided, that
there is in force from the time of its subscription until such time, a loan
commitment from an unrelated financial institution or the Company to lend to the
ESOP, at such time, the aggregate Purchase Price of the shares for which it
subscribed.

     Owners of self-directed Individual Retirement Accounts ("IRAs") may use the
assets of such IRAs to purchase shares of Conversion Stock in the Subscription
and Community Offerings, provided that such IRAs are not maintained at the Bank.
Persons with self-directed IRAs maintained at the Bank must have their accounts
transferred to an unaffiliated institution or broker to purchase shares of
Common Stock in the Subscription and Community Offerings. In addition, the
provisions of ERISA and IRS regulations require that officers, directors and 10%
shareholders who use self-directed IRA funds to purchase shares of Conversion
Stock in the Subscription and Community Offerings, make such purchases for the
exclusive benefit of the IRAs.

     Certificates representing shares of Conversion Stock purchased will be
mailed to purchasers at the address specified in properly completed stock order
forms, as soon as practicable following consummation of the sale of all shares
of Conversion Stock. Any certificates returned as undeliverable will be disposed
of in accordance with applicable law.

RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES

     Prior to the completion of the Conversion and Reorganization, the OTS
conversion regulations prohibit any person with subscription rights, including
the Eligible Account Holders, the ESOP, the Supplemental Eligible Account
Holders and Other Members of the Bank, from transferring or entering into any
agreement or understanding to transfer the legal or beneficial ownership of the
subscription rights issued under the Plan or the shares of Conversion Stock to
be issued upon their exercise. Such rights may be exercised only by the person
to whom they are granted and only for his account. Each person exercising such
subscription rights will be required to certify that he is purchasing shares
solely for his own account and that he has no agreement or understanding
regarding the sale or transfer of such shares. The regulations also prohibit any
person from offering or making an announcement of an offer or intent to make an
offer to purchase such subscription rights or shares of Conversion Stock prior
to the completion of the Conversion and Reorganization.

                                      122
THE PRIMARY PARTIES WILL PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES
(INCLUDING FORFEITURE) IN THE EVENT THEY BECOME AWARE OF THE TRANSFER OF
SUBSCRIPTION RIGHTS AND WILL NOT HONOR ORDERS KNOWN BY THEM TO INVOLVE THE
TRANSFER OF SUCH RIGHTS.

SYNDICATED COMMUNITY OFFERING

     As a final step in the Conversion and Reorganization, the Plan provides
that, if feasible, all shares of Conversion Stock not purchased in the
Subscription and Community Offerings, if any, will be offered for sale to the
general public in a Syndicated Community Offering through a syndicate of
registered broker-dealers to be formed and managed by Sandler O'Neill acting as
agent of the Company to assist the Company and the Bank in the sale of the
Conversion Stock. The Company and the Bank have the right to reject orders in
whole or in part in their sole discretion in the Syndicated Community Offering.
Neither Sandler O'Neill nor any registered broker-dealer shall have any
obligation to take or purchase any shares of the Conversion Stock in the
Syndicated Community Offering, however, Sandler O'Neill have agreed to use their
best efforts in the sale of shares in the Syndicated Community Offering.

     The price at which Conversion Stock is sold in the Syndicated Community
Offering will be determined as described above under "- Stock Pricing and
Exchange Ratio." Subject to overall purchase limitations, no person, together
with any associate or group of persons acting in concert, will be permitted to
subscribe in the Syndicated Community Offering for more than $250,000 of the
total number of shares offered in the Conversion, exclusive of an increase in
shares issued pursuant to an increase in the Estimated Price Range of up to 15%;
provided, however, that shares of Conversion Stock purchased in the Community
Offering by any persons, together with associates of or persons acting in
concert with such persons, will be aggregated with purchases in the Syndicated
Community Offering and be subject to the overall maximum purchase limitation,
exclusive of an increase in shares issued pursuant to an increase in the
Estimated Price Range by up to 15%.

     Payments made in the form of a check, bank draft, money order or in cash
will earn interest at the Bank's passbook rate of interest from the date such
payment is actually received by the Bank until completion or termination of the
Conversion.

     In addition to the foregoing, if a syndicate of broker-dealers ("selected
dealers") is formed to assist in the Syndicated Community Offering, a purchaser
may pay for his shares with funds held by or deposited with a selected dealer.
If an order form is executed and forwarded to the selected dealer or if the
selected dealer is authorized to execute the order form on behalf of a
purchaser, the selected dealer is required to forward the order form and funds
to the Bank for deposit in a segregated account on or before noon of the
business day following receipt of the order form or execution of the order form
by the selected dealer. Alternatively, selected dealers may solicit indications
of interest from their customers to place orders for shares. Such selected
dealers shall subsequently contact their customers who indicated an interest and
seek their confirmation as to their intent to purchase. Those indicating an
intent to purchase shall execute order forms and forward them to their selected
dealer or authorize the selected dealer to execute such forms. The selected
dealer will acknowledge receipt of the order to its customer in writing on the
following business day and will debit such customer's account on the third
business day after the customer has confirmed his intent to purchase (the "debit
date") and on or before noon of the next business day following the debit date
will send order forms and funds to the Bank for deposit in a segregated account.
Although purchasers' funds are not required to be in their accounts with
selected dealers until the debit date in the event that such alternative
procedure is employed once a confirmation of an intent to purchase has been
received by the selected dealer, the purchaser has no right to rescind his
order. 

                                      123
Certificates representing shares of Conversion Stock purchased, together
with any refund due, will be mailed to purchasers at the address specified in
the order form, as soon as practicable following consummation of the sale of the
Conversion Stock. Any certificates returned as undeliverable will be disposed of
in accordance with applicable law.

     The Syndicated Community Offering will terminate no more than 45 days
following the Subscription Expiration Date, unless extended by the Company with
the approval of the OTS. Such extensions may not be beyond ____________, 2000.
See "- Stock Pricing and Exchange Ratio" above for a discussion of rights of
subscribers, if any, in the event an extension is granted.

LIMITATIONS ON CONVERSION STOCK PURCHASES

     The Plan includes the limitations set forth below on the number of shares
of Conversion Stock which may be purchased during the Conversion. The purchase
limits set forth in paragraphs (2), (4), (5), (6) and (7) are subject to the
overall maximum purchase limitations in (8) below which includes Exchange Shares
received by purchasers.

     (1)  No less than 25 shares;

     (2)  Each Eligible Account Holder may subscribe for and purchase in the
          Subscription Offering up to the greater of the amount permitted to be
          purchased in the Community Offering, currently $250,000 of Conversion
          Stock offered, one-tenth of one percent (.10%) of the total offering
          of shares of Conversion Stock or fifteen times the product (rounded
          down to the next whole number) obtained by multiplying the total
          number of shares of Conversion Stock to be issued by a fraction of
          which the numerator is the amount of the Qualifying Deposit of the
          Eligible Account Holder and the denominator is the total amount of
          Qualifying Deposits of all Eligible Account Holders in each case on
          the Eligibility Record Date subject to the overall maximum purchase
          limitation in (8) below and exclusive of an increase in the total
          number of shares issued due to an increase in the Estimated Price
          Range of up to 15%;

     (3)  The ESOP is permitted to purchase in the aggregate up to 10% of the
          shares of Conversion Stock issued in the Conversion and
          Reorganization, including shares issued in the event of an increase in
          the Estimated Price Range of 15% and intends to purchase 8% of the
          shares of Conversion Stock issued in the Conversion and
          Reorganization, including any increase in the number of shares to be
          issued after the date hereof as a result of an increase of up to 15%
          in the maximum of the Estimated Price Range;

     (4)  Each Supplemental Eligible Account Holder may subscribe for and
          purchase in the Subscription Offering up to the greater of the amount
          permitted to be purchased in the Community Offering, currently
          $250,000 of Conversion Stock offered, one-tenth of one percent (.10%)
          of the total offering of shares of Conversion Stock or fifteen times
          the product (rounded down to the next whole number) obtained by
          multiplying the total number of shares of Conversion Stock to be
          issued by a fraction of which the numerator is the amount of the
          Qualifying Deposit of the Supplemental Eligible Account Holder and the
          denominator is the total amount of Qualifying Deposits of all
          Supplemental Eligible Account Holders in such case on the Supplemental
          Eligibility Record Date subject to the overall maximum purchase
          limitation in (8) below and exclusive of an increase in the total
          number of shares issued due to an increase in the Estimated Price
          Range of up to 15%;

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(5)  Each Other Member may subscribe for and purchase in the Subscription
          Offering up to the greater of the amount permitted to be purchased in
          the Community Offering, currently $250,000 of Conversion Stock
          offered, or one-tenth of one percent (.10%) of the total offering of
          shares of Conversion Stock subject to the overall maximum purchase
          limitation in (8) below and exclusive of an increase in the total
          number of shares issued due to an increase in the Estimated Price
          Range of up to 15%;

     (6)  Persons purchasing shares of Conversion Stock in the Community
          Offering, together with associates of and groups of persons acting in
          concert with such persons, may purchase in the Community Offering up
          to $250,000 of Conversion Stock offered in the Conversion and
          Reorganization subject to the overall maximum purchase limitation in
          (8) below and exclusive of an increase in the total number of shares
          issued due to an increase in the Estimated Price Range of up to 15%;

     (7)  Persons purchasing shares of Conversion Stock in the Syndicated
          Community Offering, together with associates of and persons acting in
          concert with such persons, may purchase in the Syndicated Offering up
          to $250,000 of shares of Conversion Stock offered in the Conversion
          and Reorganization subject to the overall maximum purchase limitation
          in (8) below and exclusive of an increase in the total number of
          shares issued due to an increase in the Estimated Price Range of up to
          15% and, provided further that shares of Conversion Stock purchased in
          the Community Offering by any persons, together with associates of and
          persons acting in concert with such persons, will be aggregated with
          purchases in the Syndicated Community Offering in applying the
          $250,000 purchase limitation;

     (8)  Eligible Account Holders, Supplemental Eligible Account Holders and
          Other Members may purchase stock in the Community Offering and
          Syndicated Community Offering subject to the purchase limitations
          described in (6) and (7) above, provided that, except for the ESOP,
          the overall maximum number of shares of Conversion Stock subscribed
          for or purchased in all categories of the Conversion and
          Reorganization by any person, together with associates of and groups
          of persons acting in concert with such persons when combined with any
          Exchange Shares received by such persons, shall not exceed 4.0% of the
          shares of Conversion Stock offered in the Conversion and
          Reorganization and exclusive of an increase in the total number of
          shares issued due to an increase in the Estimated Price Range of up to
          15%; and

     (9)  No more than 25.00% of the total number of shares of Conversion Stock
          offered for sale in the Conversion and Reorganization may be purchased
          by directors and officers of the Bank and the Mutual Holding Company
          and their associates in the aggregate, when combined with any Exchange
          Shares received and excluding purchases by the ESOP.

     Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the members of
the Mutual Holding Company or the Public Stockholders of the Bank, both the
individual amount permitted to be subscribed for and the overall maximum
purchase limitation may be increased to up to a maximum of 5% at the sole
discretion of the Primary Parties. If such amount is increased, subscribers for
the maximum amount will be, and certain other large subscribers in the sole
discretion of the Bank may be, given the opportunity to increase their
subscriptions up to the then applicable limit. In addition, the Boards of
Directors of the Primary Parties may, in their sole discretion, increase the
maximum purchase limitation referred to above up to 9.99%, provided that orders
for shares exceeding 5% of the shares being offered in the Subscription and
Community Offerings shall not exceed, in the aggregate, 10% of the shares being
offered in the Subscription and Community Offerings. Requests 

                                      125
to purchase additional shares of Conversion Stock under this provision will be
determined by the Boards of Directors and, if approved, allocated on a pro rata
basis giving priority in accordance with the priority rights set forth herein.
In any event, any Exchange Shares received by an individual will be aggregated
with shares subscribed for by such person for purposes of applying the maximum
purchase limitation.

     The overall maximum purchase limitation may not be reduced to less than 1%
but the individual amount permitted to be subscribed for may be reduced by the
Primary Parties to less than 1%, subject to paragraphs (2), (4), and above
without the further approval of members or Public Stockholders or resolicitation
of subscribers. An individual Eligible Account Holder, Supplemental Eligible
Account Holder or Other Member may not purchase individually in the Subscription
Offering the overall maximum purchase limit of 4.0% of the shares of Conversion
Stock offered, but may make such purchase, together with associates of and
persons acting in concert with such person, by also purchasing in other
available categories of the Conversion and Reorganization, subject to
availability of shares, the overall maximum purchase limit for purchases in the
Conversion and Reorganization and the amount of Exchange Shares received by such
individual.

     In the event of an increase in the total number of shares offered in the
Conversion and Reorganization due to an increase in the Estimated Price Range of
up to 15% (the "Adjusted Maximum"), the additional shares will be allocated in
the following order or priority in accordance with the Plan: (i) to fill the
ESOP's subscription of 8% of the Adjusted Maximum number of shares; (ii) in the
event that there is an oversubscription by Eligible Account Holders, to fill
unsatisfied subscriptions of Eligible Account Holders, exclusive of the Adjusted
Maximum; (iii) in the event that there is an oversubscription by Supplemental
Eligible Account Holders, to fill unsatisfied subscriptions of Supplemental
Eligible Account Holders, exclusive of the Adjusted Maximum; (iv) in the event
that there is an oversubscription by Other Members, to fill unsatisfied
subscriptions of Other Members exclusive of the Adjusted Maximums; and (v) to
fill unsatisfied subscriptions in the Community Offering to the extent possible,
exclusive of the Adjusted Maximum and with a preference to Public Stockholders.

     The term "associate" of a person is defined to mean: (i) any corporation
(other than the Primary Parties or a majority-owned subsidiary of the Bank) of
which such person is an officer, partner or 10% stockholder; (ii) any trust or
other estate in which such person has a substantial beneficial interest or
serves as a trustee or in a similar fiduciary capacity; provided, however, such
term shall not include any employee stock benefit plan of the Bank in which such
person has a substantial beneficial interest or serves as a trustee or in a
similar fiduciary capacity; and (iii) any relative or spouse of such person, or
any relative of such spouse, who either has the same home as such person or who
is a director or officer of the Bank. Directors are not treated as associates of
each other solely because of their Board membership. For a further discussion of
limitations on purchases of a converting institution's stock at the time of
Conversion and subsequent to Conversion, see "Beneficial Ownership of Capital
Stock - Subscriptions by Executive Officers and Directors," "- Certain
Restrictions on Purchase or Transfer of Shares After Conversion and
Reorganization" and "Restrictions on Acquisition of the Company and the Bank."

LIQUIDATION RIGHTS

     In the unlikely event of a complete liquidation of the Mutual Holding
Company in its present mutual form, each depositor would receive his pro rata
share of any assets of the Mutual Holding Company remaining after payment of
claims of all creditors (including the claims of all depositors to the
withdrawal value of their accounts). Each depositor's pro rata share of such
remaining assets would be in the same proportion as the value of his deposit
account was to the total value of all deposit accounts in the Bank at the time
of liquidation. After the Conversion and Reorganization, each depositor, in the
event of a complete liquidation, would have a claim as a creditor of the same
general priority as the claims of all other general

                                      126
creditors of the Bank. However, except as described below, his claim would be
solely in the amount of the balance in his deposit account plus accrued
interest. He would not have an interest in the value or assets of the Bank or
the Company above that amount.

     The Plan provides for the establishment, upon the completion of the
Conversion and Reorganization, of a special "liquidation account" for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders in
an amount equal to the greater of (1) the Bank's retained earnings at December
31, 1991, the date of the latest statement of financial condition contained in
the final offering circular utilized in the 1992 MHC Reorganization or (2) 51.6%
of the Bank's shareholders' equity as of the date of its latest balance sheet
contained in the final Prospectus used in connection with the Conversion and
Reorganization. Each Eligible Account Holder and Supplemental Eligible Account
Holder, if he were to continue to maintain his deposit account at the Bank,
would be entitled, on a complete liquidation of the Bank after the Conversion
and Reorganization, to an interest in the liquidation account prior to any
payment to the stockholders of the Bank. Each Eligible Account Holder and
Supplemental Eligible Account Holder would have an initial interest in such
liquidation account for each deposit account, including regular savings
accounts, transaction accounts such as NOW accounts, money market deposit
accounts, and certificates of deposit, with a balance of $50 or more held in the
Bank on December 31, 1995 and September 30, 1997, respectively. Each Eligible
Account Holder and Supplemental Eligible Account Holder will have a pro rata
interest in the total liquidation account based on the proportion that the
balance of his Qualifying Deposits on the Eligibility Record Date or
Supplemental Eligibility Record Date, respectively, bore to the total amount of
all Qualifying Deposits of all Eligible Account Holders and Supplemental
Eligible Account Holders in the Bank. For Qualifying Deposits in existence at
both dates separate subaccounts shall be determined on the basis of the
Qualifying Deposits in such deposit accounts on such respective record dates.

     If, however, on any annual closing date subsequent to the Eligibility
Record Date or Supplemental Eligibility Record Date, the amount of the
Qualifying Deposit of an Eligible Account Holder or Supplemental Eligible
Account Holder is less than the amount of the Qualifying Deposit of such
Eligible Account Holder or Supplemental Eligible Account Holder as of the
Eligibility Record Date or Supplemental Eligibility Record Date, respectively,
or less than the amount of the Qualifying Deposits as of the previous annual
closing date, then the interest in the liquidation account relating to such
Qualifying Deposit would be reduced from time to time by the proportion of any
such reduction, and such interest will cease to exist if such Qualifying Deposit
accounts are closed. In addition, no interest in the liquidation account would
ever be increased despite any subsequent increase in the related Qualifying
Deposit. Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders are satisfied would be
distributed to the Company as the sole stockholder of the Bank.

TAX ASPECTS

     Consummation of the Conversion and Reorganization is expressly conditioned
upon the receipt by the Primary Parties of either a favorable ruling from the
IRS or an opinion of counsel with respect to federal and New Jersey income
taxation to the effect that the Conversion and Reorganization will not be a
taxable transaction to the Mutual Holding Company, the Company, the Bank,
Eligible Account Holders, or Supplemental Eligible Account Holders except as
noted below.

     No private ruling will be received from the IRS with respect to the
proposed Conversion and Reorganization. Instead, the Bank has received an
opinion of Muldoon, Murphy & Faucette, to the effect that for federal income tax
purposes, among other matters: (1) the conversion of the Mutual Holding Company
from mutual form to a federal interim stock savings institution and its
simultaneous merger with and into the Bank, with the Bank being the surviving
institution, will qualify as a reorganization within the meaning of Section
368(a)(1)(A) of the Code, (2) no gain or loss will be recognized by the Bank
upon the 

                                      127
receipt of the assets of the Mutual Holding Company in such merger, (3) the
merger of the First Interim with and into the Bank, with the Bank being the
surviving institution, will qualify as a reorganization within the meaning of
Section 368(a)(1)(A) of the Code, (4) no gain or loss will be recognized by
First Interim upon the transfer of its assets to the Bank, (5) no gain or loss
will be recognized by the Bank upon the receipt of the assets of First Interim,
(6) no gain or loss will be recognized by the Company upon the receipt of Bank
Common Stock solely in exchange for Common Stock, (7) no gain or loss will be
recognized by the Public Stockholders upon the receipt of Common Stock solely in
exchange for their Public Bank Shares, (8) the basis of the Common Stock to be
received by the Public Stockholders will be the same as the basis of the Public
Bank Shares surrendered in exchange therefore, before giving effect to any
payment of cash in lieu of fractional shares, (9) the holding period of the
Common Stock to be received by the Public Stockholders will include the holding
period of the Public Bank Shares, provided that the Public Bank Shares were held
as a capital asset on the date of the exchange, (10) no gain or loss will be
recognized by the Company upon the sale of shares of Conversion Stock in the
Offering, (11) the Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members will recognize gain, if any, upon the issuance to them
of withdrawable savings accounts in the Bank following the Conversion and
Reorganization, interests in the liquidation account and nontransferable
subscription rights to purchase Conversion Stock, but only to the extent of the
value, if any, of the subscription rights, and (12) the tax basis to the holders
of Conversion Stock purchased in the Offerings will be the amount paid
therefore, and the holding period for the shares of Conversion Stock will begin
on the date of consummation of the Offerings if purchased through the exercise
of subscription rights and on the day after the date of purchase if purchased in
the Community Offering or Syndicated Community Offering. Muldoon, Murphy &
Faucette has also opined that the Conversion and Reorganization will not be a
taxable transaction to the Company, the Bank, Eligible Account Holders or
Supplemental Eligible Account Holders for New Jersey income and/or franchise tax
purposes. Certain portions of both the federal and the state and local tax
opinions are based upon the assumption that the subscription rights issued in
connection with the Conversion and Reorganization will have no value.

     Unlike private rulings, an opinion of counsel is not binding on the IRS and
the IRS could disagree with conclusions reached therein. In the event of such
disagreement, there can be no assurance that the IRS would not prevail in a
judicial or administrative proceeding.

     In the opinion of FinPro, the subscription rights do not have any value,
based on the fact that such rights are acquired by the recipients without cost,
are nontransferable and of short duration, and afford the recipients the right
only to purchase the Conversion Stock at a price equal to its estimated fair
market value, which will be the same price as the Purchase Price for the
unsubscribed shares of Conversion Stock. Such valuation is not binding on the
IRS. If the subscription rights granted to Eligible Account Holders or
Supplemental Eligible Account Holders are deemed to have an ascertainable value,
receipt of such rights could be taxable to those Eligible Account Holders or
Supplemental Eligible Account Holders who receive and/or exercise the
subscription rights in an amount equal to such value and the Bank could
recognize gain on such distribution. Eligible Account Holders and Supplemental
Eligible Account Holders are encouraged to consult with their own tax advisor as
to the tax consequences in the event that such subscription rights are deemed to
have an ascertainable value.

CERTAIN RESTRICTIONS ON PURCHASE OR TRANSFER OF SHARES AFTER CONVERSION

     All shares of Conversion Stock purchased in connection with the Conversion
and Reorganization by a director or an executive officer of the Primary Parties
will be subject to a restriction that the shares not be sold for a period of one
year following the Conversion and Reorganization, except in the event of the
death of such director or executive officer. Each certificate for restricted
shares will bear a legend giving notice of this restriction on transfer, and
instructions will be issued to the effect that any transfer within such time
period of any certificate or record ownership of such shares other than as
provided above is a violation 

                                      128
of the restriction. Any shares of Common Stock issued at a later date as a stock
dividend, stock split, or otherwise, with respect to such restricted stock will
be subject to the same restrictions. The directors and executive officers of the
Company and the Bank will also be subject to the insider trading rules
promulgated pursuant to the Exchange Act and any other applicable requirements
of the federal securities laws.

     Purchases of outstanding shares of Conversion Stock of the Company by
directors, executive officers (or any person who was an executive officer or
director of the Primary Parties after adoption of the Plan of Conversion) and
their associates during the three-year period following Conversion and
Reorganization may be made only through a broker or dealer registered with the
SEC, except with the prior written approval of the OTS. This restriction does
not apply, however, to negotiated transactions involving more than 1.0% of the
Company's outstanding Common Stock or to the purchase of stock pursuant to any
Stock-Based Incentive Plan to be established after the Conversion and
Reorganization.

     Unless approved by the OTS, the Company, pursuant to OTS regulations, will
be prohibited from repurchasing any shares of the Common Stock for three years
except: (i) for an offer to all stockholders on a pro rata basis; or (ii) for
the repurchase of qualifying shares of a director. Notwithstanding the
foregoing, beginning one year following completion of the Conversion and
Reorganization the Company may repurchase its Common Stock so long as: (i) the
repurchases within the following two years are part of an open-market program
not involving greater than 5% of its outstanding capital stock during a twelve-
month period; (ii) the repurchases do not cause the Company to become
undercapitalized; and (iii) the Company provides to the Regional Director of the
OTS no later than ten days prior to the commencement of a repurchase program
written notice containing a full description of the program to be undertaken and
such program is not disapproved by the Regional Director. In addition, under
current OTS policies, repurchases may be allowed in the first year following
Conversion and in amounts greater than 5% in the second and third years
following the Conversion, provided there are valid and compelling business
reasons for such repurchases and the OTS does not object to such repurchases.

                      COMPARISON OF STOCKHOLDERS' RIGHTS

GENERAL

     As a result of the Conversion and Reorganization, holders of the Bank
Common Stock will become stockholders of the Company. There are certain
differences in stockholder rights arising from distinctions between the Bank's
certificate of incorporation and bylaws and the Company's Certificate of
Incorporation and Bylaws and from distinctions between laws with respect to New
Jersey chartered savings associations and Delaware law.

     The discussion herein is not intended to be a complete statement of the
differences affecting the rights of stockholders, but rather summarizes the more
significant differences and certain important similarities. The discussion
herein is qualified in its entirety by reference to the Certificate of
Incorporation and Bylaws of the Company and Delaware General Corporation law.

     Authorized Capital Stock. The Company's authorized capital stock consists
of 85,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock,
both with a par value $.01 per share, whereas the Bank's authorized capital
stock consists of 10,000,000 shares of Bank Common Stock and 1,000,000 shares of
serial preferred stock, both with a par value $0.01 per share (the "Bank
Preferred Stock"). The increased authorized capitalization will provide the
Company's Board of Directors with additional flexibility to effect, among other
transactions, acquisitions, financings, stock dividends, stock splits and stock
benefit plans. However, these additional authorized shares may also be used by
the Board of Directors consistent with its fiduciary duty to deter future
attempts to gain control of the Company. The Board of Directors also has sole
   

                                      129
authority to determine the terms of any one or more series of Preferred Stock,
including voting rights, conversion rates, and liquidation preferences. As a
result of the ability to fix voting rights for a series of Preferred Stock, the
Board has the power, to the extent consistent with its fiduciary duty, to issue
a series of Preferred Stock to persons friendly to management in order to
attempt to block a post-tender offer merger or other transaction by which a
third party seeks control, and thereby assist management to retain its position.
The Company's Board of Directors currently has no plans for the issuance of
additional shares, other than the issuance of additional shares pursuant to the
terms of the Stock-Based Incentive Plan and upon exercise of stock options to be
issued pursuant to the terms of the Stock-Based Incentive Plan, all of which are
to be established and presented to stockholders at a meeting after the
Conversion and Reorganization.

     The Company will be subject to annual franchise taxes under Delaware law
based on its authorized capitalization. As a New Jersey chartered institution,
the Bank is not subject to franchise taxes, regardless of the amount of its
authorized capitalization.

     Issuance of Capital Stock. Pursuant to applicable laws and regulations, the
Mutual Holding Company is required to own not less than a majority of the
outstanding Bank Common Stock. There will be no such restriction applicable to
the Company following consummation of the Conversion and Reorganization.

     Neither the Certificate of Incorporation of the Bank nor the Certificate of
Incorporation of the Company contains a restriction on the issuance of shares of
capital stock to directors, officers or controlling persons of the Company and
the Bank, respectively. Thus, stock-related compensation plans such as stock
option plans could be adopted by the Company and the Bank without stockholder
approval and shares of Company capital stock and Bank capital stock could be
issued directly to directors, officers or controlling persons without
stockholder approval. The Bylaws of the NASD, however, generally require
corporations with securities which are quoted on the Nasdaq National Market to
obtain stockholder approval of most stock compensation plans for directors,
officers and key employees of the corporation. Moreover, although generally not
required, stockholder approval of stock-related compensation plans may be sought
in certain instances in order to qualify such plans for favorable federal income
tax and securities law treatment under current laws and regulations.

     Voting Rights. The Bank's Bylaws and Certificate of Incorporation prohibit,
and the Company's Bylaws do not provide for, cumulative voting in elections of
directors. The prohibition on cumulative voting will help to ensure continuity
and stability of the Company's Board of Directors and the policies adopted by it
by making it more difficult for the holders of a relatively small amount of the
Common Stock to elect their nominees to the Board of Directors and possibly by
delaying, deterring or discouraging proxy contests.

     Neither the Certificate of Incorporation of the Bank nor the Certificate of
Incorporation and Bylaws of the Company provide for pre-emptive rights to
stockholders in connection with the issuance of capital stock.

     For additional information relating to voting rights, see "-General -
Limitation on Acquisitions of Voting Stock and Voting Rights" below.

     Payment of Dividends. The ability of the Bank to pay dividends on its
capital stock is restricted by federal regulations and New Jersey law and
regulations and by tax considerations related to savings associations such as
the Bank. See "Regulation - Federal Regulation of Savings Institutions --
Capital Requirements" and "Federal and State Taxation - Federal Taxation."
Although the Company is not subject to these restrictions as a Delaware
corporation, such restrictions will indirectly affect the Company because

                                      130
dividends from the Bank will be a primary source of funds of the Company for the
payment of dividends to stockholders of the Company.

     The Delaware General Corporation Law generally provides that, subject to
any restrictions in the corporation's Certificate of Incorporation, dividends
may be declared from the corporation's surplus or, if there is no surplus, from
its net profits for the fiscal year in which the dividend is declared and the
preceding fiscal year. However, if the corporation's capital (generally defined
in the Delaware General Corporation Law as the sum of the aggregate par value of
all shares of the corporation's capital stock, where all such shares have a par
value and the board of directors has not established a higher level of capital)
has been diminished to an amount less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets, dividends may not be declared and
paid out of such net profits until the deficiency in such capital has been
repaired.

     Board of Directors. The Bank's Certificate of Incorporation and the
Certificate of Incorporation and Bylaws of the Company, respectively, require
the Board of Directors of the Bank and the Company to be divided into three
classes as nearly equal in number as possible and that the members of each class
shall be elected for a term of three years and until their successors are
elected and qualified, with one class being elected annually.

     Under the Bank's Bylaws, any vacancies in the Board of Directors of the
Bank may be filled by the affirmative vote of a majority of the remaining
directors although less than a quorum of the board of directors. Persons elected
by the directors of the Bank to fill vacancies may only serve until the next
annual meeting of stockholders. However, under the Company's Certificate of
Incorporation, any vacancy occurring in the Board of Directors of the Company,
including any vacancy created by reason of an increase in the number of
directors, may be filled by the remaining directors, and any director so chosen
shall hold office for the remainder of the term to which the director has been
elected and until his successor is elected and qualified.

     Under the Bank's Bylaws, any director may be removed for cause by a two-
thirds vote of the Board of Directors or by the affirmative vote of at least 80%
of the voting power of the then outstanding shares of capital stock of the Bank
entitled to vote in an election of directors. Under the Company's Certificate of
Incorporation, a director or the entire board of directors may be removed only
for cause and only by the affirmative vote of the holders of at least 80% of the
outstanding voting shares of the Company.

     Limitations on Liability. The Company's Certificate of Incorporation
provides that the personal liability of the directors and officers of the
Company for monetary damages shall be eliminated to the fullest extent permitted
by the Delaware General Corporation Law as it exists on the effective date of
the Certificate of Incorporation or as such law may be thereafter in effect.
Section 102(b)(7) of the Delaware General Corporation Law currently provides
that directors (but not officers) of corporations that have adopted such a
provision will not be so liable, except (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) for the payment of certain unlawful dividends and the
making of certain stock purchases or redemptions, or (iv) for any transaction
from which the director derived an improper personal benefit.

     If Delaware law was amended in the future to provide for greater
limitations on the personal liability of directors or to permit corporations to
limit the personal liability of officers, the provision in the Company's
Certificate of Incorporation limiting the personal liability of directors and
officers would automatically incorporate such authorities without further action
by stockholders. Similarly, if Delaware law was amended in the future to
restrict the ability of a corporation to limit the personal liability of
directors, the Company's

                                      131
Certificate of Incorporation would automatically incorporate such restrictions
without further action by stockholders.

     The Bank's current Certificate of Incorporation contains similar provisions
regarding the elimination of director liability consistent with New Jersey law.

     Indemnification of Directors, Officers and Employees. The Bank's
Certificate of Incorporation provides that the Bank shall indemnify its
directors, officers and employees for any costs incurred in connection with any
litigation involving any such person's activities as a director, officer or
employee. In addition, indemnification is permitted in the case of a settlement,
a final judgment against such person or final judgment other than on the merits,
if it is determined by the board of directors and the Commission that such
person was acting in good faith within the scope of his or her employment as he
or she could reasonably have perceived it under the circumstances and for a
purpose he or she could have reasonably believed under the circumstances was in
the best interest of the Bank or its stockholders.

     The Company's Certificate of Incorporation provides that the Company shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suite or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
such person is or was a director, officer or employee of the Company or any
predecessor of the Company, or is or was serving at the request of the Company
or any predecessor of the Company as a director, officer or employee of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses, liability and loss reasonably incurred or suffered by such indemnitee
in connection therewith to the fullest extent authorized by the Delaware General
Corporation Law of the State of Delaware against expenses, liability and loss
reasonably incurred or suffered by such indemnitee in connection therewith.

     The Company's Certificate of Incorporation also provides that reasonable
expenses (including attorneys' fees) incurred by a director, officer or employee
of the Company in defending any civil, criminal, administrative or investigative
action, suit or proceeding described above shall be paid by the Company in
advance of the final disposition of such action, suit or proceeding as
authorized by the Board of Directors upon receipt of an undertaking by or on
behalf of such person to repay such amount if it shall ultimately be determined
that the person is not entitled to be indemnified by the Company.

     Special Meetings of Stockholders. The Bank's Bylaws provide that special
meetings of the stockholders of the Bank may be called by the Chairman,
President, a majority of the Board of Directors or the holders of not less than
ten percent of the outstanding capital stock of the Bank entitled to vote at the
meeting. The Certificate of Incorporation and Bylaws of the Bank provide,
however, that until the fifth anniversary of the 1992 MHC Reorganization,
special meetings of stockholders relating to changes in control of the Bank or
amendments to its Certificate of Incorporation may only be called upon direction
of the Board of Directors of the Bank. The Company's Certificate of
Incorporation contains a provision pursuant to which special meetings of
stockholders of the Company only may be called by the Board of Directors of the
Company.

     Stockholder Nominations and Proposals. The Bank's Bylaws generally provide
that stockholders may submit nominations for election as director at an annual
meeting of stockholders 60 days prior to the annual meeting and any new business
to be taken up at such a meeting at least 60 days before the date of any such
meeting.

     The Company's Bylaws require a stockholder who intends to nominate a
candidate for election to the Board of Directors, or to raise new business at a
stockholder meeting to give at least 90 days advance notice to the Secretary of
the Company. The notice provision requires a stockholder who desires to raise
new

                                      132
business to provide certain information to the Company concerning the nature of
the new business, the stockholder and the stockholder's interest in the business
matter. Similarly, a stockholder wishing to nominate any person for election as
a director must provide the Company with certain information concerning the
nominee and the proposing stockholder.

     Inspectors of Election. The Bank's Bylaws provide that the Board of
Directors may appoint one or more persons other than nominees for office as
inspectors of election at a meeting of stockholders and that if inspectors of
election are not so appointed, the Chairman of the Board or the President may,
and on the request of not less than 10% of the votes represented at the meeting
shall, make such appointment at the meeting. The Company's Bylaws provide that
the Board of Directors of the Company shall appoint one or more persons as
inspectors of election, and that the chairman of any meeting of stockholders
shall make such an appointment in the event that the inspector(s) appointed by
the Board of Directors shall be unable to act or the board shall fail to appoint
any inspector. The Bylaws of the Bank and the Company also specify the duties of
inspectors of election.

     Stockholder Action Without a Meeting. The Bylaws of the Bank provide that
any action to be taken or which may be taken at any annual or special meeting of
stockholders must be taken at such annual or special meeting and may not be
taken without a meeting. The Certificate of Incorporation and Bylaws of the
Company similarly provide that any action required by Delaware law to be taken
at any annual or special meetings of stockholders, or any action which may be
taken at any annual or special meeting of stockholders, must be taken at such
annual or special meeting, and may not be taken without a meeting.

     Limitations on Acquisitions of Voting Stock and Voting Rights. The Bank's
Certificate of Incorporation provides that no person, other than the MHC or the
Company, shall directly or indirectly offer to acquire or acquire the beneficial
ownership of more than 10% of the issued and outstanding shares of any class of
an equity security of the Bank, unless such offer to acquire or acquisition is
approved by a majority of the Board of Directors. In the event that shares are
acquired in violation of this restriction, all shares beneficially owned by any
person in excess of 10% shall be considered "Excess Shares" and shall not be
counted as shares entitled to vote and shall not be voted by any person or
counted as voting shares in connection with any matters submitted to
stockholders for a vote.

     The Certificate of Incorporation of the Company provides that in no event
shall any record owner of any outstanding Common Stock which is beneficially
owned, directly or indirectly, by a person who beneficially owns in excess of
10% of the then outstanding shares of Common Stock (the "Limit") be entitled or
permitted to any vote in respect of the shares held in excess of the Limit.
Beneficial ownership is determined pursuant to Rule 13d-3 of the General Rules
and Regulations promulgated pursuant to the Exchange Act, and includes shares
beneficially owned by such person or any of his affiliates (as defined in the
Certificate of Incorporation), shares which such person or his affiliates have
the right to acquire upon the exercise of conversion rights or options and
shares as to which such person and his affiliates have or share investment or
voting power, but shall not include shares beneficially owned by the ESOP or
directors, officers and employees of the Bank or Company or shares that are
subject to a revocable proxy and that are not otherwise beneficially owned, or
deemed by the Company to be beneficially owned, by such person and his
affiliates. The Certificate of Incorporation of the Company further provides
that this provision limiting voting rights may only be amended upon the vote of
80% of the outstanding shares of voting stock (after giving effect to the
limitation on voting rights).

     Mergers, Consolidations and Sales of Assets. The Bank's Certificate of
Incorporation and Bylaws do not impose any specific vote requirement for
stockholder approval of mergers and certain business transactions.

                                      133
The Delaware General Corporation Law requires the approval of the Board of
Directors and the holders of a majority of the outstanding stock of the Company
entitled to vote thereon for mergers or consolidations, and for sale, leases or
exchanges of all or substantially all of the Company's assets, unless a higher
requirement is specified in the Company's Certificate of Incorporation.

     As holder of all of the outstanding Bank Common Stock after consummation of
the Conversion and Reorganization, the Company generally will be able to
authorize a merger, consolidation or other business combination involving the
Bank without the approval of the stockholders of the Company. However, the
Company's Certificate of Incorporation requires the approval of the holders of
at least 80% of the Company's outstanding shares of voting stock to approve
certain "Business Combinations" as defined therein. See "Restrictions on
Acquisition of the Company and the Bank - Restrictions in the Company's
Certificate of Incorporation and Bylaws."

     Dissenters' Rights of Appraisal. Under New Jersey corporate law, which is
applicable to the Bank generally, a stockholder of a New Jersey corporation
which engages in a merger, consolidation or sale of all or substantially all of
its assets shall have the right to demand from such corporation payment of the
fair or appraised value of his stock in the New Jersey corporation, subject to
specified procedural requirements. This law also provides, however, that the
stockholders of a New Jersey chartered corporation with stock which is listed on
a national securities exchange or which has more than 1,000 shareholders are not
entitled to dissenters' rights in connection with a merger involving such
corporation if the stockholder is required to accept only "qualified
consideration" for his stock, which is defined to include cash, shares of stock
of any corporation which at the effective date of the merger will be listed on a
national securities exchange or quoted on the Nasdaq National Market System or
any combination of such shares of stock and cash.

     After the Conversion and Reorganization, the rights of appraisal of
dissenting stockholders of the Company will be governed by the Delaware General
Corporation Law. Pursuant thereto, a stockholder of a Delaware corporation
generally has the right to dissent from any merger or consolidation involving
the corporation or sale of all or substantially all of the corporation's assets,
subject to specified procedural requirements. However, no such appraisal rights
are available for the shares of any class or series of a corporation's capital
stock if (i) as of the record date fixed to determine the stockholders entitled
to receive notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, such shares were either listed on a
national securities exchange or held of record by more than 2,000 stockholders,
or (ii) the corporation is the surviving corporation of a merger and the merger
did not require the approval of the corporation's stockholders, unless in either
case, the holders of such stock are required by an agreement of merger or
consolidation to accept for that stock something other than: (a) shares of stock
of the corporation surviving or resulting from the merger or consolidation; (b)
shares of stock of any other corporation that, at the effective date of the
merger, will be listed on a national securities exchange or held of record by
more than 2,000 stockholders; (c) cash in lieu of fractional shares of a
corporation described in clause (a) or (b) above; or (d) any combination of the
shares of stock and cash in lieu of fractional shares described in clauses (a)
through (c) above.

     Amendment of Governing Instruments. No amendment of the Bank's Certificate
of Incorporation may be made unless it is first proposed by the Board of
Directors of the Bank, thereafter approved by the holders of a majority of the
total votes eligible to be cast at a legal meeting and submitted to the
Commissioner for action as specified by law or regulation. The Company's
Certificate of Incorporation similarly provides that no amendment of the
Company's Certificate of Incorporation may be made unless it is first approved
by the Board of Directors of the Company and thereafter is approved by the
holders of a majority of the shares of the Company entitled to vote generally in
an election of directors, voting together in a single class; provided, however,
that the affirmative vote of at least 80% of the outstanding voting stock
entitled to vote is needed for certain amendments.

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The Bylaws of the Bank may be amended by a majority of the full Board of
Directors of the Bank or by a majority vote of the votes cast by the
stockholders of the Bank at any legal meeting. The Bylaws of the Company may be
amended by a majority vote of the Board of Directors of the Company or by the
affirmative vote of the holders of 80% of the votes cast by stockholders of the
Company at a meeting of stockholders.

                  RESTRICTIONS ON ACQUISITION OF THE COMPANY
                                 AND THE BANK

GENERAL

     The Plan of Conversion provides for the conversion of the Mutual Holding
Company from the mutual to the stock form of organization. See "The Conversion
and Reorganization -- General." Certain provisions in the Company's Certificate
of Incorporation and Bylaws and in its management remuneration entered into in
connection with the Conversion and Reorganization, together with provisions of
Delaware corporate law, may have anti-takeover effects. In addition, regulatory
restrictions may make it difficult for persons or companies to acquire control
of either the Company or the Bank.

RESTRICTIONS IN THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS

     A number of provisions of the Company's Certificate of Incorporation and
Bylaws deal with matters of corporate governance and certain rights of
stockholders. The following discussion is a general summary of certain
provisions of the Company's Certificate of Incorporation and Bylaws and certain
other statutory and regulatory provisions relating to stock ownership and
transfers, the Board of Directors and business combinations, which might be
deemed to have a potential "anti-takeover" effect. These provisions may have the
effect of discouraging a future takeover attempt which is not approved by the
Board of Directors but which individual Company stockholders may deem to be in
their best interests or in which stockholders may receive a substantial premium
for their shares over then current market prices. As a result, stockholders who
might desire to participate in such a transaction may not have an opportunity to
do so. Such provisions will also render the removal of the current Board of
Directors or management of the Company more difficult. The following description
of certain of the provisions of the Certificate of Incorporation and Bylaws of
the Company is necessarily general and reference should be made in each case to
such Certificate of Incorporation and Bylaws, which are incorporated herein by
reference. See "Additional Information" as to how to obtain a copy of these
documents.

     Limitation on Voting Rights. The Certificate of Incorporation of the
Company provides that in no event shall any record owner of any outstanding
Common Stock which is beneficially owned, directly or indirectly, by a person
who beneficially owns in excess of 10% of the then outstanding shares of Common
Stock (the "Limit") be entitled or permitted to any vote in respect of the
shares held in excess of the Limit. Beneficial ownership is determined pursuant
to Rule 13d-3 of the General Rules and Regulations promulgated pursuant to the
Exchange Act, and includes shares beneficially owned by such person or any of
his affiliates (as defined in the Certificate of Incorporation), shares which
such person or his affiliates have the right to acquire upon the exercise of
conversion rights or options and shares as to which such person and his
affiliates have or share investment or voting power, but shall not include
shares beneficially owned by the ESOP or directors, officers and employees of
the Bank or Company or shares that are subject to a revocable proxy and that are
not otherwise beneficially owned, or deemed by the Company to be beneficially
owned, by such person and his affiliates. The Certificate of Incorporation of
the Company further provides that this provision limiting voting rights may only
be amended upon the vote of 80% of the outstanding shares of voting stock (after
giving effect to the limitation on voting rights).

                                      135
Board of Directors. The Board of Directors of the Company is divided into
three classes, each of which shall contain approximately one-third of the whole
number of members of the Board. Each class shall serve a staggered term, with
approximately one-third of the total number of directors being elected each
year. The Company's Certificate of Incorporation and Bylaws provide that the
size of the Board shall be determined by a majority of the directors. The
Certificate of Incorporation and the Bylaws provide that any vacancy occurring
in the Board, including a vacancy created by an increase in the number of
directors or resulting from death, resignation, retirement, disqualification,
removal from office or other cause, shall be filled for the remainder of the
unexpired term exclusively by a majority vote of the directors then in office.
The classified Board is intended to provide for continuity of the Board of
Directors and to make it more difficult and time consuming for a stockholder
group to fully use its voting power to gain control of the Board of Directors
without the consent of the incumbent Board of Directors of the Company. The
Certificate of Incorporation of the Company provides that a director may be
removed from the Board of Directors prior to the expiration of his term only for
cause, upon the vote of 80% of the outstanding shares of voting stock.

     In the absence of these provisions, the vote of the holders of a majority
of the shares could remove the entire Board, with or without cause, and replace
it with persons of such holders' choice.

     Cumulative Voting, Special Meetings and Action by Written Consent. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, special meetings of stockholders of the Company may be called
only by the Board of Directors of the Company. The Certificate of Incorporation
also provides that any action required or permitted to be taken by the
stockholders of the Company may be taken only at an annual or special meeting
and prohibits stockholder action by written consent in lieu of a meeting.

     Authorized Shares. The Certificate of Incorporation authorizes the issuance
of 85,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock.
The shares of Common Stock and Preferred Stock were authorized in an amount
greater than that to be issued in the Conversion and Reorganization to provide
the Company's Board of Directors with as much flexibility as possible to effect,
among other transactions, financings, acquisitions, stock dividends, stock
splits and employee stock options. However, these additional authorized shares
may also be used by the Board of Directors consistent with its fiduciary duty to
deter future attempts to gain control of the Company. The Board of Directors
also has sole authority to determine the terms of any one or more series of
Preferred Stock, including voting rights, conversion rates, and liquidation
preferences. As a result of the ability to fix voting rights for a series of
Preferred Stock, the Board has the power, to the extent consistent with its
fiduciary duty, to issue a series of Preferred Stock to persons friendly to
management in order to attempt to block a post-tender offer merger or other
transaction by which a third party seeks control, and thereby assist management
to retain its position. The Company's Board of Directors currently has no plans
for the issuance of additional shares, other than the issuance of additional
shares pursuant to the terms of the restricted stock awards and upon exercise of
stock options to be issued pursuant to the terms of the Stock-Based Incentive
Plan all of which are to be established and presented to stockholders no earlier
than six months after the Conversion and Reorganization.

     Stockholder Vote Required to Approve Business Combinations with Principal
Stockholders. The Certificate of Incorporation requires the approval of the
holders of at least 80% of the Company's outstanding shares of voting stock to
approve certain "Business Combinations," as defined therein, and related
transactions. Under Delaware law, absent this provision, Business Combinations,
including mergers, consolidations and sales of all or substantially all of the
assets of a corporation must, subject to certain exceptions, be approved by the
vote of the holders of only a majority of the outstanding shares of Common Stock
of the Company and any other affected class of stock. Under the Certificate of
Incorporation, at least 80% approval of stockholders is required in connection
with any transaction involving an Interested Stockholder (as defined below)
except (i) in cases where the proposed transaction has been approved in

                                      136
advance by a majority of those members of the Company's Board of Directors who
are unaffiliated with the Interested Stockholder and were directors prior to the
time when the Interested Stockholder became an Interested Stockholder or (ii) if
the proposed transaction meets certain conditions set forth therein which are
designed to afford the stockholders a fair price in consideration for their
shares in which case, if a stockholder vote is required, approval of only a
majority of the outstanding shares of voting stock would be sufficient. The term
"Interested Stockholder" is defined to include any individual, corporation,
partnership or other entity (other than the Company or its subsidiary) which
owns beneficially or controls, directly or indirectly, 10% or more of the
outstanding shares of voting stock of the Company. This provision of the
Certificate of Incorporation applies to any "Business Combination," which is
defined to include (i) any merger or consolidation of the Company or any of its
subsidiaries with or into any Interested Stockholder or Affiliate (as defined in
the Certificate of Incorporation) of an Interested Stockholder; (ii) any sale,
lease, exchange, mortgage, pledge, transfer, or other disposition to or with any
Interested Stockholder or Affiliate of 25% or more of the assets of the Company
or combined assets of the Company and its subsidiary; (iii) the issuance or
transfer to any Interested Stockholder or its Affiliate by the Company (or any
subsidiary) of any securities of the Company in exchange for any assets, cash or
securities the value of which equals or exceeds 25% of the fair market value of
the Common Stock of the Company; (iv) the adoption of any plan for the
liquidation or dissolution of the Company proposed by or on behalf of any
Interested Stockholder or Affiliate thereof; and (v) any reclassification of
securities, recapitalization, merger or consolidation of the Company which has
the effect of increasing the proportionate share of Common Stock or any class of
equity or convertible securities of the Company owned directly or indirectly by
an Interested Stockholder or Affiliate thereof. The directors and executive
officers of the Bank are purchasing in the aggregate approximately ___% of the
shares of the Common Stock at the maximum of the Estimated Price Range. In
addition, the ESOP intends to purchase 8% of the aggregate of the Conversion
Stock sold in the Conversion. Additionally, if at a meeting of stockholders
following the Conversion and Reorganization stockholder approval of the proposed
Stock-Based Incentive Plan is received, the Company expects to acquire 4% of the
aggregate of the Conversion Stock issued in the Conversion and Reorganization
and expects to issue an amount equal to 10% of the aggregate of the Conversion
Stock issued in the Conversion and Reorganization to directors and executive
officers. As a result, assuming the Stock-Based Incentive Plan is approved by
stockholders, directors, executive officers and employees have the potential to
control the voting of approximately 25% of the Company's Common Stock, thereby
enabling them to prevent the approval of the transactions requiring the approval
of at least 80% of the Company's outstanding shares of voting stock described
hereinabove.

     Evaluation of Offers. The Certificate of Incorporation of the Company
further provides that the Board of Directors of the Company, when evaluating any
offer of another "Person" (as defined therein) to (i) make a tender or exchange
offer for any equity security of the Company, (ii) merge or consolidate the
Company with another corporation or entity, or (iii) purchase or otherwise
acquire all or substantially all of the properties and assets of the Company,
may, in connection with the exercise of its judgment in determining what is in
the best interest of the Company, the Bank and the stockholders of the Company,
give due consideration to all relevant factors, including, without limitation,
the social and economic effects of acceptance of such offer on the Company's
customers and the Bank's present and future account holders, borrowers and
employees; on the communities in which the Company and the Bank operate or are
located; and on the ability of the Company to fulfill its corporate objectives
as a savings and loan holding company and on the ability of the Bank to fulfill
the objectives of a federally-chartered stock savings association under
applicable statutes and regulations. By having these standards in the
Certificate of Incorporation of the Company, the Board of Directors may be in a
stronger position to oppose such a transaction if the Board concludes that the
transaction would not be in the best interest of the Company, even if the price
offered is significantly greater than the then market price of any equity
security of the Company.

     Amendment of Certificate of Incorporation and Bylaws. Amendments to the
Company's Certificate of Incorporation must be approved by a majority vote of
its Board of Directors and also by a majority of the

                                      137
outstanding shares of its voting stock; provided, however, that an affirmative
vote of at least 80% of the outstanding voting stock entitled to vote (after
giving effect to the provision limiting voting rights) is required to amend or
repeal certain provisions of the Certificate of Incorporation, including the
provision limiting voting rights, the provisions relating to approval of certain
business combinations, calling special meetings, the number and classification
of directors, director and officer indemnification by the Company and amendment
of the Company's Bylaws and Certificate of Incorporation. The Company's Bylaws
may be amended by its Board of Directors, or by a vote of 80% of the total votes
eligible to be voted at a duly constituted meeting of stockholders.

     Certain Bylaw Provisions. The Bylaws of the Company also require a
stockholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at a stockholder meeting to give at least 90
days advance notice to the Secretary of the Company. The notice provision
requires a stockholder who desires to raise new business to provide certain
information to the Company concerning the nature of the new business, the
stockholder and the stockholder's interest in the business matter. Similarly, a
stockholder wishing to nominate any person for election as a director must
provide the Company with certain information concerning the nominee and the
proposing stockholder.

ANTI-TAKEOVER EFFECTS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
AND MANAGEMENT REMUNERATION ADOPTED IN CONVERSION

     The provisions described above are intended to reduce the Company's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by members of its Board of Directors. The
provisions of the employment agreements, CIC Agreements, Severance Plan, and the
Stock-Based Incentive Plan to be established may also discourage takeover
attempts by increasing the costs to be incurred by the Bank and the Company in
the event of a takeover. See "Management of the Bank - Employment Agreements"
and "- New Benefits Resulting from the Conversion and Reorganization - Stock
Option Plans."

     The Company's Board of Directors believes that the provisions of the
Certificate of Incorporation, Bylaws and management remuneration plans to be
established are in the best interest of the Company and its stockholders. An
unsolicited non-negotiated proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Accordingly, the Board
of Directors believes it is in the best interests of the Company and its
stockholders to encourage potential acquirors to negotiate directly with
management and that these provisions will encourage such negotiations and
discourage non-negotiated takeover attempts. It is also the Board of Directors'
view that these provisions should not discourage persons from proposing a merger
or other transaction at a price that reflects the true value of the Company and
that otherwise is in the best interest of all stockholders.

DELAWARE CORPORATE LAW

     The state of Delaware has a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The takeover
statute, which is codified in Section 203 of the Delaware General Corporate Law
("Section 203"), is intended to discourage certain takeover practices by
impeding the ability of a hostile acquiror to engage in certain transactions
with the target company.

     In general, Section 203 provides that a "Person" (as defined therein) who
owns 15% or more of the outstanding voting stock of a Delaware corporation (an
"Interested Stockholder") may not consummate a merger or other business
combination transaction with such corporation at any time during the three-year
period following the date such "Person" became an Interested Stockholder. The
term "business combination"

                                      138
is defined broadly to cover a wide range of corporate transactions including
mergers, sales of assets, issuances of stock, transactions with subsidiaries and
the receipt of disproportionate financial benefits.

     The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person became
an Interested Stockholder, the Board of Directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
Interested Stockholder; (ii) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he became an Interested Stockholder, with the number of shares outstanding
calculated without regard to those shares owned by the corporation's directors
who are also officers and by certain employee stock plans; (iii) any business
combination with an Interested Stockholder that is approved by the Board of
Directors and by a two-thirds vote of the outstanding voting stock not owned by
the Interested Stockholder; and (iv) certain business combinations that are
proposed after the corporation had received other acquisition proposals and
which are approved or not opposed by a majority of certain continuing members of
the Board of Directors. A corporation may exempt itself from the requirements of
the statute by adopting an amendment to its Certificate of Incorporation or
Bylaws electing not to be governed by Section 203. At the present time, the
Board of Directors does not intend to propose any such amendment.

RESTRICTIONS IN THE BANK'S CERTIFICATE OF INCORPORATION AND BYLAWS

     Although the Board of Directors of the Bank is not aware of any effort that
might be made to obtain control of the Bank after the Conversion and
Reorganization, the Board of Directors believes that it is appropriate to retain
certain provisions permitted by New Jersey law and to adopt certain new
provisions to protect the interests of the Bank and its stockholders from any
hostile takeover. Such provisions may, indirectly, inhibit a change in control
of the Company, as the Bank's sole stockholder. See "Risk Factors -- Certain
Anti-Takeover Provisions Which May Discourage Takeover Attempts."

     The Bank's Certificate of Incorporation will continue to contain a
provision whereby the acquisition of or offer to acquire beneficial ownership of
more than 10% of the issued and outstanding shares of any class of equity
securities of the Bank by any person (i.e., any individual, corporation, group
acting in concert, trust, partnership, joint stock company or similar
organization), either directly or through an affiliate thereof, will be
prohibited for a period of five years following the date of completion of the
Conversion and Reorganization. Any stock in excess of 10% acquired in violation
of the Certificate of Incorporation provision will not be counted as outstanding
for voting purposes. This limitation shall not apply to any transaction in which
the Bank forms a holding company without a change in the respective beneficial
ownership interests of its stockholders other than pursuant to the exercise of
any dissenter or appraisal rights. In the event that holders of revocable
proxies for more than 10% of the shares of the Common Stock of the Company seek,
among other things, to elect one-third or more of the Company's Board of
Directors, to cause the Company's stockholders to approve the acquisition or
corporate reorganization of the Company or to exert a continuing influence on a
material aspect of the business operations of the Company, which actions could
indirectly result in a change in control of the Bank, the Board of Directors of
the Bank will be able to assert this provision of the Bank's Certificate of
Incorporation against such holders. Although the Board of Directors of the Bank
is not currently able to determine when and if it would assert this provision of
the Bank's Certificate of Incorporation, the Board of Directors, in exercising
its fiduciary duty, may assert this provision if it were deemed to be in the
best interests of the Bank, the Company and its stockholders. It is unclear,
however, whether this provision, if asserted, would be successful against such
persons in a proxy contest which could result in a change in control of the Bank
indirectly through a change in control of the Company. Finally, stockholders
will not be permitted to call a special meeting of stockholders relating to a
change of control of the Bank or a charter amendment or to cumulate their votes
in the election of directors. Furthermore, the staggered terms of the Board of
Directors could have an anti-takeover effect by making it

                                      139
more difficult for a majority of shares to force an immediate change in the
Board of Directors since only one-third of the Board is elected each year. The
purpose of these provisions is to assure stability and continuity of management
of the Bank in the years immediately following the Conversion and
Reorganization.

     Although the Bank has no arrangements, understandings or plans at the
present time, except as described in "Description of Capital Stock of the
Company - Preferred Stock," for the issuance or use of the shares of Bank
Preferred Stock proposed to be authorized, the Board of Directors believes that
the availability of such shares will provide the Bank with increased flexibility
in structuring possible future financings and acquisitions and in meeting other
corporate needs which may arise. In the event of a proposed merger, tender offer
or other attempt to gain control of the Bank of which management does not
approve, it might be possible for the Board of Directors to authorize the
issuance of one or more series of Bank Preferred Stock with rights and
preferences which could impede the completion of such a transaction. An effect
of the possible issuance of such Bank Preferred Stock, therefore, may be to
deter a future takeover attempt. The Board of Directors does not intend to issue
any Bank Preferred Stock except on terms which the Board deems to be in the best
interest of the Bank and its then existing stockholders.

REGULATORY RESTRICTIONS

     The Plan of Conversion prohibits any person, prior to the completion of the
Conversion and Reorganization, from transferring, or from entering into any
agreement or understanding to transfer, to the account of another, legal or
beneficial ownership of the subscription rights issued under the Plan or the
Conversion Stock to be issued upon their exercise. The Plan also prohibits any
person, prior to the completion of the Conversion and Reorganization, from
offering, or making an announcement of an offer or intent to make an offer, to
purchase such subscription rights or Conversion Stock.

     For three years following the Conversion and Reorganization, OTS
regulations prohibit any person from acquiring or making an offer to acquire
more than 10% of the stock of any converted savings institution, except for: (i)
offers that, if consummated, would not result in the acquisition by such person
during the preceding 12-month period of more than 1% of such stock; (ii) offers
for up to 25% in the aggregate by the ESOP or other tax qualified plans of the
Bank or the Company; or (iii) offers which are not opposed by the Board of
Directors of the Bank and which receive the prior approval of the OTS. Such
prohibition is also applicable to the acquisition of the stock of the Company.
Such acquisition may be disapproved by the OTS if it is found, among other
things, that the proposed acquisition (a) would frustrate the purposes of the
provisions of the regulations regarding conversions; (b) would be manipulative
or deceptive; (c) would subvert the fairness of the conversion; (d) would be
likely to result in injury to the savings institution; (e) would not be
consistent with economical home financing; (f) would otherwise violate law or
regulation; or (g) would not contribute to the prudent deployment of the savings
institution's conversion proceeds. In the event that any person, directly or
indirectly, violates this regulation, the securities beneficially owned by such
person in excess of 10% shall not be counted as shares entitled to vote and
shall not be voted by any person or counted as voting shares in connection with
any matters submitted to a vote of stockholders. The definition of beneficial
ownership for this regulation extends to persons holding revocable or
irrevocable proxies for the Company's stock under circumstances that give rise
to a conclusive or rebuttable determination of control under the OTS
regulations.

     In addition, any proposal to acquire 10% of any class of equity security of
the Company generally would be subject to approval by the OTS under the Change
in Bank Control Act. The OTS requires all persons seeking control of a savings
institution and, therefore, indirectly its holding company, to obtain regulatory
approval prior to offering to obtain control. Federal law generally provides
that no "person," acting directly or indirectly or through or in concert with
one or more other persons, may acquire directly

                                      140
or indirectly "control," as that term is defined in OTS regulations, of a
federally-insured savings institution without giving at least 60 days' written
notice to the OTS and providing the OTS an opportunity to disapprove the
proposed acquisition. Such acquisitions of control may be disapproved if it is
determined, among other things, that (i) the acquisition would substantially
lessen competition; (ii) the financial condition of the acquiring person might
jeopardize the financial stability of the savings institution or prejudice the
interests of its depositors; or (iii) the competency, experience or integrity of
the acquiring person or the proposed management personnel indicates that it
would not be in the interest of the depositors or the public to permit the
acquisition of control by such person. Such change in control restrictions on
the acquisition of holding company stock are not limited to three years after
conversion but will apply for as long as the regulations are in effect. Persons
holding revocable or irrevocable proxies may be deemed to be beneficial owners
of such securities under OTS regulations and therefore prohibited from voting
all or the portion of such proxies in excess of the 10% aggregate beneficial
ownership limit. Such regulatory restrictions may prevent or inhibit proxy
contests for control of the Company or the Bank which have not received prior
regulatory approval.

                  DESCRIPTION OF CAPITAL STOCK OF THE COMPANY

GENERAL

     The Company is authorized to issue 85,000,000 shares of Common Stock having
a par value of $.01 per share and 10,000,000 shares of preferred stock having a
par value of $.01 per share (the "Preferred Stock"). The Company currently
expects to issue up to 27,600,000 shares of Common Stock (or 31,740,000 in the
event of an increase of 15% in the Estimated Price Range) and no shares of
Preferred Stock in the Conversion. Except as discussed above in "Restriction on
Acquisition of the Company and the Bank." Each share of the Company's Common
Stock will have the same relative rights as, and will be identical in all
respects with, each other share of Common Stock. Upon payment of the Purchase
Price for the common stock, in accordance with the Plan, all such stock will be
duly authorized, fully paid and non-assessable.

     THE COMMON STOCK OF THE COMPANY WILL REPRESENT NON-WITHDRAWABLE CAPITAL,
WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT BE INSURED BY THE
FDIC.

COMMON STOCK

     Dividends. The Company can pay dividends out of statutory surplus or from
certain net profits if, as and when declared by its Board of Directors. The
payment of dividends by the Company is subject to limitations which are imposed
by law and applicable regulation. See "Dividend Policy" and "Regulation." The
holders of Common Stock of the Company will be entitled to receive and share
equally in such dividends as may be declared by the Board of Directors of the
Company out of funds legally available therefor. If the Company issues Preferred
Stock, the holders thereof may have a priority over the holders of the Common
Stock with respect to dividends.

     Voting Rights. Upon Conversion and Reorganization, the holders of Common
Stock of the Company will possess exclusive voting rights in the Company. They
will elect the Company's Board of Directors and act on such other matters as are
required to be presented to them under Delaware law or the Company's Certificate
of Incorporation or as are otherwise presented to them by the Board of
Directors. Except as discussed in "Restrictions on Acquisition of the Company
and the Bank," each holder of Common Stock will be entitled to one vote per
share and will not have any right to cumulate votes in the election of
directors. If the Company issues Preferred Stock, holders of the Preferred Stock
may also possess voting rights. Certain matters require an 80% stockholder vote.
See "Restrictions on Acquisition of the Company and the Bank."

                                      141
Subsequent to the Conversion and Reorganization, voting rights will be
vested exclusively in the owners of the shares of capital stock of the Bank,
which will be the Company, and voted at the direction of the Company's Board of
Directors. Consequently, the holders of the Common Stock will not have direct
control of the Bank.

     Liquidation. In the event of any liquidation, dissolution or winding up of
the Bank, the Company, as holder of the Bank's capital stock, would be entitled
to receive, after payment or provision for payment of all debts and liabilities
of the Bank (including all deposit accounts and accrued interest thereon) and
after distribution of the balance in the special liquidation account to Eligible
Account Holders and Supplemental Eligible Account Holders (see "The Conversion
and Reorganization --Liquidation Rights"), all assets of the Bank available for
distribution. In the event of liquidation, dissolution or winding up of the
Company, the holders of its Common Stock would be entitled to receive, after
payment or provision for payment of all its debts and liabilities, all of the
assets of the Company available for distribution. If Preferred Stock is issued,
the holders thereof may have a priority over the holders of the Common Stock in
the event of liquidation or dissolution.

     Preemptive Rights. Holders of the Common Stock of the Company will not be
entitled to preemptive rights with respect to any shares which may be issued.
The Common Stock is not subject to redemption.

PREFERRED STOCK

     None of the shares of the Company's authorized Preferred Stock will be
issued in the Conversion and Reorganization. Such stock may be issued with such
preferences and designations as the Board of Directors may from time to time
determine. The Board of Directors can, without stockholder approval, issue
preferred stock with voting, dividend, liquidation and conversion rights which
could dilute the voting strength of the holders of the Common Stock and may
assist management in impeding an unfriendly takeover or attempted change in
control.

                   DESCRIPTION OF CAPITAL STOCK OF THE BANK

GENERAL

     The Certificate of Incorporation of the Bank authorizes the issuance of
capital stock consisting of 10,000,000 shares of common stock, par value $0.01
per share, and 1,000,000 shares of preferred stock, par value $.01 per share,
which preferred stock may be issued in series and classes having such rights,
preferences, privileges and restrictions as the Board of Directors may
determine. Each share of Common Stock of the Bank has the same relative rights
as, and will be identical in all respects with, each other share of common
stock. After the Conversion and Reorganization, the Board of Directors will be
authorized to approve the issuance of Common Stock up to the amount authorized
by the Certificate of Incorporation without the approval of the Bank's
stockholders. Following the Conversion and Reorganization, all of the issued and
outstanding common stock of the Bank will be held by the Company as the Bank's
sole stockholder. THE CAPITAL STOCK OF THE BANK WILL REPRESENT NON-WITHDRAWABLE
CAPITAL, WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT BE INSURED BY
THE FDIC.

COMMON STOCK

     Dividends. The holders of the Bank's common stock will be entitled to
receive and to share equally in such dividends as may be declared by the Board
of Directors of the Bank out of funds legally available therefor. See "Dividend
Policy" for certain restrictions on the payment of dividends and "Federal and
State Taxation - Federal Taxation" for a discussion of the consequences of the
payment of cash dividends from income appropriated to bad debt reserves.

                                      142
Voting Rights. Immediately after the Conversion and Reorganization, the
holders of the Bank's common stock will possess exclusive voting rights in the
Bank. Each holder of shares of common stock will be entitled to one vote for
each share held, provided that cumulation of votes will not be permitted. See
"Restrictions on Acquisition of the Company and the Bank - Anti-Takeover Effects
of the Company's Certificate of Incorporation and Bylaws and Management
Remuneration Adopted in Conversion."

     Liquidation. In the event of any liquidation, dissolution, or winding up of
the Bank, the holders of common stock will be entitled to receive, after payment
of all debts and liabilities of the Bank (including all deposit accounts and
accrued interest thereon), and distribution of the balance in the special
liquidation account to Eligible Account Holders and Supplemental Eligible
Account Holders, all assets of the Bank available for distribution in cash or in
kind. If additional preferred stock is issued subsequent to the Conversion and
Reorganization, the holders thereof may also have priority over the holders of
common stock in the event of liquidation or dissolution.

     Preemptive Rights; Redemption. Holders of the common stock of the Bank will
not be entitled to preemptive rights with respect to any shares of the Bank
which may be issued. The common stock will not be subject to redemption. Upon
receipt by the Bank of the full specified purchase price therefor, the common
stock will be fully paid and non-assessable.

                         TRANSFER AGENT AND REGISTRAR

     The transfer agent and registrar for the Common Stock is Registrar and
Transfer Company, Cranford, New Jersey.

                                    EXPERTS

     The consolidated financial statements of the Bank and its subsidiaries as
of December 31, 1996 and for each of the years in the three year period ended
December 31, 1996 have been included herein, in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.

     FinPro has consented to the publication herein of the summary of its report
to the Bank and Company setting forth its opinion as to the estimated pro forma
market value of the Common Stock upon Conversion and its valuation with respect
to subscription rights.

                            LEGAL AND TAX OPINIONS

     The legality of the Common Stock will be passed upon for the Bank and the
Company by Muldoon, Murphy & Faucette, Washington, D.C., special counsel to the
Bank and the Company. Muldoon, Murphy & Faucette will rely as to certain matters
of Delaware law on the opinion of Morris, Nichols, Arsht & Tunnell. The federal
income and New Jersey tax consequences of the Conversion and Reorganization will
be passed upon for the Bank and the Company by Muldoon, Murphy & Faucette.
Certain legal matters will be passed upon for Sandler O'Neill by Breyer &
Aguggia, Washington, D.C.

                            ADDITIONAL INFORMATION

     The Company has filed with the SEC a registration statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information, including
the Conversion Valuation Appraisal Report which is an exhibit to the
Registration Statement, can be examined without charge at the public reference
facilities of the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of such material can be obtained from the SEC at prescribed rates. In
addition, the

                                      143
SEC maintains a web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC, including the Company. This Prospectus contains a
description of the material terms and features of all material contracts,
reports or exhibits to the Registration Statement required to be described,
however, the statements contained in this Prospectus as to the contents of any
contract or other document filed as an exhibit to the registration statement
are, of necessity, brief descriptions thereof and are not necessarily complete;
each such statement is qualified by reference to such contract or document.

     The Mutual Holding Company has filed an application for conversion with the
OTS with respect to the Conversion and Reorganization. Pursuant to the rules and
regulations of the OTS, this Prospectus omits certain information contained in
that application. The application may be examined at the principal office of the
OTS, 1700 G Street, N.W., Washington, D.C. 20552 and at the Office of the
Regional Director of the OTS located at 10 Exchange Place, 18th Floor, Jersey
City, New Jersey 07302.

     In connection with the Conversion and Reorganization, the Company will
register its Common Stock with the SEC under Section 12(b) of the Exchange Act
and, upon such registration, the Company and the holders of its stock will
become subject to the proxy solicitation rules, reporting requirements and
restrictions on stock purchases and sales by directors, officers and greater
than 10% stockholders, the annual and periodic reporting and certain other
requirements of the Exchange Act. Under the Plan, the Company has undertaken
that it will not terminate such registration for a period of at least three
years following the Conversion and Reorganization.

     A copy of the Certificate of Incorporation and the Bylaws of the Company
and the Stock Certificate of Incorporation and Bylaws of the Bank are available
without charge from the Bank.

                                      144
FIRST SAVINGS BANK, SLA AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
                                                                    -----------
Independent Auditors' Report........................................     F-2

Consolidated Statements of Financial Condition as of September
30, 1997 (unaudited) and December 31, 1996 and 1995.................     F-3

Consolidated Statements of Income for the Nine Months Ended
September 30, 1997 and 1996 (unaudited) and for the Years
Ended December 31, 1996, 1995 and 1994..............................     37

Consolidated Statements of Stockholders' Equity for the Nine
Months Ended September 30, 1997 (unaudited) and for the Years
Ended December 31, 1996, 1995 and 1994..............................     F-4

Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1996 (unaudited) and for the Years
Ended December 31, 1996, 1995 and 1994..............................     F-5

Notes to Consolidated Financial Statements.......................... F-7 to F-33
All schedules are omitted because they are not required or applicable, or
the required information is shown in the financial statements or notes thereto.

     The financial statements of First Source Bancorp, Inc. have been omitted
because First Source Bancorp, Inc. has not yet issued any stock, has no assets
and no liabilities, and has not conducted any business other than of an
organizational nature.

                                      F-1
INDEPENDENT AUDITORS' REPORT

The Board of Directors
First Savings Bank, SLA:
 

We have audited the consolidated financial statements of First Savings Bank,
SLA, and Subsidiaries as listed in the accompanying index.  These consolidated
financial statements are the responsibility of the Bank's management.  Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First Savings Bank,
SLA, and Subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996 in conformity with generally accepted accounting
principles.

                                    KPMG Peat Marwick LLP

Short Hills, New Jersey
January 27, 1997

                                      F-2
FIRST SAVINGS BANK SLA, AND SUBSIDIARIES
--------------------------------------------------------------------------------
Consolidated Statements of Financial Condition
(Dollars in thousands, except per share data)
SEPTEMBER 30,          DECEMBER 31,          
                                                                                                    ----------------------     
                                                                                       1997            1996         1995       
                                                                                ---------------     ---------     --------     
                                                                                   (UNAUDITED)
ASSETS
Cash and due from banks.......................................................       $    5,873     $   7,192     $   8,674
Federal funds sold............................................................           17,925         1,850        17,875
                                                                                     ----------     ---------     ---------
     Total cash and cash equivalents..........................................           23,798         9,042        26,549
Federal Home Loan Bank of New York (FHLB-NY) stock,
     at cost, (note 10).......................................................            8,045         7,428         6,276
Investment securities, at amortized cost (estimated fair value
     of $41,108, $38,980 and $39,617 at 9/30/97, 12/31/96
     and 12/31/95, respectively) (notes 4 and 10).............................           40,959        38,955        39,003
Investment securities available for sale (notes 4 and 10).....................           18,024        14,831         2,058
Mortgage-backed securities (estimated fair value of
     $231,667, $255,052 and $291,689 at 9/30/97,
    12/31/96 and 12/31/95, respectively) (notes 5 and 10).....................          228,158       252,383       288,143
Mortgage-backed securities available for sale (notes 5 and 10)................          122,371       120,797        89,339
Loans receivable, net (notes 6 and 10)........................................          567,197       509,627       457,756
Loans available for sale (notes 6 and 10).....................................               --           287           424
Interest and dividends receivable, net (note 7)...............................            7,719         7,415         6,793
Premises and equipment, net (note 8)..........................................           13,283        10,356         9,347
Excess of cost over fair value of net assets acquired.........................            9,018        10,950        12,299
Other assets (note 12)........................................................            5,941         5,044         7,025
                                                                                     ----------     ---------     ---------
     Total assets.............................................................       $1,044,513     $ 987,115     $ 945,012
                                                                                     ==========     =========     =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (note 9).............................................................       $  809,449      $794,595     $ 806,338
Borrowed funds (note 10)......................................................          123,894        87,994        38,750
Employee Stock Ownership Plan (ESOP) debt (note 11)...........................              571           646           746
Advances by borrowers for taxes and insurance.................................            5,382         4,600         3,813
Other liabilities (note 12 and 13)............................................            6,004         6,417         5,652
                                                                                     ----------      --------     ---------
  Total liabilities...........................................................          945,300       894,252       855,299
                                                                                     ----------      --------     ---------

Commitments and contingencies (note 14).......................................

STOCKHOLDERS' EQUITY
Preferred Stock, 1,000,000 shares authorized; issued and
     outstanding - none.......................................................
Common Stock, $0.01 par value, 10,000,000 shares authorized;
      8,006,707, 7,903,719 and 7,872,604 shares issued and outstanding
     at 9/30/97, 12/31/96 and 12/31/95, respectively (note 13)................               73            72            65
Paid-in capital (note 13).....................................................           27,856        27,427        22,007
Retained earnings (note 12)...................................................           71,870        66,299        68,222
Net unrealized gain (loss) on securities available for sale
     (notes 4 and 5)..........................................................              193            (3)          165
Less: Common Stock acquired by the ESOP (note 13).............................             (571)         (646)         (746)
      Common Stock acquired by the Recognition and
       Retention Plan (RRP) (note 13).........................................             (208)         (286)           --
                                                                                     ----------      --------     ---------
     Total stockholders' equity (notes 2 and 3)...............................           99,213        92,863        89,713
                                                                                     ----------      --------     ---------
     Total liabilities and stockholders' equity...............................       $1,044,513      $987,115     $ 945,012
                                                                                     ==========      ========     =========
See accompanying notes to consolidated financial statements.

                                      F-3
FIRST SAVINGS BANK SLA, AND SUBSIDIARIES
--------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity
(Dollars in thousands, except per share data)
NET UNREALIZED
                                                                             GAIN/(LOSS)
                                                                            ON SECURITIES     COMMON      COMMON
                                                                             AVAILABLE         STOCK       STOCK       TOTAL
                                             COMMON  PAID-IN     RETAINED     FOR SALE,       ACQUIRED    ACQUIRED   STOCKHOLDERS'
                                             STOCK   CAPITAL     EARNINGS     NET OF TAX       BY ESOP     BY RRP      EQUITY
                                             ------  -------     --------   --------------    --------    --------   -------------
Balance at December 31, 1993................    $29  $11,606     $56,539          $ 1,105      $(400)       $ (70)        $68,809

Net income for the year
   ended December 31, 1994..................                       8,275                                                    8,275
Issuance of 10% stock dividend..............      3    3,100      (3,103)                                                      -
Cash dividends ($.027 per share)............                        (787)                                                    (787)
Net change in unrealized gain/(loss)........                                       (2,502)                                 (2,502)
2-for-1 stock split.........................     33      (33)                                                                   -
Amortization of RRP.........................                                                                   70              70
Principal payments on ESOP loan.............                                                     100                          100
Exercise of stock options...................              99                                                                   99
                                                ---   ------     -------          -------      -----        -----         -------

Balance at December 31, 1994................     65   14,772      60,924           (1,397)      (300)          --          74,064

Net income for the year
   ended December 31, 1995..................                       8,302                                                    8,302
Net proceeds from stock offering
   (600,000 shares).........................           7,205                                                                7,205
Stock acquired by ESOP (42,000 shares)......                                                    (546)                        (546)
Cash dividends ($0.30 per share)............                      (1,004)                                                  (1,004)
Net change in unrealized gain/(loss)........                                        1,562                                   1,562
Principal payments on ESOP loan.............                                                     100                          100
Exercise of stock options...................              30                                                                   30
                                                ---   ------      ------          -------      -----        -----         -------

Balance at December 31, 1995................     65   22,007      68,222              165       (746)          --          89,713

Net income for the year
   ended December 31, 1996..................                       4,710                                                    4,710
Issuance of 10% stock dividend..............      7    5,388      (5,395)                                                       -
Cash in lieu of fractional shares...........                          (3)                                                      (3)
Stock acquired by RRP (21,780 shares).......                                                                 (310)           (310)
Cash dividends ($0.33 per share)............                      (1,238)                                                  (1,238)
Net change in unrealized gain/(loss)........                                         (168)                                   (168)
Amortization of RRP.........................                                                                   24              24
Principal payments on ESOP loan.............                                                     100                          100
Exercise of stock options...................              35                                                                   32
                                                ---   ------     -------          -------      -----        -----         -------

Balance at December 31, 1996................     72   27,427      66,299               (3)      (646)        (286)         92,863

Net income for the nine months
   ended September 30, 1997.................                       6,760                                                    6,760
Cash dividends ($0.31 per share)............                      (1,189)                                                  (1,189)
Net change in unrealized gain/(loss)........                                          196                                     196
Amortization of RRP.........................                                                                   78              78
Principal payments on ESOP loan.............                                                      75                           75
Exercise of stock options...................      1      429                                                                  430
                                                ---  -------     -------          -------      -----        -----         -------

Balance at September 30, 1997...............    $73  $27,856     $71,870          $   193      $(571)       $(208)        $99,213
                                                ===  =======     =======          =======      =====        =====         =======
See accompanying notes to consolidated financial statements.

                                      F-4
FIRST SAVINGS BANK SLA, AND SUBSIDIARIES
--------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
(Dollars in thousands)
Nine months ended
                                                                                 September 30,          Year Ended December 31,
                                                                                 -------------          -----------------------
                                                                               1997         1996      1996       1995       1994
                                                                             --------     --------  --------   --------   --------
                                                                                  (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income..............................................................  $  6,760     $  2,364  $  4,710   $  8,302   $  8,275
   Adjustments to reconcile net income to net cash provided by
     operating activities:
   Depreciation of premises and equipment..................................       754          630       842      1,018      1,241
   Amortization of excess of cost over fair value of assets acquired.......     1,932        1,138     1,349      1,066        223
   Amortization of ESOP....................................................        75           75       100        100        100
   Amortization of RRP.....................................................        78           --        24         --         70
   Net accretion and amortization of deferred loan fees....................        44          (95)     (284)      (335)      (256)
   Provision for loan losses...............................................       900          375       550        310        300
   Provision for losses on real estate owned...............................        61          105       105        222        149
   Net (gain) loss on sales of investment securities available for sale....      (149)          19      (114)       104        (21)
   Net loss on market adjustment to investment securities held for trading.        29           --        --         --         --
   Net (gain) loss on sales of mortgage loans available for sale...........       (12)          41        40        (15)        77
   Net gain on sales of mortgage-backed securities available for sale......      (461)        (199)     (162)      (840)       (96)
   Net gain on sales of real estate owned..................................       (92)        (161)     (183)       (52)       (59)
   Investment securities purchased for trading.............................    (1,989)          --        --         --         --
   Proceeds from sales of investment securities held for trading...........     1,971           --        --         --         --
   Net amortization of premiums and discounts..............................       112          410       716     (1,275)       795
   Increase in interest and dividends receivable...........................      (304)        (370)     (622)    (1,552)      (629)
   (Decrease) increase in other liabilities................................      (413)       3,846       765      1,011        247
   (Decrease) increase in other assets.....................................    (1,127)        (589)        5       (461)       110
                                                                             --------     --------  --------   --------   --------
     Net cash provided by operating activities.............................     8,169        7,589     7,841      7,603     10,526
                                                                             --------     --------  --------   --------   --------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from sales of investment securities available for sale.........     8,149       10,877    20,978     25,823     47,821
   Proceeds from sales of mortgage loans available for sale................     3,048        6,157     6,892      6,358      5,310
   Proceeds from sales of mortgage-backed securities available for sale....   116,891       73,210    96,309     82,632     36,001
   Proceeds from sale of real estate owned.................................     1,035        3,495     4,351      3,299      2,681
   Purchases of investment securities available for sale...................   (11,000)     (28,807)  (31,808)    (1,016)   (23,716)
   Loans originated for sale...............................................    (2,750)      (5,923)    6,798     (6,619)    (4,701)
   Purchases of mortgage-backed securities available for sale..............  (129,974)     (87,005) (136,935)   (86,767)   (38,580)
   Purchases of investment securities......................................   (15,998)     (15,950)  (20,937)   (47,002)   (14,000)
   Maturities of investment securities.....................................    14,000       13,000    19,000     19,000     11,000
   Origination of loans....................................................  (105,179)     (97,339) (124,134)   (95,674)   (79,338)
   Purchases of loans......................................................    (4,665)      (4,631)  (10,118)    (5,181)        --
   Purchases of mortgage-backed securities.................................   (30,689)     (54,392)  (54,392)  (128,524)  (108,049)
   Principal payments on loans.............................................    51,023       59,701    80,178     54,993     77,202
   Principal payments on mortgage-backed securities........................    66,292       79,493    98,392     64,785     72,220
   (Purchase) redemption of FHLB-NY stock..................................      (617)      (1,152)   (1,152)      (585)       726
   Purchases of premises and equipment.....................................    (3,681)        (673)   (1,849)    (2,065)     2,434
   Cost in excess of fair value of assets acquired.........................        --           --        --    (12,640)        --
                                                                             --------     --------  --------   --------   --------
     Net cash used in investing activities.................................   (44,115)     (49,939)  (62,023)  (129,183)   (17,857)
                                                                             --------     --------  --------   --------   --------
F-5
FIRST SAVINGS BANK SLA, AND SUBSIDIARIES
--------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
(Dollars in thousands)
Nine months ended
                                                                                   September 30,          Year Ended December 31,
                                                                               -------------------    ------------------------------
                                                                                 1997       1996        1996        1995       1994
                                                                               --------   --------    --------    --------   -------
                                                                                   (unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
   Net proceeds from stock offering.........................................       --         --          --       7,205         --
   Proceeds from ESOP debt..................................................       --         --          --         546         --
   Cost of stock contributed to RRP.........................................       --         --        (310)         --         --
   Payment on ESOP debt.....................................................      (75)       (75)       (100)       (100)      (100)
   Purchase of ESOP shares..................................................       --         --          --        (546)        --
   Stock options exercised..................................................      430         35          35          30         99
   Cash dividends paid......................................................   (1,189)      (928)     (1,238)     (1,004)      (787)
   Proceeds from acquisition of deposits....................................       --         --          --     112,784         --
   Net increase (decrease) in deposits......................................   14,854     (5,897)    (11,743)     11,941      2,652
   Net increase in borrowed funds...........................................   35,900     30,687      49,244       4,750      8,000
   Net increase (decrease) in advances by borrowers for taxes and
    insurance...............................................................      782        684         787          80        (80)
                                                                            ---------   --------   ---------   ---------  ---------
            Net cash provided by financing activities.......................   50,702     24,506      36,675     135,686      9,784
                                                                            =========   ========   =========   =========  =========
            Net increase (decrease) in cash and cash equivalents............   14,756    (17,844)    (17,507)     14,106      2,453
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                9,042     26,549      26,549      12,443      9,990
                                                                            ---------   --------   ---------   ---------  ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                  $  23,798   $  8,705   $   9,042   $  26,549  $  12,443
                                                                            =========   ========   =========   =========  =========
Supplemental disclosures of cash flow information:
   Cash paid during the period for:
       Interest.............................................................$  30,196   $ 27,443   $  36,967   $  35,409  $  24,953
       Income taxes.........................................................    3,851      3,824       3,831       4,495      4,474
   Non cash investing and financing activities for the period:
        Transfer of loans to real estate owned..............................      885      2,105       2,535       4,960      2,365
        Transfer of investment and mortgage-backed securities from
              held to maturity to available for sale........................       --         --          --      77,549         --
        Transfer of loans available for sale to loans receivable............       --         --          --          --        596
                                                                            =========   ========   =========   =========  =========
See accompanying notes to consolidated financial statements.

                                      F-6
FIRST SAVINGS BANK SLA, AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a description of the more significant accounting policies used
in preparation of the accompanying consolidated financial statements of First
Savings Bank, SLA, and Subsidiaries ("the Bank").

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements are comprised of the accounts of the Bank
and its wholly-owned subsidiaries, FSB Financial Corp. and 1000 Woodbridge
Center Drive, Inc.  All significant intercompany accounts and transactions have
been eliminated in consolidation.

BASIS OF FINANCIAL STATEMENT PRESENTATION

The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles.  In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period.  Actual results could
differ significantly from those estimates.

Material estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for loan losses and
the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowance for
loan losses, management generally obtains independent appraisals for significant
properties.

The accompanying unaudited consolidated financial statements as of September 30,
1997, and for the nine month periods ended September 30, 1997 and 1996, have
been prepared in accordance with generally accepted accounting principles. In
the opinion of management, all adjustments (consisting of only normal recurring
accruals) necessary for a fair presentation of such interim periods have been
made at and for the nine months ended September 30, 1997 and 1996. The results
of operations for the nine months ended September 30, 1997 are not necessarily
indicative of results that may be expected for the entire fiscal year ending
December 31, 1997.

CASH EQUIVALENTS

For purposes of the consolidated statements of cash flows, cash equivalents
consist of interest-bearing deposits in other financial institutions and loans
of federal funds.

INVESTMENT AND MORTGAGE-BACKED SECURITIES

Management determines the appropriate classification of investment and mortgage-
backed securities as either available for sale, held to maturity, or held for
trading at the purchase date. Securities available for sale include debt,
mortgage-backed, and marketable equity securities that are held for an
indefinite period of time and may be sold in response to changing market and
interest rate conditions. These securities are reported at fair value with
unrealized gains and losses, net of tax, included as a separate component of
stockholders' equity. Upon realization, such gains and losses will be included
in earnings using the specific identification method. In November, 1995, the
Financial Accounting Standards Board ("FASB") issued "Special Report - A Guide
to Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity 

                                      F-7
Securities" within which there was offered transition guidance permitting an
enterprise to reassess the appropriateness of the classifications of all of its
securities before December 31, 1995. The Bank reassessed its classifications
and, on December 15, 1995, transferred $77.5 million in amortized cost of
investment and mortgage-backed securities to the available for sale
classification. The net unrealized loss (net of taxes) as of the date of
transfer was $40,000.

Trading account securities are adjusted to market value through earnings. Gains
and losses from adjusting trading account securities to market value and from
the sale of these securities are included in noninterest income. There were no
trading account securities outstanding at September 30, 1997, December, 31, 1996
or 1995.

Investment securities, other than those designated as available for sale or
trading, are carried at amortized historical cost and consist of those
securities for which there is a positive intent and ability to hold to maturity.
Investment securities are adjusted for amortization of premiums and accretion of
discounts using the level-yield method over the estimated lives of the
securities.

Mortgage-backed securities, other than those designated as available for sale or
trading, are carried at their outstanding principal balance, adjusted for
amortization of premiums and accretion of discounts using the level-yield method
over the estimated lives of the securities.

FEDERAL HOME LOAN BANK OF NEW YORK STOCK

The Bank, as a member of the FHLB-NY, is required to hold shares of capital
stock in the FHLB-NY in an amount equal to 1% of the Bank's outstanding balance
of residential mortgage loans or 5% of its outstanding advances from the FHLB-
NY, whichever is greater.

LOANS RECEIVABLE, NET

Loans receivable, other than loans available for sale, are stated at the unpaid
principal balance, net of premiums, unearned discounts, net deferred loan
origination and commitment fees, and the allowance for loan losses.

Loans are classified as non-accrual when they are past due 90 days or more as to
principal or interest, or where reasonable doubt exists as to timely
collectibility. However, if a loan meets the above criteria but a current
appraisal of the property indicates that the total outstanding balance is less
than 55% of the appraised value, the loan is not classified as non-accrual. At
the time a loan is place on non-accrual status, previously accrued and
uncollected interest is reversed against interest income. Interest received on
non-accrual loans is generally credited to interest income for the current
period. If principal and interest payments are brought contractually current and
future collectibility is reasonably assured, loans are returned to accrual
status. Discounts are accreted and premiums amortized to income using the level
yield method over the estimated lives of the loans. Loan fees and certain direct
loan origination costs are deferred, and the net fee or cost is recognized in
interest income using the level-yield method over the contractual life of the
individual loans, adjusted for actual prepayments.

Statement of Financial Accounting Standards ("SFAS") 114, "Accounting by
Creditors for Impairment of a Loan" and SFAS 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures" were adopted
prospectively by the Bank on January 1, 1995. These statements address the
accounting for impaired loans and specify how allowances for loan losses related
to these impaired loans should be determined. The adoption of the statements did
not effect the level of the overall allowance or the operating results. Income
recognition and charge-off policies were not changed as a result of SFAS 114 and
SFAS 118. The Bank has defined the population of impaired loans to be all non-
accrual commercial real 

                                      F-8
estate, multi-family and land loans. Impaired loans are individually assessed to
determine that the loan's carrying value is not in excess of the fair value of
the collateral or the present value of the loan's expected future cash flows.
Smaller balance homogeneous loans that are collectively evaluated for
impairment, such as residential mortgage loans and installment loans are
specifically excluded for the impaired loan portfolio. There were no impaired
loans at September 30, 1997, nor at December 31, 1996 and 1995, as defined by
SFAS 114 and SFAS 118.

Loans available for sale are carried at the lower of cost or market using the
aggregate method. Valuation adjustments, if applicable, are reflected in current
operations. Gains and losses on sales are recorded using the specific
identification method. Management determines the appropriate classification of
loans as either held to maturity or available for sale at origination, in
conjunction with the Bank's overall asset/liability management strategy.

Effective January 1, 1996, SFAS 122, "Accounting for Mortgage Servicing Rights,"
was adopted on a prospective basis. SFAS 122 requires capitalization of the
rights to service mortgage loans for others, whether those rights are acquired
through purchase or origination. The Bank determines the value of servicing
rights through an evaluation of prepayment trends, the market for purchased
servicing and underlying interest rate of the loans. All capitalized mortgage
servicing rights, both originated and purchased, will be evaluated for
impairment on a quarterly basis with any adjustments recognized through a
valuation allowance. The Bank amortizes mortgage servicing rights over the
estimated life of the loans on a straight line basis. Certain provisions of SFAS
122 were amended by SFAS 125. See Note 16, "Recent Accounting Pronouncements,"
for a description of SFAS 125.

A substantial portion of the Bank's loans are secured by real estate in the
State of New Jersey. Accordingly, as with most financial institutions in the
market area, the collectibility of a substantial portion of the carrying value
of the Bank's loan portfolio and real estate owned is susceptible to changes in
market conditions.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is based on management's evaluation of the
adequacy of the allowance, including an assessment of known and inherent risks
in the portfolio, review of individual loans for adverse situations that may
affect the borrower's ability to repay, the estimated value of any underlying
collateral, and consideration of current economic conditions.

Additions to the allowance arise from charges to operations through the
provision for loan losses or from the recovery of amounts previously charged
off. The allowance is reduced by loan charge-offs.

Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions in the Bank's market area. In addition, various regulatory agencies,
as an integral part of their examination process, periodically review the Bank's
allowance for loan losses. Such agencies may require the Bank to recognize
additions to the allowance based on their judgments about information available
to them at the time of their examination.

REAL ESTATE OWNED, NET

Real estate owned is recorded at the fair value at the date of acquisition, with
a charge to the allowance for loan losses for any excess of cost over fair
value. Subsequently, real estate owned is carried at the lower of cost or fair
value, less estimated selling costs. Certain costs incurred in preparing
properties for sale are capitalized, and expenses of holding foreclosed
properties are charged to operations as incurred. There was 

                                      F-9
$1.4 million, $1.5 million, and $3.1 million in real estate owned included in
Other Assets at September 30, 1997, December 31, 1996 and 1995, respectively.

EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED

The excess of cost over fair value of net assets acquired from the acquisition
of deposits is amortized to expense over the expected life of the acquired
deposit base (7 to 15 years) using the straight-line method. During 1995, the
Bank acquired the deposits and former branch locations of two offices of the
former Carteret Savings for a premium of $12.6 million. Core deposit studies
regarding the retention of the deposits acquired are performed by the Bank on an
annual basis. After reviewing the results of the core deposit studies, a
writedown of the core deposit premium may be recognized if the current balance
of the core deposit premium is considered impaired. The Bank recognized
writedowns of $1.3 million and $334,000 for the nine months ended September 30,
1997, and for the year ended December 31, 1996, respectively.

PREMISES AND EQUIPMENT

Premises and equipment, including leasehold improvements, are stated at cost,
less accumulated amortization and depreciation. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the assets or leases. Repair and maintenance items are expensed and improvements
are capitalized. Upon retirement or sale, any gain or loss is charged to
operations.

STOCK-BASED COMPENSATION

In October 1995, SFAS 123, "Accounting for Stock-Based Compensation" was issued.
SFAS 123 encourages recording in current period earnings compensation expense
related to the fair value of certain stock-based compensation. Companies may
choose to continue to follow the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), where
compensation expense is not recorded for certain stock-based compensation plans.
However, companies are required to disclose pro forma net income and earnings
per share as if they adopted the fair value based method of accounting. The Bank
has elected to continue to account for stock-based compensation under APB 25 and
the pro forma disclosures required by SFAS 123 have been included in Note 13,
"Stock Option Plans." The adoption of SFAS 123 had no impact on the Bank's
consolidated financial statements.

RECOGNITION AND RETENTION PLAN (RRP)

RRP awards are granted in the form of shares of common stock held by the RRP,
and are payable over a three year vesting period at a rate of 33.3% per year,
commencing on the date of the award grant. Compensation expense is recorded at
the fair market value of the shares at the grant date ratably over the vesting
period.

INCOME TAXES

The Bank accounts for income taxes according to SFAS 109, "Accounting for Income
Taxes." Under the asset and liability method of SFAS 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using the enacted tax rates applicable to taxable
income for the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.

                                      F-10
PENSION PLAN

Pension plan costs based on actuarial computation of current and future benefits
for employees are charged to expense and are funded based on the maximum amount
that can be deducted for Federal income tax purposes.

POST-RETIREMENT BENEFITS

The Bank accounts for post-retirement benefits under SFAS 106 "Employers'
Accounting for Post-Retirement Benefits Other than Pensions." SFAS 106 requires
the accrual of the expected cost of providing health care and other benefits to
employees subsequent to their retirement during the service periods of the
employees.

NET INCOME PER SHARE AND PER SHARE DATA

Net income per share is computed by dividing net income by the weighted average
number of shares of common stock and common stock equivalents outstanding. See
Note 16, "Recent Accounting Prouncements."

Per share data reflects 10% stock dividends paid on April 1, 1994, and December
16, 1996, and declared on September 24, 1997, respectively, and a 2-for-1 stock
split on December 1, 1994, all applied retroactively.

RECLASSIFICATIONS

Certain reclassifications have been made to the 1996 and 1995 amounts to conform
to the 1997 presentation.

(2)  REORGANIZATION AND STOCK ISSUANCE

On July 10, 1992, the Office of Thrift Supervision ("OTS") approved the Plan of
Reorganization adopted by the Board ("the Reorganization"), whereby the Bank was
reorganized into a federal mutual holding company. At that time, First Savings
Bank, SLA, reorganized from a New Jersey-chartered mutual savings association
into a federal mutual holding company, First Savings Bancshares, MHC ("Holding
Company"). The Bank has continued to operate under the mutual holding company
regulations as proscribed by the OTS.

As part of the Reorganization, a minority stock offering was completed on July
10, 1992, whereby 1,000,000 shares were sold at a price of $10 per share, for
gross proceeds of $10.0 million, which represented a minority ownership of 37.6%
of the Bank. On July 11, 1995, the Bank completed a secondary stock offering of
600,000 shares of common stock at $13 per share for gross proceeds of $7.8
million, offset by offering-related expenses totaling $595,000. The net proceeds
were used to purchase investment and mortgage-backed securities. The total
minority ownership, after the secondary stock offering, totaled 47.5% at
December 31, 1995. At September 30, 1997, the total minority ownership was
48.4%.

On October 24, 1997, the Boards of Directors for First Savings Bank and First
Savings Bancshares, MHC, the mutual holding company of the Bank, announced that
a Plan of Conversion was adopted to convert First Savings Bancshares, MHC to
stock form and to reorganize First Savings Bancshares, MHC and First Savings
Bank into the stock holding company structure by forming a new stock Delaware
corporation to become the parent holding company for the Bank. Pursuant to the
Plan, the new Delaware corporation will exchange certain shares of its common
stock for the outstanding common stock of the Bank and will issue and offer for
sale certain additional shares of its common stock. The Plan of Conversion must
receive regulatory approval from the Office of Thrift Supervision, along with
approval from the members of First Savings Bancshares, MHC, and the Bank's
stockholders. The transaction is expected to be completed during the second
quarter of 1998.

                                      F-11
(3)  REGULATORY MATTERS

Capital distributions, in the form of any dividend paid or other distribution in
cash or in kind, are limited by the OTS. A "Tier 1" association, which is
defined as an association that has capital immediately prior to a proposed
capital distribution that is equal to or greater than the amount of its fully
phased-in capital requirement, is authorized to make capital distributions
during a calendar year up to the higher of 100% of its net income to date during
the calendar year plus the amount that would reduce by one-half its surplus
capital ratio at the beginning of the calendar year, or 75% of its net income
over the most recent four-quarter period. The Bank is a Tier 1 association.

OTS regulations require savings institutions to maintain minimum levels of
regulatory capital. Under the regulations in effect at September 30, 1997,
December 31, 1996 and 1995, the Bank was required to maintain a minimum ratio of
tangible capital to total adjusted assets of 1.5%; a minimum ratio of Tier 1
(core) capital to total adjusted assets of 3.0%; and a minimum ratio of total
(core and supplementary) capital to risk-weighted assets of 8.0%.

Under the prompt corrective action regulations, the OTS is required to take
certain supervisory actions and may take additional discretionary actions with
respect to an undercapitalized institution. Such actions could have a direct
material effect on the institution's financial statements. The regulations
establish a framework for the classification of savings institutions into five
categories: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized. Generally, an
institution is considered well capitalized if it has a Tier 1 (core) capital
ratio of at least 5.0%; a Tier 1 risk-based capital ratio of at least 6.0%; and
a total risk-based capital ratio of at least 10.0%.

The foregoing capital ratios are based in part on specific quantitative measures
of assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. Capital amounts and classifications are also
subject to qualitative judgments by the OTS about capital components, risk
weightings and other factors.

Management believes that, as of September 30, 1997, the Bank meets all capital
adequacy requirements to which it is subject. Further, the most recent OTS
notification categorized the Bank as a well capitalized institution under the
prompt corrective action regulations. There have been no conditions or events
since that notification that management believes have changed the Bank's capital
classification.

The following is a summary of the Bank's actual capital amounts and ratios as of
September 30, 1997, December 31, 1996 and 1995, compared to the OTS minimum
capital adequacy requirements and the OTS requirements for classification as a
well-capitalized institution:

                                      F-12
OTS REQUIREMENTS                      
                                                                  --------------------------------------------------    
                                                                       MINIMUM CAPITAL          FOR CLASSIFICATION AS   
                                            BANK ACTUAL                    ADEQUACY                WELL-CAPITALIZED     
                                      ----------------------       -----------------------      ----------------------   
                                        AMOUNT     RATIO (%)         AMOUNT     RATIO (%)        AMOUNT     RATIO (%)   
                                      ---------  -----------       ----------  -----------      ---------  -----------
(DOLLARS IN THOUSANDS)
September 30, 1997
------------------------------
Tangible capital..............         $89,992         8.68          $15,552      1.50 
Tier 1 (core)  capital........          89,992         8.68           31,104      3.00           $51,840       5.00
Risk-based capital:
   Tier 1.....................          89,992        21.13                                       25,552       6.00
   Total......................         $95,319        22.38           $34,070     8.00           $42,587      10.00
                                       =======        =====           =======     ====           =======      =====

December 31, 1996
------------------------------
Tangible capital..............         $81,909         8.38           $14,670     1.50
Tier 1 (core) capital.........          81,909         8.38            29,340     3.00           $48,900       5.00
Risk-based  capital:                                                                                           
   Tier 1.....................          81,909        20.85                                       23,571       6.00
   Total......................         $86,822        22.10           $31,428     8.00           $39,286      10.00
                                       =======        =====           =======     ====           =======      =====

December 31, 1995
------------------------------
Tangible capital..............         $77,249         8.28           $13,995    1.50
Tier 1 (core) capital.........          77,751         8.33            28,005    3.00            $46,675       5.00
Risk-based capital:
    Tier 1....................          77,751        20.85                                       22,371       6.00
    Total.....................         $80,680        21.64           $29,828    8.00            $37,285      10.00
                                       =======        =====           =======    ====            =======      =====
F-13
(4) INVESTMENT SECURITIES

A summary of investment securities at September 30, 1997, December 31, 1996 and
1995, is as follows (in thousands):
SEPTEMBER 30, 1997                      
                                                                  --------------------------------------------------------   
                                                                                   GROSS           GROSS        ESTIMATED    
                                                                                 UNREALIZED     UNREALIZED        MARKET     
                                                                      COST         GAINS          LOSSES          VALUE      
                                                                  ----------   ------------   ------------    ------------
INVESTMENTS HELD TO MATURITY
  U.S. Government and Agency obligations.......................     $40,959         $193          $(44)          $41,108   
                                                                    =======         ====          ====           =======   
INVESTMENTS AVAILABLE FOR SALE                                                                                             
  U.S. Government and Agency obligations.......................     $13,972         $ 26          $(55)          $13,943   
  Corporate obligations........................................       4,079            3            (1)            4,081   
                                                                    -------         ----          ----           -------   
  Total investment securities available for sale...............     $18,051         $ 29          $(56)          $18,024   
                                                                    =======         ====          ====           =======
DECEMBER 31, 1996
                                                                        --------------------------------------------------------
                                                                                         GROSS           GROSS        ESTIMATED
                                                                                       UNREALIZED     UNREALIZED        MARKET
                                                                            COST         GAINS          LOSSES          VALUE
                                                                        ----------   ------------   ------------    ------------
INVESTMENTS HELD TO MATURITY
  U.S. Government and Agency obligations.......................           $38,955         $247          $(222)         $38,980   
                                                                                                                                 
INVESTMENTS AVAILABLE FOR SALE                                                                                                   
  U.S. Government and Agency obligations.......................           $12,964         $  4          $(132)         $12,836   
  Corporate obligations........................................             2,000           --             (5)           1,995   
                                                                          -------         ----          -----          -------   
  Total investment securities available for sale...............           $14,964         $  4          $(137)         $14,831   
                                                                          =======         ====          =====          =======
DECEMBER 31, 1995
                                                                       ---------------------------------------------------------
                                                                                        GROSS          GROSS        ESTIMATED
                                                                                      UNREALIZED     UNREALIZED       MARKET
                                                                          COST          GAINS         LOSSES          VALUE
                                                                       ----------   ------------   ------------    -------------
INVESTMENTS HELD TO MATURITY
  U.S. Government and Agency obligations.......................          $39,003         $621           $(7)          $39,617   
                                                                         =======         ====           ===           =======   
INVESTMENTS AVAILABLE FOR SALE                                                                                                  
  U.S. Government and Agency obligations.......................          $ 1,000         $ --           $(4)          $   996   
  Corporate obligations........................................            1,041           21            --             1,062   
                                                                         -------         ----           ---           -------   
  Total investment securities available for sale...............          $ 2,041         $ 21           $(4)          $ 2,058   
                                                                         =======         ====           ===           =======
The cost and estimated fair value of investment securities at September 30, 1997
and December 31, 1996, by contractual maturity, are shown below (in thousands).
Expected maturities may differ from contractual maturities because borrowers may
have the right to call or repay obligations at par value without prepayment
penalties.

                                     F-14
SEPTEMBER 30, 1997                   DECEMBER 31, 1996   
                                                        ------------------------------------------------------------------  
                                                                           ESTIMATED                           ESTIMATED       
                                                         AMORTIZED          MARKET         AMORTIZED             MARKET         
INVESTMENTS HELD TO MATURITY                               COST             VALUE            COST                VALUE          
                                                         ----------      --------------    ------------        ------------
Due in:
   Less than one year.............................          $    --          $    --            $ 1,000           $ 1,002
   One to five years..............................           14,991           15,041             13,990            14,054
   Five to ten years..............................           19,972           20,022             17,970            17,953
   Ten to fifteen years...........................            5,996            6,045              5,995             5,971
                                                            -------          -------            -------           -------
                                                            $40,959          $41,108            $38,955           $38,980
                                                            =======          =======            =======           =======
ESTIMATED                           ESTIMATED
                                                         AMORTIZED          MARKET           AMORTIZED          MARKET
INVESTMENTS AVAILABLE FOR SALE....................         COST              VALUE             COST             VALUE
-------------    -------------      ------------      ------------
Due in:
One to five years.............................          $12,972          $12,942            $13,964           $13,856
    Five to ten years.............................            5,079            5,082              1,000               975
                                                            -------          -------            -------           -------
                                                            $18,051          $18,024            $14,964           $14,831
                                                            =======          =======            =======           =======
Proceeds from sales of investment securities and the realized gross gains and
losses from those sales are as follows (in thousands):
NINE MONTHS ENDED                           
                                      SEPTEMBER 30,          YEAR ENDED DECEMBER 31  
                                   ------------------    -----------------------------
                                    1997        1996      1996      1995        1994
                                   -------  --------     --------  -------   ---------
Proceeds from sales............    $10,120   $10,877      $20,978   $25,823   $47,821
                                   =======   =======      =======   =======   =======

Gross realized gains...........    $   180   $    12      $   147   $    94   $   317
Gross realized losses..........        (60)      (31)         (33)     (198)     (296)
                                   -------   -------      -------   -------   -------
                                   $   120   $   (19)     $   114   $  (104)  $    21
                                   =======   =======      =======   =======   =======
Investment securities with an amortized cost of $15.4 million and $15.0 million
at September 30, 1997 and December 31, 1996, respectively, are pledged as
collateral for other borrowings.  Pursuant to a collateral agreement with the
FHLB-NY, all unpledged, qualifying investment securities, including those
available for sale, are pledged to secure advances from the FHLB-NY (see note
10).

(5) MORTGAGE-BACKED SECURITIES

A summary of mortgage-backed securities at September 30, 1997, December 31, 1996
and 1995, is as follows (in thousands):

                                     F-15
SEPTEMBER 30, 1997                         
                                                              ---------------------------------------------------------------   
                                                                                  GROSS            GROSS           ESTIMATED    
                                                                AMORTIZED       UNREALIZED       UNREALIZED         MARKET      
                                                                   COST           GAINS            LOSSES            VALUE      
                                                              ------------    ------------    -------------     -------------
MORTGAGE-BACKED SECURITIES HELD TO MATURITY
FHLMC.........................................................   $132,388         $2,988           $ (73)          $135,303   
GNMA..........................................................     18,612            536              --             19,148   
FNMA..........................................................     33,164            307             (15)            33,456   
Collateralized mortgage obligations...........................     43,994             61            (295)            43,760   
                                                                 --------         ------           -----           --------   
Total mortgage-backed securities held to maturity.............   $228,158         $3,892           $(383)          $231,667   
                                                                 ========         ======           =====           ========   

MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
FHLMC.........................................................   $ 69,272         $  537           $(238)          $ 69,571   
FNMA  ........................................................     35,009             11            (102)            34,918   
Collateralized mortgage obligations...........................     17,761            128              (7)            17,882   
                                                                 --------         ------           -----           --------   
Total mortgage-backed securities available for sale...........   $122,042         $  676           $(347)          $122,371   
                                                                 ========         ======           =====           ========
DECEMBER 31, 1996
                                                                  -----------------------------------------------------------------
                                                                                       GROSS            GROSS           ESTIMATED
                                                                     AMORTIZED       UNREALIZED       UNREALIZED          MARKET
                                                                       COST            GAINS           LOSSES             VALUE
                                                                   -------------    ------------    -------------     -------------
MORTGAGE-BACKED SECURITIES HELD TO MATURITY
FHLMC.........................................................       $161,180          $2,663           $(187)           $163,656   
GNMA..........................................................         20,851             398              --              21,249   
FNMA..........................................................         32,225             217            (115)             32,327   
Collateralized mortgage obligations...........................         38,127              75            (382)             37,820   
                                                                     --------          ------           -----            --------   
Total mortgage-backed securities held to maturity.............       $252,383          $3,353           $(684)           $255,052   
                                                                     ========          ======           =====            ========   
                                                                                                                                    
MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE                                                                                       
FHLMC.........................................................       $ 88,818          $  505           $(343)           $ 88,980   
GNMA..........................................................          7,320              17             (23)              7,314   
FNMA..........................................................         22,528              53             (73)             22,508   
Collateralized mortgage obligations...........................          2,004              --              (9)              1,995   
                                                                     --------          ------           -----            --------   
Total mortgage-backed securities available for sale...........       $120,670          $  575           $(448)           $120,797   
                                                                     ========          ======           =====            ========
DECEMBER 31, 1995
                                                                  ------------------------------------------------------------------
                                                                                       GROSS            GROSS           ESTIMATED
                                                                     AMORTIZED       UNREALIZED       UNREALIZED          MARKET
                                                                       COST            GAINS             GAINS            VALUE
                                                                  ---------------  --------------  ----------------  ---------------
MORTGAGE-BACKED SECURITIES HELD TO MATURITY
FHLMC.........................................................       $199,320         $3,241           $ (48)          $202,513   
GNMA..........................................................         19,690            588              --             20,278   
FNMA..........................................................         12,474            181              (9)            12,646   
Collateralized mortgage obligations...........................         56,659            139            (546)            56,252   
                                                                     --------         ------           -----           --------   
Total mortgage-backed securities held to maturity.............       $288,143         $4,149           $(603)          $291,689   
                                                                     ========         ======           =====           ========   
                                                                                                                                  
MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE                                                                                     
FHLMC.........................................................       $ 62,029         $  334           $ (81)          $ 62,282   
GNMA..........................................................         12,059             13              --             12,072   
FNMA..........................................................          6,206             90             (10)             6,286   
Collateralized mortgage obligations...........................          8,805             21            (127)             8,699   
                                                                     --------         ------           -----           --------   
Total mortgage-backed securities available for sale...........       $ 89,099         $  458            (218)          $ 89,339   
                                                                     ========         ======           =====           ========
F-16
Proceeds from sales of mortgage-backed securities and the realized gross gains
and losses from those sales are as follows (in thousands):
SEPTEMBER 30,                            DECEMBER 31,                   
                              ----------------------------------    ---------------------------------          
                                  1997                1996             1996         1995       1994            
                              -------------     ----------------    -----------  ----------  --------
Proceeds from sales               $116,891           $73,210           $96,309     $82,632    $36,001          
                                  ========           =======           =======     =======    =======          
                                                                                                               
Gross realized gains              $    513           $   243           $   324     $   986    $   217          
Gross realized losses                  (52)              (44)             (162)       (146)      (121)         
                                  --------           -------           -------     -------    -------          
                                  $    461           $   199           $   162     $   840    $    96          
                                  ========           =======           =======     =======    =======
Mortgage-backed securities with an amortized cost of $301,000, $338,000 and
$444,000 at September 30, 1997, December 31, 1996 and 1995, respectively, were
pledged as collateral to secure deposits held for municipalities within the
State of New Jersey.  Mortgage-backed securities with an amortized cost of $87.8
million, $48.7 million and $21.8 million at September 30, 1997, December 31,
1996 and 1995, respectively, were pledged as collateral for other borrowings.
Pursuant to a collateral agreement with the FHLB-NY, all unpledged, qualifying
mortgage-backed securities are pledged to secure advances from the FHLB-NY (see
note 10).  Expected maturities of mortgage-backed securities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without penalties.

________________________________________________________________________________

(6)   LOANS RECEIVABLE, NET

A summary of loans receivable at September 30, 1997, December 31, 1996 and 1995,
is as follows (in thousands):
SEPTEMBER 30,                DECEMBER 31,
                                                                  -------------------------------
                                                    1997               1996              1995
                                              ---------------     -------------     -------------
LOANS RECEIVABLE
 Real estate mortgages:
   One- to four-family...........................    $466,257          $425,175          $386,458
   Multi-family and commercial...................      37,794            29,085            26,997
   Home equity...................................      41,895            39,139            33,456
   FHA-insured and VA-guaranteed.................       2,572             3,002             3,759
   AID housing loan..............................          --                --               165
                                                     --------          --------          --------
                                                      548,518           496,401           450,835
 Real estate construction........................      44,469            25,124            11,412
 Consumer........................................       6,208             5,772             5,055
                                                     --------          --------          --------
          Total Loans............................     599,195           527,297           467,302
                                                     --------          --------          --------
 Loans in process................................     (26,214)          (12,253)           (3,800)
 Deferred (fees) expenses........................         255                19              (265)
 Net unearned discount...........................         (57)             (114)             (234)
 Allowance for loan losses.......................      (5,982)           (5,322)           (5,247)
                                                     --------          --------          --------
                                                      (31,998)          (17,670)           (9,546)
                                                     --------          --------          --------
          Loans receivable, net..................    $567,197          $509,627          $457,756
                                                     ========          ========          ========
 
LOANS AVAILABLE FOR SALE
Real estate mortgages - one-to-four family.......    $     --          $    287          $    424
                                                     ========          ========          ========
F-17
The Bank serviced loans for others in the amount of $94.5 million and $103.4
million at September 30, 1997 and 1996, respectively, and $101.2 million, $106.9
million and $112.4 million at December 31, 1996, 1995 and 1994, respectively.
Related servicing income earned on loans serviced for others totaled $218,000
and $246,000 for the nine months ended September 30, 1997 and 1996,
respectively, and $325,000, $350,000 and $386,000 for the years ended December
31, 1996, 1995 and 1994, respectively.

Loans in the amount of $1.7 million, $1.9 million and $2.1 million were
outstanding to directors and executive officers of the Bank at September 30,
1997, and December 31, 1996 and 1995, respectively.  The loans consist primarily
of loans secured by mortgages on residential properties.

The Bank has pledged, under a blanket assignment, its unpledged and qualifying
mortgage portfolio to secure advances from the FHLB-NY (see note 10).

A summary of nonperforming assets at September 30, 1997, December 31, 1996 and
1995, is as follows (in thousands):
SEPTEMBER 30,             DECEMBER 31,
                                                                           ----------------------
                                                          1997               1996          1995
                                                     --------------        --------      --------
Nonaccrual loans.....................................     $3,561            $4,720        $5,838
Loans 90 days or more delinquent and still accruing..        379                93           200
    Total nonperforming loans........................      3,940             4,813         6,038
Real estate owned (included in other assets).........      1,398             1,517         3,131
                                                          ------            ------        ------
    Total nonperforming assets.......................     $5,338            $6,330        $9,169
                                                          ======            ======        ======
If interest income on nonaccrual loans had been current in accordance with their
original terms, approximately $253,000 and $274,000 of interest income for the
nine months ended September 30, 1997 and 1996, respectively, and $364,000,
$579,000 and $805,000 of interest income for the years ended December 31, 1996,
1995, and 1994, respectively, would have been recorded.  Interest income
recognized on non-accrual loans totaled $55,000 and $84,000 for the nine months
ended September 30, 1997 and 1996, respectively, and $105,000, $114,000 and
$71,000 for the years ended December 31, 1996, 1995 and 1994, respectively.  At
September 30, 1997, there were no commitments to lend additional funds to
borrowers whose loans are classified as nonperforming.

An analysis of the allowance for loan losses for the nine months ended September
30, 1997 and 1996 and for the years ended December 31, 1996, 1995 and 1994, is
as follows (in thousands):
SEPTEMBER 30,                        DECEMBER 31,
                                     --------------------------        ---------------------------
                                         1997           1996             1996       1995     1994
                                     ------------    ----------        --------   --------  ------
Balance at beginning of period.......  $5,322           $5,247       $5,247       $5,745     $5,899
Provision charged to operations......     900              375          550          310        300
                                       ------           ------       ------       ------      -----
                                        6,222            5,622        5,797        6,055      6,199
Loans charged off, net of recoveries.    (240)            (531)        (475)        (808)      (454)
                                       ------            ------      ------       ------      -----
Balance at end of period.............  $5,982           $5,091       $5,322       $5,247     $5,745
                                       ======           ======       ======       ======      =====
F-18
________________________________________________________________________________

(7)   INTEREST AND DIVIDENDS RECEIVABLE, NET

A summary of interest and dividends receivable, net of allowance for uncollected
interest of $407,000, $440,000, and $1.1 million at September 30, 1997, December
31, 1996 and 1995, respectively, is as follows (in thousands):
SEPTEMBER 30,              DECEMBER 31,         
                                                                                   -------------------------   
                                                                   1997               1996            1995     
                                                               -------------       ---------       ----------
Loans..................................................            $3,339            $2,868          $2,841    
Investment securities..................................               851               908             810    
Mortgage-backed securities.............................             3,529             3,639           3,142    
                                                                   ------            ------          ------    
                                                                   $7,719            $7,415          $6,793    
                                                                   ======            ======          ======
________________________________________________________________________________

(8)  PREMISES AND EQUIPMENT, NET

Premises and equipment at September 30, 1997, December 31, 1996 and 1995, are
summarized as follows (in thousands):
SEPTEMBER 30,               DECEMBER 31,          
                                                                                 ----------------------------  
                                                                   1997             1996              1995     
                                                              -------------      ----------        ----------
Land...................................................           $ 2,235         $ 1,423            $ 1,423   
Buildings and improvements.............................            10,902           7,977              7,670   
Leasehold improvements.................................             2,127           1,967              1,915   
Furnishings, equipment and automobiles.................             4,705           3,265              4,953   
Construction in progress...............................               120           1,788              1,043   
                                                                  -------         -------            -------   
     Total.............................................            20,089           16,420            17,004   
 Accumulated depreciation and amortization.............            (6,806)          (6,064)           (7,657)  
                                                                  -------          -------           -------   
                                                                  $13,283         $ 10,356           $ 9,347   
                                                                  =======          =======           =======
________________________________________________________________________________

(9)   DEPOSITS

Deposits at September 30, 1997, December 31, 1996 and 1995, are summarized as
follows (dollars in thousands):
SEPTEMBER 30, 1997                                    DECEMBER 31, 1996    
                                     ------------------------------------------------      -----------------------------------------
                                                     INTEREST          WEIGHTED                             INTEREST     WEIGHTED  
                                                       RATE            AVERAGE                                RATE        AVERAGE  
                                                      RANGES             RATE                                RANGES        RATE   
                                       AMOUNT          (%)               (%)                 AMOUNT           (%)          (%)     
                                     -----------   ------------     ----------------       -----------   ----------   -------------
Non-interest bearing demand........  $ 26,410              --               --              $ 19,888             --            --
NOW and money market...............   195,003          0-3.39             2.93               181,499         0-5.43          2.90
Savings............................   123,384          0-5.84             2.54               131,427         0-2.50          2.50
Certificates of deposit............   464,652       3.45-9.34             5.54               461,781      3.69-9.34          5.38
                                     --------                             ----              --------                         ----
                                     $809,449                             4.27              $794,595                         4.20
                                     ========                             ====              ========                         ====
DECEMBER 31, 1995             
                                                ---------------------------------------
                                                              INTEREST     WEIGHTED    
                                                                RATE        AVERAGE   
                                                               RANGES        RATE     
                                                 Amount         (%)           (%)     
                                                ----------   ----------   ------------
Non-interest bearing demand........              $ 18,515           --          --    
NOW and money market...............               173,597       0-3.70         2.88   
Savings............................               140,919       0-4.11         2.50   
Certificate of deposit.............                473,307   3.69-9.34         5.60   
                                                 --------                      ----   
                                                 $806,338                      4.34   
                                                 ========                      ====
F-19
The scheduled maturities of certificates of deposit at September 30, 1997 and as
follows (in thousands):
SEPTEMBER 30,      DECEMBER 31,
                                                                         1997               1996
                                                                    -------------      ------------
One year or less.....................................        $348,304          $358,098
          After one to two years...............................          44,579            39,366
          After two to three years.............................          22,886            17,533
          After three to four years............................          11,035            15,889
          After four to five years.............................          15,186            11,738
          After five years.....................................          22,662            19,157
                                                                       --------          --------
                                                                       $464,652          $461,781
                                                                       ========          ========
Included in deposits at September 30, 1997, December 31, 1996 and 1995, are
$76.5 million, $62.5 million and $60.3 million of deposits of $100,000 and over,
and $342,000, $331,000 and $357,000, respectively, of accrued interest payable
on deposits.

________________________________________________________________________________

(10)  BORROWED FUNDS

FEDERAL HOME LOAN BANK-NEW YORK ADVANCES

Advances from the FHLB-NY at September 30, 1997, December 31, 1996 and 1995, are
summarized as follows (dollars in thousands):
SEPTEMBER 30, 1997      DECEMBER 31, 1996    DECEMBER 31, 1995 
                             ------------------      -----------------    -----------------
                                       WEIGHTED               WEIGHTED             WEIGHTED
                             AMOUNT   AVG. RATE      AMOUNT  AVG. RATE    AMOUNT  AVG. RATE
                             ------   ---------      ------  ---------    ------  ---------
1996..........     $    --        --%      $    --       --%    $ 4,000      5.18%
         1997..........       5,000      6.09        12,000     5.80       7,000      5.94
         1998..........      15,000      6.26        10,000     6.56       5,000      7.42
         1999..........       6,000      5.87         6,000     5.87       1,000      5.58
         2000..........       2,000      5.76         2,000     5.76       2,000      5.76
         2002..........       5,000      5.76            --       --          --        --
                            -------                 -------              -------
                            $33,000      6.06%      $30,000     6.06%    $19,000      6.13%
                            =======      ====       =======     ====     =======      ====
The Bank has entered into FHLB-NY advances that have call features that may be
exercised by the FHLB-NY at predetermined dates.  The total of such advances at
September 30, 1997 and December 31, 1996, totaled $10.0 million for both
periods. The maximum amount of FHLB-NY advances outstanding at any month-end
during the nine months ended September 30, 1997 and for the years ended December
31, 1996 and 1995 was $40.0 million, $30.0 million and $34.0 million,
respectively.  At September 30, 1997 and December 31, 1996, $10.0 million and
$5.0 million of FHLB-NY advances had adjustable rates.

Advances from the FHLB-NY are secured by pledges of FHLB-NY stock of $8.0
million, $7.4 million and $6.3 million at September 30, 1997, December 31, 1996
and 1995, respectively, and a blanket assignment of the Bank's unpledged,
qualifying mortgage loans, mortgage-backed securities and investment securities.

The Bank has an available overnight line of credit with the FHLB-NY for a
maximum of $48.9 million at September 30, 1997.

                                     F-20
OTHER BORROWINGS

The following is a summary of Other Borrowings at September 30, 1997, December
31, 1996 and 1995 (dollars in thousands):
SEPTEMBER 30, 1997             DECEMBER 31, 1996            DECEMBER 31, 1995
                                       --------------------------    -------------------------   --------------------------
                                                         WEIGHTED                     WEIGHTED                     WEIGHTED
                                                         AVERAGE                      AVERAGE                       AVERAGE
CONTRACTUAL MATURITY                   AMOUNT           INTEREST     AMOUNT           INTEREST   AMOUNT            INTEREST
--------------------                   ------           --------     ------           --------   ------            --------
1996..............................    $    --               --%     $    --               --%   $ 1,000              5.95%
1997..............................     15,000             5.62       13,750             5.93      8,750              6.12
1998..............................     25,894             6.32       24,244             6.35     10,000              6.15
1999..............................     15,000             5.71       15,000             5.71         --                --
2000..............................     20,000             6.07           --               --         --                --
2001..............................      5,000             5.55        5,000             5.55         --                --
2002..............................     10,000             5.75           --               --         --                --
                                      -------                       -------                    --------
                                      $90,894             5.94%     $57,994             6.02%   $19,750               6.13%
                                      =======             ====      =======             ====   ========               ====
The maximum amount of other borrowings outstanding at any month-end during the
nine months ended September 30, 1997 and for the years ended December 31, 1996
and 1995 was $90.9 million, $58.0 million and $24.9 million, respectively.
Securities underlying other borrowings included mortgage-backed and investment
securities, which had an amortized cost of $103.3 million, $63.7 million and
$21.8 million, and market values of $103.7 million, $63.8 million and $22.0
million at September 30, 1997, December 31, 1996 and 1995, respectively.  At
September 30, 1997 and December 31, 1996, $50.0 million and $20.0 million,
respectively, of other borrowings are callable at defined dates and at the
lender's discretion prior to the contractual maturity of the borrowings.

________________________________________________________________________________

(11) EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP") DEBT

The ESOP debt as of September 30, 1997, December 31, 1996 and 1995, was
$571,000, $646,000 and $746,000, respectively, and bears an interest rate equal
to the prime rate less 1.50%, as published in the Wall Street Journal, with
                                                  ---- ------ -------      
principal and interest payable in quarterly installments over a ten-year period.
During the nine months ended September 30, 1997, and the year ended December 31,
1996, $25,000 and $25,000 of dividends paid on ESOP shares were used to pay down
ESOP debt.  Total interest paid on ESOP debt for the nine months ended September
30, 1997 and 1996, was $33,000 and $37,000, respectively, and for the years
ended December 31, 1996, 1995 and 1994 was $48,000, $41,000, and $26,000,
respectively.  In July, 1995, the Bank completed a secondary stock offering,
whereby the ESOP purchased an additional 42,000 shares of common stock at $13
per share, totaling $546,000.  The funds to purchase the shares were obtained
from the parent company.  The maturity date of the loan is September 30, 2005.
The borrowing is secured by 80,102 shares of the Bank's common stock (as
restated for the 10% stock dividend declared on September 24, 1997).

                                     F-21
________________________________________________________________________________

(12)    INCOME TAXES

Under tax law that existed prior to 1996, the Bank was generally allowed a
special bad debt deduction in determining income for tax purposes.  The
deduction was based on either a specified experience formula or a percentage of
taxable income before such deduction.  The percentage of taxable income method
was used in preparing the income tax returns for 1995 and 1994.  Legislation was
enacted in August 1996, which repealed for tax purposes the percentage of
taxable income bad debt reserve method.  As a result, the Bank must instead use
the direct charge-off method to compute its bad debt deduction.  The legislation
also requires the Bank to recapture its post-1987 net additions to the tax bad
debt reserves.  The Bank has previously provided for this liability in the
financial statements.  The Bank's federal tax returns have been audited through
December 31, 1984.

Retained earnings at September 30, 1997 and December 31, 1996 includes
approximately $12.7 million for which no provision for income tax has been made.
This amount represents an allocation of income to bad debt deductions for tax
purposes only.  Events that would result in taxation of these reserves include
failure to qualify as a bank for tax purposes, distributions in complete or
partial liquidation, stock redemptions and excess distributions to shareholders.
At September 30, 1997 and December 31, 1996, the Bank had an unrecognized tax
liability of $4.6 million with respect to this reserve.

Income tax expense applicable to income for the periods ended September 30, 1997
and 1996, and for the years ended December 31, 1996, 1995 and 1994, consists of
the following (in thousands):
SEPTEMBER 30,                        DECEMBER 31,
                                ------------------------       -------------------------------------
                                  1997            1996           1996           1995          1994
                                --------       ---------       --------       --------      --------
FEDERAL:
   Current.....................   $4,159         $ 3,854         $3,183         $3,671        $4,624
   Deferred....................     (501)         (2,595)          (603)           545          (114)
                                  ------         -------         ------         ------        ------
                                   3,658           1,259          2,580          4,216         4,510
STATE:
   Current.....................      376             346            282            365           409
   Deferred....................      (44)           (229)           (53)            30            (7)
                                  ------         -------         ------         ------        ------
                                     332             117            229            395           402
                                  ------         -------         ------         ------        ------
                                  $3,990         $ 1,376         $2,809         $4,611        $4,912
                                  ======         =======         ======         ======        ======
The effective tax rates for the nine month periods ended September 30, 1997 and
1996 are 37.1% and 36.8% and for the years ended December 31, 1996, 1995 and
1994, the rates were 37.4%, 35.7% and 37.2%, respectively.

                                     F-22
A reconciliation between the effective income tax expense and the amount
computed by multiplying the applicable statutory federal income tax rate for the
periods ended September 30, 1997 and 1996, and for the years ended December 31,
1996, 1995 and 1994, is as follows (in thousands):
SEPTEMBER 30,                        DECEMBER 31,
                                        --------------------------    -----------------------------------------
                                            1997           1996           1996           1995          1994
                                        -----------    -----------    -----------    -----------    -----------
Income before income taxes............     $10,750         $3,740         $7,519        $12,913        $13,187
Applicable statutory federal tax                35%            35%            35%            35%            35%
 rate..................................    -------         ------         ------        -------        -------
Computed "expected" federal income tax       
  expense...............................     3,763          1,309          2,632          4,520          4,615
Increase in federal income tax expense
  resulting from:
  State income taxes, net of federal          
  benefit...............................       216             76            151            257            261
  Other items, net .....................        11             (9)            26           (166)            36
                                           -------         ------         ------        -------        -------
                                           $ 3,990         $1,376         $2,809        $ 4,611        $ 4,912
                                           =======         ======         ======        =======        =======
The tax effects of temporary differences that give rise to a significant portion
of deferred tax assets and liabilities at September 30, 1997, December 31, 1996
and 1995, are as follows (in thousands):
1997            1996            1995
                                                               -----------     -----------     -----------
DEFERRED TAX ASSETS:
Provision for loan losses - book..............................    $2,231          $1,980          $1,984
Postretirement benefits.......................................       376             350             293
Cash to accrual adjustment....................................        --               1             164
Excess pension expense........................................       448             670             204
Deferred directors' fees......................................        87              63              20
Unrealized loss on securities available for sale..............        --               2              --
Excess of cost over fair value of net assets acquired.........       479              --              --
Other.........................................................        87               2               8
                                                                  ------          ------          ------
   Total gross deferred tax assets (included in Other Assets).     3,708           3,068           2,673
                                                                   -----          ------          ------
DEFERRED TAX LIABILITIES:
Provision for loan losses - tax...............................     1,161           1,161           1,136
Unrealized gain on securities available for sale..............       109              --              94
Tax depreciation less than book depreciation..................         2             179             148
Excess sum-of-year discount over straight line................       215              90             181
Amortization of core deposit premium .........................        --              55              93
Net mortgage premium accretion................................        66              66              85
Prepaid expense...............................................        16              --             171
Deferred points...............................................       152              --              --
Other.........................................................        36              --              --
                                                                  ------          ------          ------
   Total gross deferred tax liabilities (included in
     Other Liabilities).......................................     1,757           1,551           1,908
                                                                  ------          ------          ------
Net deferred tax asset........................................    $1,951          $1,517          $  765
                                                                  ======          ======          ======
Management has determined that it is more likely than not that it will realize
the deferred tax assets based upon the nature and timing of the items listed
above.  There can be no assurances, however, that there will be no significant
differences in the future between taxable income and pre-tax book income if
circumstances change.  In order to fully realize the net deferred tax asset, the
Bank will need to generate future taxable income.  Management has projected that
the Bank will generate sufficient taxable income to utilize the net deferred tax
asset, however, there can be no assurance as to such levels of taxable income
generated.

                                     F-23
Included in Stockholders' Equity are income tax expenses (benefits) attributable
to net unrealized gains (losses) on securities available for sale in the amounts
of $111,000 for the nine months ended September 30, 1997 and $(96,000) and
$887,000 for the years ended December 31, 1996 and 1995, respectively.

________________________________________________________________________________

(13)   EMPLOYEE BENEFIT PLANS

The Bank is a participant in the Financial Institutions Retirement Fund, a
multi-employer defined benefit plan.  All employees who attain the age of 21
years and complete one year of service are eligible to participate in this plan.
Retirement benefits are based upon a formula utilizing years of service and
average compensation, as defined.  Participants are vested 100% upon the
completion of five years of service.  Pension expense was $143,000, $240,000,
$320,000, $330,000 and $330,000 for the nine months ended September 30, 1997 and
1996, and for the years ended December 31, 1996, 1995 and 1994, respectively.

Financial Institutions Retirement Fund does not segregate its assets,
liabilities or costs by participating employer.  Therefore, disclosure of the
accumulated benefit obligations, plan assets and the components of annual
pension expense attributable to the Bank cannot be ascertained.

The Bank has a Supplemental Executive Retirement Plan ("SERP"), which provides a
post-employment supplemental retirement benefit equal to seventy-five percent of
the participant's base salary during the twelve months prior to retirement less
the amount of the participant's Pension Plan Annual Benefit and primary Social
Security Benefit due at the participant's normal retirement age.  The SERP is
non-qualified employee benefit plan.  SERP expenses due to normal accruals were
$635,000 and $488,000 for the periods ended September 30, 1997 and 1996,
respectively, and $550,000, $200,000, and $72,000 for the years ended December
31, 1996, 1995 and 1994, respectively.  Due to the sudden death of the Bank's
President, an additional one-time expense of $600,000 was incurred in 1996 to
fund the related SERP liability.

The Bank also maintains an incentive savings plan for eligible employees.
Employees may make contributions to the plan of 2% to 12% of their compensation.
For the first 6% of the employee's contribution, the Bank will contribute 50% of
that amount to the employee's account.  At the end of the plan year, the Bank
may make an additional contribution to the plan.  The contributions under this
plan were $98,000 and $106,000 for the periods ended September 30, 1997 and
1996, respectively, and $135,000, $119,000 and $107,000, for the years ended
December 31, 1996, 1995 and 1994, respectively.

POSTRETIREMENT BENEFITS

The Bank accounts for postretirement benefits in accordance with SFAS 106.  The
expense for the periods ended September 30, 1997 and 1996 were $70,000 and
$63,000, respectively, and for the years ended December 31, 1996 and 1994 was
$157,000 and $3,000, respectively.  There was no expense for the year ended
December 31, 1995.  The accumulated postretirement benefit obligation for fully
eligible active plan participants and retirees was $1.0 million, $948,000 and
$791,000 as of September 30, 1997, December 31, 1996 and 1995, respectively.
The plan is unfunded as of September 30, 1997, and the obligation is included in
Other liabilities as an accrued postretirement benefit cost.

The following assumptions were used in determining the accumulated
postretirement benefit obligation for 1997, 1996 and 1995, respectively: a
discount rate of 8.0% and a health care cost rate of 5.0% per year for 1997, a
discount rate of 8.0% and a health care cost trend rate of 5.0% grading down to
0.0% per year for 1996, and a discount rate of 8.0% and a health care cost trend
rate of 7.5% grading down to 5.0% at 0.5% per year for 1995.  As the plan is
currently unfunded, no assumption was needed as to the long-term rate of return
on assets.

                                     F-24
BANK RECOGNITION AND RETENTION PLAN AND TRUST

In 1992, the Bank adopted a Recognition and Retention Plan and Trust (RRP) for
the benefit of directors, officers and key employees of the Bank.  During 1995,
the Board of Directors amended the RRP in order to increase the number of shares
available for grants under the plan by 21,780 shares (adjusted for the 10% stock
dividend declared on September 24, 1997), as approved by the OTS and
stockholders.

Under the RRP, awards are granted in the form of shares of common stock held by
the RRP, and are payable over a three year period at a rate of 33.3% per year,
commencing on the date of the award grant.  The market value of shares issued
and granted under the RRP in August and November, 1996 was $310,000.
Amortization of the RRP for the nine month period ended September 30, 1997 and
for the year ended December 31, 1996 was $78,000 and $24,000, respectively.

EMPLOYEE STOCK OWNERSHIP PLAN

On July 10, 1992, the Bank established an ESOP for eligible employees who have
completed a twelve-month period of employment with the Bank.  The ESOP acquired
70,000 shares of common stock.  On July 11, 1995, the Bank completed a secondary
offering of common stock, and the ESOP purchased 42,000 shares of common stock
at $13.00 per share.  Funds for the purchase of the additional shares were
borrowed from the Bank's parent.  Shares purchased by the ESOP are held by a
trustee for allocation among participants as the loan is repaid.  The Bank, at
its discretion, contributes funds, in cash, to pay principal and interest on the
ESOP loan.  The number of shares of common stock released each year is
proportional to the amount of principal and interest repaid on the loan for the
year.  The Bank recognizes compensation expense when debt payments are made.

The Bank accounts for the allocation of ESOP shares purchased prior to 1995 at
their original issue price.  The Bank accounts for the shares purchased in the
secondary offering in accordance with American Institute of Certified Public
Accountants ("AICPA") Statement of Position ("SOP") 93-6.  Those shares have a
fair value of $1.8 million at September 30, 1997.  The ESOP allocated 21,962,
29,282, 26,620 and 26,620 shares for the period ended September 30, 1997 and the
years ended December 31, 1996, 1995 and 1994, respectively, inclusive of four
10% stock dividends, and a 2-for-1 stock split. The compensation expense for
payments made to the ESOP totaled $50,000 and $50,000 for the periods ended
September 30, 1997 and 1996, respectively, and $75,000, $75,000 and $100,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.

STOCK OPTION PLANS

The Bank maintains stock option plans ("the Plans") for the benefit of
directors, officers, and other key employees of the Bank.  Options granted under
the Plans are exercisable over a period not to exceed ten years from the date of
grant.  Under the Plans, the exercise price of each option equals the market
price of the Bank's stock on the date of grant.  During 1995, the Board of
Directors amended the Plans, in conjunction with the secondary offering, to
increase the number of shares available for grants by 60,000 shares, as approved
by the OTS and stockholders.  The following table summarizes the options granted
and exercised under the Plans during the periods indicated and their respective
weighted average exercise price (rounded to the nearest tenth decimal place),
reflective of four 10% stock dividends and a 2-for-1 stock split:

                                     F-25
SEPTEMBER 30, 1997          DECEMBER 31,1996        DECEMBER 31, 1995       DECEMBER 31,1994
                              ----------------------  -------------------------  ----------------------  ----------------------
                                           WEIGHTED                  WEIGHTED                 WEIGHTED                WEIGHTED
                                NUMBER     AVERAGE       NUMBER      AVERAGE       NUMBER     AVERAGE      NUMBER     AVERAGE
                                  OF       EXERCISE        OF        EXERCISE        OF       EXERCISE       OF       EXERCISE
                                SHARES      PRICE        SHARES       PRICE        SHARES      PRICE       SHARES      PRICE
                              ---------- -----------  ------------- -----------  ----------  ----------  ----------- ----------
Outstanding at beginning of                    
 period......................   271,958       $6.306      209,627     $ 3.413      218,451     $3.413      247,366     $3.413
 Granted.....................        --          --        72,600      14.245           --         --           --         --
Exercised....................  (119,774)       3.413      (10,269)      3.413       (8,824)     3.413      (28,915)     3.413
                                -------       ------      -------     -------      -------     ------      -------     ------
Outstanding at end of period.   152,184       $8.582      271,958     $ 6.306      209,627     $3.413      218,451     $3.413
                                =======       ======      =======     =======      =======     ======      =======     ======
Options exercisable at end of
period.......................    86,844                   199,356                  180,343                 159,884
                                =======                   =======                  =======                 =======
Weighted average fair value                 
 of options granted during                  
 the period..................                    N/A                  $14.103                     N/A                     N/A
                                              ======                  =======                  ======                  ======
The following table summarizes information about the stock options outstanding
at September 30, 1997, and December 31, 1996, as adjusted for the effect of
stock dividends:
AT SEPTEMBER 30, 1997
---------------------------------------------------------------------------------------------------------------
                            OPTIONS OUTSTANDING                                       OPTIONS EXERCISABLE
---------------------------------------------------------------------------    --------------------------------
                                            WEIGHTED
                                             AVERAGE            WEIGHTED          NUMBER OF         WEIGHTED
     RANGE OF             NUMBER            REMAINING            AVERAGE           SHARES            AVERAGE
     EXERCISE            OF SHARES         CONTRACTUAL          EXERCISE         EXERCISABLE        EXERCISE
      PRICES            OUTSTANDING       LIFE IN YEARS           PRICE           AT PERIOD           PRICE
                                                                                     END
------------------    -------------    -----------------    ---------------    -------------    ---------------
$         3.413            79,584               4.6             $ 3.413            79,584            $ 3.413
  13.017-14.773            72,600               9.0              14.245             7,260             13.017
---------------           -------               ---             -------            ------            -------
$  3.413-14.773           152,184               6.7             $ 8.582            86,844            $ 4.216
===============           =======               ===             =======            ======            =======
AT DECEMBER 31, 1996
--------------------------------------------------------------------------------------------------------------
                            OPTIONS OUTSTANDING                                      OPTIONS EXERCISABLE
---------------------------------------------------------------------------    -------------------------------
                                            WEIGHTED
                                             AVERAGE            WEIGHTED          NUMBER OF        WEIGHTED
     RANGE OF             NUMBER            REMAINING            AVERAGE           SHARES          AVERAGE
     EXERCISE            OF SHARES         CONTRACTUAL          EXERCISE         EXERCISABLE       EXERCISE
      PRICES            OUTSTANDING       LIFE IN YEARS           PRICE           AT PERIOD          PRICE
                                                                                     END
------------------    -------------    -----------------    ---------------    -------------    --------------
$            3.413        199,358               5.5              $ 3.413           199,356            $3.413  
     13.017-14.773         72,600               9.8               14.245                --                --
------------------        -------               ---              -------           -------           -------
$     3.413-14.773        271,958               6.7              $ 6,305           199,356            $3,413
==================        =======               ===              =======           =======           =======
F-26
The Bank applies APB 25 in accounting for the Plans.  Consistent with SFAS 123,
if compensation cost for the Plans was included, the Bank's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below (as restated for the 10% stock dividend declared on September 24, 1997).
There were no options granted in 1997. (in thousands, except per share data) :
AT SEPTEMBER 30,                     AT DECEMBER 31,           
                                         ------------------------      --------------------------------------     
                                            1997           1996           1996           1995          1994       
                                         ---------      ---------      ---------      ---------     ---------
Net Income:                                                                                                       
     As Reported.......................     $6,760         $2,364         $4,710         $8,302        $8,275     
     Pro forma.........................      6,760          2,364          4,649          8,302         8,275     
                                                                                                                  
Earnings per share:                                                                                               
     As Reported.......................     $ 0.84         $ 0.29         $ 0.59         $ 1.04        $ 1.03     
     Pro forma.........................     $ 0.84         $ 0.29         $ 0.58         $ 1.04        $ 1.03     
                                                                                                                  
Weighted average fair value                                                                                       
of options granted during the year             N/A            N/A         $ 4.38            N/A           N/A
The fair value of stock options (or their equivalents) granted by the Bank was
estimated through the use of the Black-Scholes option-pricing model that takes
into account the following factors as of the grant dates: the exercise price and
expected life of the option, the market price of the underlying stock at the
grant date and its expected volatility, and the risk-free interest rate for the
expected term of the option.  In deriving the fair value of a stock option, the
stock price at the grant date is reduced by the value of the dividends to be
paid during the life of the option.  The following assumptions were used for
grants in 1996: dividend yield of 2.50%, an expected volatility of 28.6% and a
risk-free interest rate of 6.05%.  There were no options granted in 1997, 1995
and 1994 that required disclosure in accordance with SFAS 123.  The effects of
applying SFAS 123 on the pro forma net income may not be representative of the
effects on pro forma net income for future years.

_______________________________________________________________________________

(14) COMMITMENTS AND CONTINGENCIES

COMMITMENTS

FINANCIAL TRANSACTIONS WITH OFF-BALANCE-SHEET RISK
AND CONCENTRATIONS OF CREDIT

The Bank, in the normal course of conducting its business, extends credit to
meet the financing needs of its customers through commitments and letters of
credit.

The following commitments and contingent liabilities existed at September 30,
1997, December 31, 1996 and 1995, which are not reflected in the accompanying
consolidated financial statements (in thousands):

                                     F-27
DECEMBER 31, 
                                                   SEPTEMBER 30,         ---------------------------------
                                                       1997                   1996                 1995
                                                   -------------         ------------         ------------
ORIGINATION OF MORTGAGE LOANS:
  Fixed rate...................................    $   8,809               $  6,477            $    6,168
  Variable rate................................       14,505                 22,813                 3,583
Purchase of mortgage loans - variable rate.....        2,428                  2,773                 6,393
Undisbursed home equity credit lines...........       14,333                 15,210                14,575
Purchase of investment and mortgage-backed.....       16,936                 21,268                 4,000
Undisbursed construction credit lines..........       26,214                 12,243                 3,800
Undisbursed consumer lines of credit...........        1,544                     --                    --
Participations in Thrift Institutions
 Community Investment Corp.....................          100                    650                 2,300
  of New Jersey
Unused credit card lines.......................          911                    964                   966
Standby letters of credit......................        2,143                  1,322                   977
Sale of mortgage-backed securities.............    $     --                $(21,364)           $       --
                                                   =========               ========            ==========
These instruments involve elements of credit and interest rate risk in excess of
the amount recognized in the consolidated financial statements.  The Bank uses
the same credit policies and collateral requirements in making commitments and
conditional obligations as it does for on-balance-sheet loans.  Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee.  Since the commitments may expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements.  The Bank evaluates each customer's creditworthiness on a case-by-
case basis.  The amount of collateral obtained is based on management's credit
evaluation of the borrower.

The Bank grants one- to four-family first mortgage real estate loans, multi-
family, and nonresidential first mortgage real estate loans to borrowers
throughout New Jersey.  Its borrowers' abilities to repay their obligations are
dependent upon various factors, including the borrowers' income and net worth,
cash flows generated by the underlying collateral, value of the underlying
collateral and priority of the Bank's lien on the property.  Such factors are
dependent upon various economic conditions and individual circumstances beyond
the Bank's control; the Bank is therefore subject to risk of loss.  The Bank
believes its lending policies and procedures adequately minimize the potential
exposure to such risks and that adequate provisions for loan losses are provided
for all known and inherent risks.  Collateral and/or guarantees are required for
virtually all loans.

LEASE OBLIGATIONS

At September 30, 1997, and December 31, 1996, the Bank was obligated under
noncancellable operating leases for premises and equipment.  Rental expense
under these leases aggregated approximately $518,000 and $536,000 for the nine
months ended September 30, 1997 and 1996, respectively, and $711,000, $714,000
and $644,000 for the years ended December 31, 1996, 1995 and 1994, respectively.

                                     F-28
The projected minimum rental commitments are as follows (in thousands):
SEPTEMBER 30,           DECEMBER 31, 
                                         1997                    1996
                                     -------------           -------------
1997..........................     $  115                   $  420
     1998..........................        336                      273
     1999..........................        336                      273
     2000..........................        197                      140
     2001..........................        123                       70
     Thereafter....................        205                      155
                                        ------                   ------    
                                        $1,312                   $1,331    
                                        ======                   ======
CONTINGENCIES

The Bank is a defendant in certain claims and legal actions arising in the
ordinary course of business.  Management is of the opinion that the ultimate
disposition of these matters will not have a material adverse effect on the
Bank's consolidated financial condition or results of operations.

________________________________________________________________________________

(15)  SPECIAL SAIF ASSESSMENT

The Deposit Insurance Funds Act of 1996 (the "Act") was signed into law on
September 30, 1996.  Among other things, the Act required depository
institutions to pay a one-time special assessment of 65.7 basis points on their
SAIF (Savings Association Insurance Fund)-assessable deposits, in order to
recapitalize the SAIF to the reserve level required by law.  The Bank's
financial statements for the period ended September 30, 1996 and year ended
December 31, 1996 reflect a charge of $5.2 million for this special SAIF
assessment.  As a result of the Act, the Bank's annual SAIF insurance premium
has been reduced to 6.4 basis points.  In addition to this special SAIF
assessment, the Bank paid federal deposit insurance premiums of $285,000 and
$1.4 million in for the nine months ended September 30, 1997, and 1996,
respectively and $1.9 million, $1.7 million and $1.6 million for the years ended
December 31, 1997, 1996 and 1995, respectively.

________________________________________________________________________________

(16)  RECENT ACCOUNTING PRONOUNCEMENTS

In June, 1996, the FASB issued SFAS 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities."  SFAS 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities.  These standards are based on a
consistent application of a financial components approach that focuses on
control.  Under this approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished.  SFAS 125 is effective for
transfers that occur after December 31, 1996 and will be applied prospectively
except for certain provisions that were deferred until January 1, 1998, by
Statement 127  "Deferral of the Effective date of Certain Provisions of FASB No.
125" issued in December 1996.  The adoption of SFAS 125 did not have a material
effect on the Bank's financial position or results of operations.

                                     F-29
In February 1997, the FASB issued Statement 128, "Earnings Per Share."  SFAS 128
supersedes APB Opinion No. 15, "Earnings per Share" and specifies the
computation, presentation and disclosure requirements for earnings per share
(EPS) for entities with publicly held common stock or potential common stock.
SFAS 128 replaces Primary EPS and Fully Diluted EPS with Basic EPS and Diluted
EPS, respectively.  SFAS 128 requires dual presentation of Basic and Diluted EPS
on the face of the income statement for entities with complex capital structures
and a reconciliation of information utilized to calculate Basic EPS to that used
to calculate Fully Diluted EPS.  SFAS 128 is effective for financial statement
periods ending after December 15, 1997.  Earlier application is not permitted.
After adoption, all prior EPS are required to be restated to conform with SFAS
128.  If the Bank had adopted SFAS 128, Basic EPS would have been $0.85 and
$0.30 for the nine months ended September 30, 1997 and 1996 and $0.60, $1.06 and
$1.05 for the years ended December 31, 1996, 1995 and 1994, respectively.
Diluted EPS would have been the same as earnings per share reported.

In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income." SFAS
130 established standards for reporting and display of comprehensive income and
its components in a full set of general purpose financial statements.  Under
SFAS 130, comprehensive income is divided into net income and other
comprehensive income.  Other comprehensive income includes items previously
recorded directly in equity, such as unrealized gains or losses on securities
available for sale.  SFAS 130 is effective for interim periods and annual
periods beginning after December 15, 1997.  Comparative financial statements for
earlier period are required to be reclassified to reflect application of the
provisions of SFAS 130.  The Bank has not determined the impact, if any, SFAS
130 will have on the Bank's financial statement presentation.

In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information."  SFAS 131 establishes standards for the way
public business enterprises are to report information about operating segments
in annual financial statements and requires those enterprises to report selected
financial information about operating segments in interim financial reports to
shareholders.  SFAS 131 is effective for financial statements for periods
beginning after December 15, 1997.  The Bank has not determined the impact, if
any, SFAS 131 will have on the Bank's financial statement presentation.

                                     F-30
________________________________________________________________________________

(17)  FAIR VALUE OF FINANCIAL INSTRUMENTS

The following fair value estimates, methods and assumptions were used to measure
the fair value of each class of financial instrument for which it is practical
to estimate that value.

CASH AND CASH EQUIVALENTS

For such short-term investments, the carrying amount was considered to be a
reasonable estimate of fair value.

FEDERAL HOME LOAN BANK-NY STOCK

Federal Home Loan Bank-NY stock is valued at cost.

INVESTMENT AND MORTGAGE-BACKED SECURITIES

For investment and mortgage-backed securities, fair values were based on quoted
market prices or dealer quotes.  If a quoted market price was not available,
fair values were estimated using quoted market prices for similar securities.

LOANS RECEIVABLE, NET

Fair values were estimated for portfolios of performing and nonperforming loans
with similar financial characteristics.  For certain analogous categories of
loans, such as residential mortgages, home equity loans, non-residential
mortgages, and consumer loans, fair value was estimated using the quoted market
prices for securities backed by similar loans, adjusted for differences in loan
characteristics.  The fair value of other performing loan types was estimated by
discounting the future cash flows using market discount rates that reflect the
credit, collateral, and interest rate risk inherent in the loan.

DEPOSITS

The fair value of demand deposits, savings deposits and money market accounts
were the amounts payable on demand at September 30, 1997, December 31, 1996 and
1995.  The fair values of certificates of deposit were based on the discounted
value of contractual cash flows.  The discount rate was estimated utilizing the
rate currently offered for deposits of similar remaining maturities.

BORROWED FUNDS

For short-term borrowings, the carrying amount was considered to be a reasonable
estimate of fair value.  For long-term borrowings, the fair value was based upon
the discounted value of the cash flows.  The discount rates utilized were based
on rates currently available with similar terms and maturities.

OFF-BALANCE SHEET INSTRUMENTS

For commitments to extend credit and letters of credit, the fair value would
approximate fees currently charged to enter into similar agreements.

                                     F-31
The estimated fair values of the Bank's financial instruments at September 30,
1997, December 31, 1996 and December 31, 1995, were as follows (in thousands):
SEPTEMBER 30, 1997            DECEMBER  31, 1996           DECEMBER  31, 1995   
                                        -------------------------     -------------------------    -------------------------
                                           BOOK          FAIR            BOOK          FAIR           BOOK          FAIR  
                                           VALUE         VALUE           VALUE         VALUE          VALUE         VALUE 
                                        -----------   -----------     -----------   ------------   -----------   -----------
FINANCIAL ASSETS:
Cash and cash equivalents..............    $ 23,798      $ 23,798        $  9,042       $  9,042      $ 26,549      $ 26,549
FHLB-NY stock..........................       8,045         8,045           7,428          7,428         6,276         6,276
Investment securities..................      40,959        41,108          38,955         38,980        39,003        39,617
Investment securities available for....      18,024        18,024          14,831         14,831         2,058         2,058
  sale
Mortgage-backed securities.............     228,158       231,667         252,383        255,052       288,143       291,689
Mortgage-backed securities.............     122,371       122,371         120,797        120,797        89,339        89,339
  available for sale
Loans receivable, net..................     567,197       586,475         509,627        514,084       457,756       470,269
Loans available for sale...............          --           ---             287            290           424           428

FINANCIAL LIABILITIES:
Deposits...............................     809,449       810,060         794,595        795,545       806,338       808,639
Borrowed funds.........................     124,465       124,172          88,640         88,648        39,496        39,671

OFF-BALANCE SHEET INSTRUMENTS:
Loan commitments.......................                       138              --            393            --            39
Standby letters of credit..............          --            21              --             13            --            10
                                           ========      ========        ========       ========      ========      ========
LIMITATIONS:

The foregoing fair value estimates were made at September 30, 1997, December 31,
1996 and 1995, based on pertinent market data and relevant information on the
financial instrument.   These estimates do not include any premium or discount
that could result from an offer to sell, at one time, the Bank's entire holdings
of a particular financial instrument or category thereof.  Since no market
exists for a substantial portion of the Bank's financial instruments, fair value
estimates were necessarily based on judgments with respect to future expected
loss experience, current economic conditions, risk assessments of various
financial instruments involving a myriad of individual borrowers, and other
factors.  Given the innately subjective nature of these estimates, the
uncertainties surrounding them and the matters of significant judgment that must
be applied, these fair value estimations cannot be calculated with precision.
Modifications in such assumptions could meaningfully alter these estimates.

Since these fair value approximations were made solely for on- and off-balance
sheet financial instruments at September 30, 1997, December 31, 1996 and 1995,
no attempt was made to estimate the value of anticipated future business of the
value of nonfinancial statement assets and liabilities.  Other important
elements which are not deemed to be financial assets or liabilities include the
value of the Bank's retail branch delivery system, its existing core deposit
base, premises and equipment, and goodwill.  Further, certain tax implications
related to the realization of the unrealized gains and losses could have a
substantial impact on these fair value estimates and have not been incorporated
into any of the estimates.

                                     F-32
________________________________________________________________________________

(18)  QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table contains quarterly financial data for the nine months ended
September 30, 1997 and years ended December 31, 1996 and 1995 (dollars in
thousands, except per share data, which includes four 10% stock dividends and a
2-for-1 stock split):
NINE MONTHS ENDED SEPTEMBER 30, 1997                                 FIRST           SECOND           THIRD                   
                                                                    QUARTER          QUARTER         QUARTER                  
                                                                    --------         -------         -------
Interest income...............................................       $17,791         $18,263         $18,582
Interest expense..............................................         9,828          10,262          10,501
                                                                     -------         -------         -------
Net interest income before provision for loan losses..........         7,963           8,001           8,081
Provision for loan losses.....................................           300             300             300
                                                                     -------         -------         -------
Net interest income after provision for loan losses...........         7,663           7,701           7,781
Other operating income........................................           525             526           1,135
Operating expenses............................................         4,124           4,417           6,040
                                                                     -------         -------         -------
Income before income tax expense..............................         4,064           3,810           2,876
Income tax expense............................................         1,563           1,356           1,071
Net income....................................................       $ 2,501         $ 2,454         $ 1,805
                                                                     =======         =======         =======
Net income per share..........................................         $0.31           $0.30           $0.22
                                                                     =======         =======         =======
YEAR ENDED DECEMBER 31, 1996                                          FIRST          SECOND           THIRD           FOURTH
                                                                     QUARTER         QUARTER         QUARTER          QUARTER
                                                                     -------         -------         -------          -------
Interest income...............................................       $16,788         $16,811         $16,900          $17,540
Interest expense..............................................         9,227           9,168           9,249            9,620
                                                                     -------         -------         -------          -------
Net interest income before provision for losses...............         7,561           7,643           7,651            7,920
Provision for loan losses.....................................           100             125             150              175
                                                                     -------         -------         -------          -------
Net interest income after provision for loan losses...........         7,461           7,518           7,501            7,745
Other operating income........................................           485             395             502              613
Operating expenses............................................         4,510           5,218          10,394            4,579
                                                                     -------         -------         -------          -------
Income (loss) before income tax expense (benefit).............         3,436           2,695          (2,391)           3,779
Income tax expense (benefit)..................................         1,244           1,005            (873)           1,433
                                                                     -------         -------         -------          -------
Net income (loss).............................................       $ 2,192         $ 1,690         $(1,518)         $ 2,346
                                                                     =======         =======         =======          =======
Net income (loss) per share...................................         $0.27           $0.21          $(0.19)           $0.29
                                                                     =======         =======         =======          =======
YEAR ENDED DECEMBER 31, 1995                                          FIRST          SECOND           THIRD           FOURTH
                                                                     QUARTER         QUARTER         QUARTER          QUARTER
                                                                     -------         -------         -------          -------
Interest income...............................................       $15,111         $15,983         $16,635          $16,844
Interest expense..............................................         7,865           8,970           9,407            9,449
                                                                     -------         -------         -------          -------
Net interest income before provision for loan losses..........         7,246           7,013           7,228            7,395
Provision for loan losses.....................................            75              75              75               85
                                                                     -------         -------         -------          -------
Net interest income after provision for loan losses...........         7,171           6,938           7,153            7,310
Other operating income........................................           713             652             286              520
Operating expenses............................................         4,397           4,589           4,422            4,422
                                                                     -------         -------         -------          -------
Income before income tax expense..............................         3,487           3,001           3,017            3,408
Income tax expense............................................         1,098           1,252           1,003            1,258
                                                                     -------         -------         -------          -------
Net income....................................................       $ 2,389         $ 1,749         $ 2,014          $ 2,150
                                                                     =======         =======         =======          =======
Net income per share..........................................         $0.30           $0.22           $0.25            $0.27
                                                                     =======         =======         =======          =======
F-33
================================================================================

     No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
Prospectus in connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon as having been
authorized by First Source Bancorp, Inc., the Bank or Sandler O'Neill. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any of the securities offered hereby to any person in any jurisdiction in
which such offer or solicitation is not authorized or in which the person making
such offer or solicitation is not qualified to do so, or to any person to whom
it is unlawful to make such offer or solicitation in such jurisdiction. Neither
the delivery of this Prospectus nor any sale hereunder shall under any
circumstances create any implication that there has been no change in the
affairs of First Source Bancorp, Inc. or the Bank since any of the dates as of
which information is furnished herein or since the date hereof.

                        ______________________________
                                                   
                               TABLE OF CONTENTS
Page
                                                                           ----
Summary...................................................................   
Selected Financial and Other Data.........................................   
Risk Factors..............................................................   
First Source Bancorp, Inc.................................................   
First Savings Bancshares, MHC.............................................   
First Savings Bank, SLA...................................................   
Regulatory Capital Compliance.............................................   
Use of Proceeds...........................................................   
Dividend Policy...........................................................   
Market for the Common Stock...............................................   
Capitalization............................................................   
Pro Forma Data............................................................   
First Savings Bank, SLA and Subsidiaries Consolidated Statements             
  of Operations...........................................................   
Management's Discussion and Analysis of Financial.........................   
   Condition and Results of Operations....................................   
Business of the Bank......................................................   
Federal and State Taxation................................................   
Regulation................................................................   
Management of the Company.................................................   
Management of the Bank....................................................   
Beneficial Ownership of Capital Stock.....................................   
The Conversion and Reorganization.........................................   
Comparison of Stockholders' Rights........................................   
Restrictions on Acquisition of the Company and the Bank...................   
Description of Capital Stock of the Company...............................   
Description of Capital Stock of the Bank..................................   
Transfer Agent and Registrar..............................................   
Experts...................................................................   
Legal and Tax Opinions....................................................   
Additional Information....................................................   
Index of Consolidated Financial Statements................................
______________________________
 
     UNTIL _________, 1998 OR 25 DAYS AFTER COMMENCEMENT OF THE SYNDICATED
COMMUNITY OFFERING, IF ANY, WHICHEVER IS LATER, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

                               27,600,000 Shares

                                                       
                                                       
                                                       
                                                       
                                                       
                                                       
                          FIRST SOURCE BANCORP, INC.
                                                       
                         (Proposed Holding Company for
                           First Savings Bank, SLA)
                                                       
                                                       
                                                       
                                                       
                                 COMMON STOCK
                                                       
                                                       
                                                       
                                  __________
                                                       
                                  PROSPECTUS
                                  __________
                                                       
                                                       
                                                       
                                                       
                                ________, 1998
                                                       
                                                       
                                                       
                                                       
                                                       
                                                       
                                                       
                       SANDLER O'NEILL & PARTNERS, L.P.

================================================================================
PART II
                    INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.(1)
OTS filing fee............................................       $    8,400
SEC filing fee(1).........................................           93,633
NASD filing fee(1)........................................           30,500
Exchange listing fee(1)...................................           36,740
Printing, postage and mailing.............................           75,000
Legal fees and expenses...................................          100,000
Accounting fees and expenses..............................          100,000
Appraiser's fees and expenses (including                                   
  business plan)..........................................           25,000
Marketing fees and selling commissions (1)................        1,726,000
Underwriter's expenses (including underwriter's                             
  counsel fees)(1).......................................                --
Proxy solicitation and record management                                   
  fees and  expenses......................................           10,000
Transfer agent fees and expenses..........................           15,000
Certificate printing......................................            5,000
Telephone, temporary help and other                                        
  equipment...............................................           25,000
Blue Sky fees and expenses................................           10,000
Miscellaneous.............................................           65,727
                                                                 ----------
                                                                           
TOTAL.....................................................       $2,326,000
                                                                 ==========
____________________
(1)  Actual expenses based upon the registration of 31,740,000 shares at $10.00
     per share.  All other expenses are estimated.

ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.

In accordance with the General Corporation Law of the State of Delaware (being
Chapter 1 of Title 8 of the Delaware Code), Articles 10 and 11 of the
Registrant's Certificate of Incorporation provide as follows:
 
TENTH:

A.  Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent, or in any other capacity while serving as a Director,
Officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader
indemnification rights than such law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) reasonably incurred or suffered by such indemnitee in
connection therewith; provided, however, that, except as provided in Section C
hereof with respect to proceedings to enforce rights to indemnification, the
Corporation shall indemnify any such indemnitee in connection with a proceeding
(or part thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation.

B.  The right to indemnification conferred in Section A of this Article TENTH
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a Director or Officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, services to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise.  The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article TENTH shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
Director, Officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.

C.  If a claim under Section A or B of this Article TENTH is not paid in full by
the Corporation within sixty days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim.  If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit.  In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law.  Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit.  In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses under this
Article TENTH or otherwise shall be on the Corporation.

D.  The rights to indemnification and to the advancement of expenses conferred
in this Article TENTH shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, the Corporation's Certificate
of Incorporation, Bylaws, agreement, vote of stockholders or Disinterested
Directors or otherwise.

E.  The Corporation may maintain insurance, at its expense, to protect itself
and any Director, Officer, employee or agent of the Corporation or subsidiary or
Affiliate or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.

F.  The Corporation may, to the extent authorized from time to time by the Board
of Directors, grant rights to indemnification and to the advancement of expenses
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
ELEVENTH:
---------

A Director of this Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
Director, except for liability:  (i) for any breach of the Director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the Director derived an improper personal
benefit.  If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
Directors, then the liability of a Director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.

Any repeal or modification of the foregoing paragraph by the stockholders of the
Corporation shall not adversely affect any right or protection of a Director of
the Corporation existing at the time of such repeal or modification.

ITEM 15.  RECENT SALES OF UNREGISTERED SECURITIES

Not applicable.
ITEM 16.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The exhibits and financial statement schedules filed as a part of this 
Registration Statement are as follows:

(a) List of Exhibits (Filed herewith unless otherwise noted)
1.1       Engagement Letter between First Savings Bank, SLA and Sandler O'Neill & Partners, L.P. 
1.2       Draft Form of Agency Agreement*                                       
2.1       Amended Plan of Conversion and Agreement and Plan of Reorganization   
3.1       Certificate of Incorporation of First Source Bancorp, Inc.            
3.2       Bylaws of First Source Bancorp, Inc.                                  
3.3       Certificate of Incorporation and Bylaws of First Savings Bank, SLA    
4.0       Draft Stock Certificate of First Source Bancorp, Inc.                 
5.0       Draft Opinion of Muldoon, Murphy & Faucette re: legality       
5.1       Draft Opinion of Morris, Nichols, Arsht & Tunnell re: legality    
8.0       Draft Opinion of Muldoon, Murphy & Faucette re:  Federal and State Tax Matters* 
10.1      First Savings Bank, SLA 1992 Incentive Stock Option Plan                      
10.2      First Savings Bank, SLA 1992 Stock Option Plan for Outside Directors          
10.3      First Savings Bank, SLA 1996 Omnibus Incentive Plan                           
10.4      First Savings Bank, SLA 1992 Employee Stock Ownership Plan                    
10.5      Draft ESOP Loan Commitment Letter and ESOP Loan Documents*                    
10.6      First Savings Bank, SLA Directors' Deferred Fee Stock Unit Plan               
10.7      First Savings Bank, SLA Supplemental Executive Retirement Plan                
10.8      Draft First Savings Bank, SLA Supplemental Executive Retirement Plan II             
10.9      First Savings Bank, SLA Director Retirement Plan                              
10.10     Employment Agreements between First Savings Bank, SLA and certain executive officers   
10.11     Form of Employment Agreement between First Source Bancorp, Inc. and certain executive officers  
10.12     Form of Change in Control Agreement between First Savings Bank, SLA and certain executive officers    
10.13     Form of Change in Control Agreement between First Source Bancorp, Inc. and certain executive officers    
10.14     Form of First Savings Bank, SLA Employee Severance Compensation Plan        
23.1      Consent of KPMG Peat Marwick LLP                                              
23.2      Consent of Muldoon, Murphy & Faucette                                         
23.3      Consent of Morris, Nichols, Arsht & Tunnell                                    
23.4      Consent and Subscription Rights Opinion of FinPro, Inc.                
24.1      Powers of Attorney                                                     
27.0      Financial Data Schedule                                                
99.1      Appraisal Report of FinPro, Inc. (P)                                   
99.2      Agreement Regarding Listing on a Securities Exchange*                  
99.3      Proxy Materials and Form of Revocable Proxy for First Savings Bank, SLA Stockholders
__________________________________
*To be filed by amendment

                                       4
(b)  Financial Statement Schedules

All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.

ITEM 17.  UNDERTAKINGS.

     The undersigned Registrant hereby undertakes:

     (1)  To file, during any period in which offers or sales are being made, a
          post-effective amendment to this Registration Statement:

          (i)    To include any Prospectus required by Section 10(a)(3) of the
                 Securities Act of 1933;

          (ii)   To reflect in the Prospectus any facts or events arising after
                 the effective date of the Registration Statement (or the most
                 recent post-effective amendment thereof) which, individually or
                 in the aggregate, represent a fundamental change in the 
                 information set forth in the Registration Statement.
                 Notwithstanding the foregoing, any increase or decrease in 
                 volume of securities offered (if the total dollar value of
                 securities offered would not exceed that which was registered) 
                 and any deviation from the low or high end of the estimated
                 maximum offering range may be reflected in the form of 
                 prospectus filed with the Commission pursuant to Rule 424(b) 
                 if, in the aggregate, the changes in volume and price 
                 represent no more than a 20 percent change in the maximum 
                 aggregate offering price set forth in the "Calculation of 
                 Registration Fee" table in the effective registration 
                 statement;

          (iii)  To include any material information with respect to the plan of
                 distribution not previously disclosed in the Registration
                 Statement or any material change to such information in the
                 Registration Statement;

     (2)  That, for the purpose of determining any liability under the         
          Securities Act of 1933, each such post-effective amendment shall be
          deemed to be a new Registration Statement relating to the securities
          offered therein, and the offering of such securities at that time
          shall be deemed to be the initial bona fide offering thereof.

     (3)  To remove from registration by means of a post-effective amendment any
          of the securities being registered which remain unsold at the
          termination of the Offering.

     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
CONFORMED

                                  SIGNATURES

          Pursuant to the requirements of the Securities Act of 1933, the 
Registrant has duly caused this Registration Statement to be signed on its 
behalf by the undersigned, thereunto duly authorized, in the City of Woodbridge,
State of New Jersey, on December 19, 1997.

FIRST SOURCE BANCORP, INC.

By:       /s/ John P. Mulkerin
          ---------------------------------------
          John P. Mulkerin
          President and Chief Executive Officer

          Pursuant to the requirements of the Securities Act of 1933, this 
Registration Statement has been signed by the following persons in the 
capacities and on the dates indicated.
Name                                              Date
     ----                                              ----
/s/ Walter K. Timpson                                  December 19, 1997
----------------------------------------
Walter K. Timpson
Chairman of the Board

/s/ John P. Mulkerin                                   December 19, 1997
----------------------------------------
President, Chief Executive Officer and
Director (principal executive officer)

/s/ Christopher P. Martin                              December 19, 1997
----------------------------------------
Christopher P. Martin
Executive Vice President,
Chief Operating Officer and
Chief Financial Officer
(principal accounting and financial officer)

/s/ Donald T. Akey, M.D.                               December 19, 1997
----------------------------------------
Donald T. Akey, M.D.
Director

/s/ Harry F. Burke                                     December 19, 1997
----------------------------------------
Harry F. Burke
Director

/s/ Keith H. McLaughlin                                December 19, 1997
----------------------------------------
Keith H. McLaughlin
Director

/s/ Philip T. Ruegger, Jr.                             December 19, 1997
----------------------------------------
Philip T. Ruegger, Jr.
Director

/s/ Jeffries Shein                                     December 19, 1997
----------------------------------------
Jeffries Shein
Director