<PAGE>
 
  AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1998
                                                           REGISTRATION NO. 333-
================================================================================

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM S-1
                            REGISTRATION STATEMENT
                                     UNDER
                          THE SECURITIES ACT OF 1933

                            PROVIDENT BANCORP, INC.
            (Exact Name of Registrant as Specified in Its Charter )

      FEDERAL                         6712                   (TO BE APPLIED FOR)
(State or Jurisdiction          (Primary Standard              (I.R.S. Employer
of Incorporation or      Industrial Classification Code      Identification No.)
   Organization)                     Number)

                              400 RELLA BOULEVARD
                          MONTEBELLO, NEW YORK 10901
                                (914) 369-8040
         (Address and Telephone Number of Principal Executive Offices)

                                GEORGE STRAYTON
                     PRESIDENT AND CHIEF EXECUTIVE OFFICER
                              400 RELLA BOULEVARD
                          MONTEBELLO, NEW YORK 10901
                                (914) 369-8040
          (Name, Address  and Telephone Number of Agent for Service)

                                  COPIES TO:
                                ERIC LUSE, ESQ.
                            KENNETH R. LEHMAN, ESQ.
                  LUSE LEHMAN GORMAN POMERENK & SCHICK, P.C.
                    5335 WISCONSIN AVENUE, N.W., SUITE 400
                                (202) 274-2000
                            WASHINGTON, D.C. 20015

APPROXIMATE DATE OF PROPOSED SALE TO THE 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, 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 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(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]  

If the delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box: [_]
<PAGE>
 
<TABLE>  
<CAPTION> 
                        CALCULATION OF REGISTRATION FEE
==================================================================================================================

                                                                 PROPOSED        PROPOSED                            
                                             AMOUNT TO BE        MAXIMUM         MAXIMUM                            
    TITLE OF EACH CLASS OF                   REGISTERED       OFFERING PRICE    AGGREGATE        AMOUNT OF          
    SECURITIES TO BE REGISTERED                                     PER          OFFERING    REGISTRATION FEE       
                                                                SHARE/UNIT      PRICE (1)                            
------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                <C>               <C>          <C>
Common Stock, $0.10 par value per share    4,007,175 shares       $10.00        $40,071,750       $11,822
 
Participation Interests (2)                340,000  interests        --              --              --
==================================================================================================================
</TABLE>

____________________

(1)  Estimated solely for the purpose of calculating the registration fee.
(2)  The securities of Provident Bancorp, Inc. to be purchased by the Provident
     Savings Bank 401(k) Plan as adopted by Provident Bank are included in the
     amount shown for Common Stock.  However, pursuant to Rule 457(h) of the
     Securities Act of 1933, as amended, no separate fee is required for the
     participation interests.  Pursuant to such rule, the amount being
     registered 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 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 SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.

================================================================================
<PAGE>
 
PROSPECTUS
UP TO 3,484,500 SHARES OF COMMON STOCK
                                                         PROVIDENT BANCORP, INC.
                                                             400 RELLA BOULEVARD
                                                     MONTEBELLO, NEW YORK, 10901

================================================================================
     Provident Bancorp, Inc., a federal corporation, is offering for sale up to
3,484,500 shares, or 46.6% of its to-be outstanding common stock, in connection
with the mutual holding company reorganization of Provident Bank.  Provident
Bancorp, Inc. will issue the remaining 53.4% of its to-be outstanding common
stock to Provident Bancorp, MHC, a federal mutual holding company.  The shares
of common stock of Provident Bancorp, Inc. are being offered to the public under
the terms of a plan of reorganization that must be approved by members of
Provident Bank and by the Office of Thrift Supervision. Because the names of
Provident Bank, Provident Bancorp, Inc. and Provident Bancorp, MHC are so
similar, we will refer to Provident Bank as the "Bank," we will refer to
Provident Bancorp, Inc. as the "Company," and we will refer to Provident
Bancorp, MHC as the "Mutual Holding Company."
================================================================================

                                 OFFERING TERMS

     An independent appraiser has estimated that the market value of the Company
after giving effect to the reorganization and offering is between $55,250,000
and $74,750,000.  Based on the valuation, the Company will issue between
5,525,000 and 7,475,000 shares of its common stock in the reorganization.  The
Company intends to sell 46.6% of these shares, or between 2,575,500 and
3,484,500 shares, to the public, and issue 53.4% of these shares, or between
2,949,500 and 3,990,500 shares, to the Mutual Holding Company.  The Company may
increase the shares issued in the reorganization to up to 8,596,250 shares.  If
the Company increases the shares issued in the reorganization it will also
increase the shares it sells in the offering to up to 4,007,175 shares.  The
number of shares to be issued is subject to approval of the Office of Thrift
Supervision.  Based on these estimates, the Company is making the following
offering of shares of common stock.
<TABLE>
<CAPTION>
                                                                                Adjusted
                                    Minimum       Midpoint       Maximum        Maximum
                                 -----------    -----------    -----------    -----------
<S>                              <C>            <C>            <C>            <C>
                                                                          
 . Price per share...........     $     10.00    $     10.00    $     10.00    $     10.00
 . Number of shares..........       2,575,500      3,030,000      3,484,500      4,007,175
 . Offering expenses.........     $ 1,250,000    $ 1,250,000    $ 1,250,000    $ 1,250,000
 . Net proceeds..............     $24,505,000    $29,050,000    $33,595,000    $38,821,750
 . Net proceeds per share....     $      9.51    $      9.59    $      9.64    $      9.69
</TABLE>

     PLEASE REFER TO RISK FACTORS BEGINNING ON PAGE _____ OF THIS DOCUMENT.
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT INSURED OR GUARANTEED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT
SUPERVISION, THE FEDERAL DEPOSIT INSURANCE CORPORATION, NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

     Ryan, Beck & Co., Inc. will use its best efforts to assist in selling at
least the minimum number of shares, but does not guarantee that this number will
be sold. All funds received from subscribers will be held in an interest-bearing
savings account at the Bank until the completion or termination of the offering.
The Company has applied to have the common stock quoted on the Nasdaq National
Market under the symbol "_______"

     For information on how to subscribe, call the Stock Information Center at
(914) 369-_____.

                             RYAN, BECK & CO., INC.

                       Prospectus dated November __, 1998
<PAGE>
 
                                     [MAP]

                                       2
<PAGE>
 
                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
 
                                                                    PAGE
                                                                    ----   
<S>                                                                  <C>
QUESTIONS AND ANSWERS ABOUT THE REORGANIZATION AND STOCK OFFERING....  4
SUMMARY AND OVERVIEW.................................................  7
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA....................... 13
RISK FACTORS......................................................... 15
PROVIDENT BANCORP, MHC............................................... 19
PROVIDENT BANCORP, INC............................................... 20
PROVIDENT BANK....................................................... 21
REGULATORY CAPITAL COMPLIANCE........................................ 22
USE OF PROCEEDS...................................................... 23
DIVIDEND POLICY...................................................... 24
MARKET FOR COMMON STOCK.............................................. 24
CAPITALIZATION....................................................... 25
PRO FORMA DATA....................................................... 26
PROPOSED PURCHASES BY DIRECTORS AND EXECUTIVE OFFICERS............... 33
THE REORGANIZATION AND OFFERING...................................... 34
PROVIDENT BANK CONSOLIDATED STATEMENTS OF INCOME..................... 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
     AND RESULTS OF OPERATIONS....................................... 47
BUSINESS OF PROVIDENT BANCORP, INC................................... 62
BUSINESS OF PROVIDENT BANK........................................... 62
TAXATION............................................................. 90
REGULATION............................................................92
MANAGEMENT OF THE COMPANY............................................ 98
MANAGEMENT OF THE BANK...............................................100
RESTRICTIONS ON ACQUISITION OF THE COMPANY...........................109
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY..........................111
TRANSFER AGENT AND REGISTRAR.........................................112
LEGAL AND TAX MATTERS................................................112
EXPERTS..............................................................112
ADDITIONAL INFORMATION...............................................112
CONSOLIDATED FINANCIAL STATEMENTS....................................F-1
GLOSSARY.............................................................G-1
</TABLE>

     This document contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors" beginning on page ____ of this Prospectus.

     You should note as you read this Prospectus that at times capitalized terms
are used.  These capitalized  terms are generally defined in the glossary that
is at the end of this Prospectus.  Defined terms are used to help you
differentiate between the various components of the transaction, to simplify the
discussion and to avoid unnecessary repetition by not having to define or
describe a term each time it is used.  For example, to avoid confusion, all of
the steps that are part of the transactions described in this Prospectus are
referred to as the "Reorganization," and the offer and sale of 46.6% of the
Company's common stock is referred to as the "Offering."  To further assist you
in reading this Prospectus, in addition to including a glossary, each term
defined in the glossary is also defined the first time that it is used in the
Prospectus.

                                       3
<PAGE>
 
     QUESTIONS AND ANSWERS ABOUT THE REORGANIZATION AND STOCK OFFERING

Q:   WHAT IS THE PURPOSE OF THE REORGANIZATION AND STOCK OFFERING?

A:   We are selling shares of common stock so that we can raise capital to grow
     and compete more effectively, and so that our depositors, employees,
     management and directors may obtain an equity ownership in the Company.
     You will have the opportunity to subscribe for stock.  Stockholders of the
     Company will share indirectly in the future earnings and growth of our
     Bank.  The offering will increase our capital for lending and investment
     activities. This will better enable us to continue the expansion of our
     retail banking franchise and product lines and to diversify operations.
     Moreover, the capital raised in the offering may be used to acquire new
     branch offices or other financial institutions.  Also, as a stock bank
     operating through a holding company structure, we will improve our future
     access to the capital markets.

Q:   WHY IS THE BANK FORMING A TWO-TIER MUTUAL HOLDING COMPANY AND CONDUCTING A
     MINORITY STOCK OFFERING INSTEAD OF UNDERGOING A FULL CONVERSION TO STOCK
     FORM?

A:   The Bank is currently a well-capitalized financial institution with
     tangible capital equal to 7.3% of total assets at June 30, 1998.  A savings
     institution that converts from the mutual to stock form of organization
     using the mutual holding company structure sells less than half of its
     shares to the public at the time of the reorganization, and, as a result,
     raises less than half the capital that would be raised in a full
     conversion. Management believes that the proceeds from the offering will
     provide the Bank with sufficient capital to implement its business
     strategy, and that at the present time the Bank would not have a use for
     the additional capital that would be raised if all shares were sold.

     In addition, because OTS regulations and policy generally prohibit the sale
     of a savings association in the mutual holding company structure, the
     reorganization and offering will permit the Bank to achieve the benefits of
     the stock form of organization without the threat of a change of control,
     which may occur following a standard conversion from mutual to stock form.

Q:   WHO WILL BE THE MINORITY STOCKHOLDERS OF THE COMPANY?

A:   All persons who purchase common stock in the offering, including the
     employee stock ownership plan the Bank is adopting in connection with the
     reorganization, will be minority stockholders of the Company, and will own
     46.6% of the Company's common stock upon completion of the offering.  The
     Mutual Holding Company will initially own 53.4% of the Company's common
     stock, and will remain the majority stockholder of the Company as long as
     the Mutual Holding Company remains in existence.

Q:   HOW DO I ORDER THE STOCK?

A:   You must complete and return the stock order form to us together with your
     payment, so that we receive it on or before 10:00 a.m., New York time, on
     December __, 1998.

                                       4
<PAGE>
 
Q:   WHO WILL BE PERMITTED TO PURCHASE STOCK?

A:   The stock is being offered on a priority basis to the following persons:

     .    Persons who had aggregate deposit accounts of at least $50 with the
          Bank on December 31, 1996 ("Eligible Account Holders"). Any remaining
          shares will be offered to:

     .    The Bank's tax-qualified employee plans.  Any remaining shares will be
          offered to:

     .    Persons other than Eligible Account Holders who had aggregate deposit
          accounts of at least $50 with the Bank on September 30, 1998
          ("Supplemental Eligible Account Holders"). Any remaining shares will
          be offered to:

     .    Depositors of the Bank as of ___________, 1998 (the "Voting Record
          Date") and borrowers of the Bank as of July 9, 1998 whose borrowings
          remained outstanding as of the Voting Record Date, who are not
          Eligible Account Holders or Supplemental Eligible Account Holders
          ("Other Members"). Any remaining shares will be offered to:
 
     .    Employees, officers and directors of the Bank.

     If the above persons do not subscribe for all of the shares, the remaining
     shares may be offered in a Community Offering to certain members of the
     general public, with preference given to natural persons residing in
     Rockland County, New York.

Q:   HOW MUCH STOCK MAY I ORDER?

A:   The minimum number of shares that may be purchased is 25 shares.  No
     Eligible Account Holder, Supplemental Eligible Account Holder or Other
     Member may, in their capacities as such, purchase more than 20,000 shares
     (or $200,000) of common stock.  No person, together with associates of and
     persons acting in concert with such person, may purchase in the offering
     more than 40,000 shares (or $400,000) of common stock.  However, the
     maximum purchase limitation may be increased or decreased at the sole
     discretion of the Company and the Bank, provided that the aggregate
     purchase limitation may not be reduced below 1% of the shares issued in the
     offering.

Q:   WHAT HAPPENS IF THERE ARE NOT ENOUGH SHARES TO FILL ALL ORDERS?

A:   If the offering is oversubscribed, we will allocate shares based on the
     purchase priorities described above that are contained in the plan of
     reorganization and stock issuance plan.  These purchase priorities are in
     accordance with regulations of the Office of Thrift Supervision.  If the
     offering is oversubscribed in a particular category of the offering, then
     shares will be allocated among all subscribers in that category based on a
     formula that is described in detail in "The Reorganization and Offering."
     The categories are described in answer to the second preceding question.

Q:   AS A DEPOSITOR OR BORROWER OF THE BANK, WHAT WILL HAPPEN IF I DO NOT ORDER
     ANY COMMON STOCK?

A:   You are not required to purchase common stock. Your deposit accounts,
     certificate accounts and any loans you may have with the Bank will not be
     affected by the reorganization.

Q:   HOW DO I DECIDE WHETHER TO BUY STOCK IN THE OFFERING?

A:   In order to make an informed investment decision, you should read this
     entire Prospectus, including the section titled "Risk Factors."

                                       5
<PAGE>
 
Q:   WHO CAN HELP ANSWER ANY QUESTIONS I MAY HAVE ABOUT THE OFFERING?

     If you have questions about the offering, you may contact:

                            STOCK INFORMATION CENTER
                                 PROVIDENT BANK
                                (800) ____-____

     SELLING OR ASSIGNING YOUR SUBSCRIPTION RIGHTS IS ILLEGAL.  ALL PERSONS
EXERCISING THEIR SUBSCRIPTION RIGHTS WILL BE REQUIRED TO CERTIFY THAT THEY ARE
PURCHASING SHARES SOLELY FOR THEIR OWN ACCOUNT AND THAT THEY HAVE NO AGREEMENT
OR UNDERSTANDING REGARDING THE SALE OR TRANSFER OF SUCH SHARES.  THE COMPANY AND
THE BANK INTEND TO PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES IN THE EVENT
IT BECOMES AWARE OF THE TRANSFER OF SUBSCRIPTION RIGHTS.  ORDERS KNOWN TO
INVOLVE THE TRANSFER OF SUBSCRIPTION RIGHTS WILL NOT BE HONORED.  IN ADDITION,
PERSONS WHO VIOLATE THE PURCHASE LIMITATIONS MAY BE SUBJECT TO SANCTIONS AND
PENALTIES IMPOSED BY THE OTS.

                                       6
<PAGE>
 
                              SUMMARY AND OVERVIEW

     This summary highlights selected information from this Prospectus and does
not contain all the information that you need to know before making an informed
investment decision. To understand the Offering fully, you should read the
entire Prospectus carefully, including the consolidated financial statements and
the notes to the consolidated financial statements of the Bank.  Certain
financial information contained in the Prospectus has been derived from the
audited and unaudited consolidated financial statements of the Bank.

THE COMPANIES

                             Provident Bancorp, MHC
                              400 Rella Boulevard
                           Montebello, New York 10901
                                 (914) 369-8040

      The Mutual Holding Company is not currently an operating company and has
not engaged in any business to date.  Upon completion of the Reorganization, the
Mutual Holding Company will be chartered under Federal law and will own 53.4% of
the outstanding Common Stock of the Company.  The Mutual Holding Company is not
expected to engage in any business activities other than owning the Common Stock
of the Company.  So long as the Mutual Holding Company exists, it will own at
least a majority of the Company's voting stock.  Following completion of the
Reorganization, persons who were members of the Bank will become members of the
Mutual Holding Company, so long as their existing borrowings from the Bank
remain outstanding or they continue to maintain a deposit account with the Bank.

                            Provident Bancorp, Inc.
                              400 Rella Boulevard
                           Montebello, New York 10901
                                 (914) 369-8040

     The Company is not currently an operating company and has not engaged in
any business to date.  After the Reorganization, the Company will own all of the
Bank's common stock.  Purchasers in the Offering will own 46.6% of the Company's
common stock and the Mutual Holding Company will own 53.4% of the Company's
common stock. Although these percentages may change in the future, the Mutual
Holding Company must always own a majority of the Company's Common Stock.  It is
expected that the Company will make the loan to the ESOP and invest up to 42% of
the net proceeds of the Offering as described in "Use of Proceeds."  The holding
company structure will provide us greater flexibility in terms of operations,
expansion and diversification.  See page __.

                                 Provident Bank
                              400 Rella Boulevard
                           Montebello, New York 10901
                                 (914) 369-8040

     The Bank is a community bank that offers financial services to individuals,
families and businesses primarily in Rockland County, New York and communities
in contiguous counties.  The Bank is engaged primarily in the business of
offering various FDIC-insured savings and demand deposits to individual and
business customers through eleven full-service offices, and using those
deposits, together with funds generated from operations and borrowings, to make
one- to four-family residential and commercial real estate loans, consumer
loans, construction and land loans, commercial business loans, and multi-family
residential loans.  The Bank also invests its funds in mortgage-backed
securities and investment securities.  At June 30, 1998, the Bank had total
assets of $679.1 million, total deposits of $580.1 million and total equity of
$53.9 million.  See pages __ to __.

                                       7
<PAGE>
 
THE REORGANIZATION AND OFFERING

     The Reorganization and Offering involve a number of steps, including the
     following:

     .    The Bank will establish the Company and the Mutual Holding Company,
          neither of which will have any assets prior to the completion of the
          Reorganization.

     .    The Bank will convert from the mutual form of organization to the
          capital stock form of organization and issue 100% of its capital stock
          to the Company.

     .    The Company will issue between 5,525,000 and 7,475,000 shares of its
          common stock, par value $0.10 per share (the "Common Stock"), in the
          Reorganization; 53.4% of these shares (or between 2,949,500 shares and
          3,990,500 shares) will be issued to the Mutual Holding Company, and
          46.6% (or between 2,575,500 shares and 3,484,500 shares) will be
          offered for sale in the Offering.

     .    Membership interests that depositors and certain borrowers had in the
          Bank will become membership interests in the Mutual Holding Company.
          As a result, former members of the Bank who controlled 100% of the
          votes eligible to be cast by the Bank's members prior to the
          Reorganization will control 100% of the votes eligible to be cast by
          members of the Mutual Holding Company immediately after the
          Reorganization and, through the Mutual Holding Company, will control
          53.4% of the votes eligible to be cast by the Company's stockholders
          immediately following the Reorganization.

DESCRIPTION OF THE MUTUAL HOLDING COMPANY STRUCTURE

     Following completion of the Reorganization, the corporate structure of the
Bank will be as follows:

        ---------------------    -------------------------- 
                                         Minority
         Provident Bancorp,            Stockholders
               MHC                   (Including ESOP)
        ---------------------    --------------------------
                    53.4% of                    46.6% of
                     the                          the
                    Common                       Common    
                    Stock                        Stock
        --------------------------------------------------- 

                       Provident Bancorp, Inc.
 
        ---------------------------------------------------
                                  100% of the
                                  Common Stock
        ---------------------------------------------------
                          Provident Bank
        ---------------------------------------------------          

     The mutual holding company structure differs in significant respects from
the holding company structure that is used in a standard mutual-to-stock
conversion.  In a standard conversion, a converting mutual institution or its
newly-formed holding company sells 100% of its common stock in a stock offering.
A savings institution that converts from the mutual to stock form of
organization using the mutual holding company structure sells less than half of
its shares at the time of its reorganization and stock offering.  By doing so, a
converting institution using the mutual holding company structure will raise
less than half the capital that it would have raised in a standard mutual to
stock

                                       8
<PAGE>
 
conversion. The Company is selling 46.6% of its Common Stock in the Offering.
This will enable the Company to issue authorized but unissued shares of Common
Stock, or treasury stock, to finance the acquisition of other financial
institutions in stock-for-stock acquisitions, while still remaining in the
mutual holding company structure. The Company has no current plans,
understandings or agreements regarding any acquisition or merger, and such
transactions would be subject to regulatory approval. The shares that are issued
to the Mutual Holding Company may be subsequently sold to the Bank's customers
in an incremental stock offering or if the Mutual Holding Company converts from
the mutual to the stock form of organization. See "Conversion of the Mutual
Holding Company to the Stock Form of Organization."

     In addition, because Office of Thrift Supervision ("OTS") regulations and
policy generally prohibit the sale of a savings institution in the mutual
holding company structure, management believes that the Reorganization and
Offering will permit the Bank to achieve the benefits of a stock company without
the threat of a change of control that may occur following a standard conversion
from mutual to stock form.

     Because the Mutual Holding Company is a mutual corporation, its actions
will not necessarily always be in the best interests of the Company's minority
stockholders.  In making business decisions, the Mutual Holding Company's Board
of Directors will consider a variety of constituencies, including the customers
and employees of the Bank, and the communities in which the Bank operates.  As
the majority stockholder of the Company, the Mutual Holding Company is also
interested in the continued success and profitability of the Bank and the
Company. Consequently, the Mutual Holding Company will act in a manner that
furthers the general interest of all of its constituencies, including, but not
limited to, the interests of the minority stockholders of the Company.  The
Mutual Holding Company believes that the interests of the stockholders of the
Company, and those of the Mutual Holding Company's other constituencies, are in
many circumstances the same, such as the ongoing profitability of the Company
and the Bank and continued service to the communities in which the Bank
operates.

THE STOCK OFFERING

     The Company is offering for sale between 2,575,500 and 3,484,500 shares of
its Common Stock, par value $0.10 per share, at a price of $10.00 per share. The
Offering may be increased to 4,007,175 shares without further notice to you if
the estimated pro forma market value of the Common Stock (the "Independent
Valuation") is increased as a result of changes in market or financial
conditions prior to the completion of the Offering.  The shares sold in the
Offering will represent a minority ownership interest of 46.6% (the "Minority
Ownership Interest") of the shares of Common Stock of the Company.  The
remaining 53.4% of the shares of Common Stock of the Company will be issued to
the Mutual Holding Company.

STOCK PURCHASE PRIORITIES

     The Common Stock is being offered for sale in the following order of
priority in a subscription offering (the "Subscription Offering"):

     (i)    the Bank's Eligible Account Holders (holders of deposit accounts
            totaling $50 or more as of December 31, 1996);

     (ii)   the Bank's tax-qualified employee benefit plans, including the ESOP,
            which intends to purchase 8% of the shares sold in the Offering
            (however, the ESOP shall have the first priority to purchase any
            Common Stock which is sold in excess of 3,484,500 shares);

     (iii)  the Bank's Supplemental Eligible Account Holders (holders of deposit
            accounts totaling $50 or more as of September 30, 1998);

                                       9
<PAGE>
 
     (iv) depositors of the Bank as of the Voting Record Date (November __,
          1998), and borrowers of the Bank as of July 9, 1998 whose borrowings
          remain outstanding as of the Voting Record Date, who are not Eligible
          Account Holders or Supplemental Eligible Account Holders ("Other
          Members");

     (v)  employees, officers and directors of the Bank.

     Any shares of Common Stock not subscribed for in the Subscription Offering
may be offered for sale in a community offering (the "Community Offering") and
possibly a syndicated community offering (the "Syndicated Community Offering").
See pages ___ to ___.  Ryan, Beck & Co., Inc. ("Ryan Beck") will assist in
selling the Common Stock on a best efforts basis.

PROHIBITION ON TRANSFER OF SUBSCRIPTION RIGHTS

     Selling or assigning your subscription rights is illegal.  If you exercise
your subscription rights you will be required to certify that you are purchasing
shares solely for your own account and that you have no agreement or
understanding regarding the sale or transfer of such shares.  The Company and
the Bank intend to pursue any and all legal and equitable remedies in the event
the Company and the Bank become aware of the transfer of subscription rights,
and the Company and the Bank will not honor orders known to involve the transfer
of such rights.  In addition, persons who violate the purchase limitations may
be subject to sanctions and penalties imposed by the OTS.  In order to maintain
the appropriate stock purchase priorities, stock order forms submitted in the
Subscription Offering must indicate the name of the Eligible Account Holder or,
Supplemental Eligible Account Holder or Other Member, as the case may be.
Adding the name(s) of other persons who are not account holders, or were account
holders at a later date, will result in a loss of your purchase priority.

STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED

     RP Financial, LC., Arlington, Virginia, an appraisal firm independent of
the Bank and experienced in appraisals of savings associations, has estimated
that, in its opinion, as of _______, 1998, the aggregate pro forma market value
of the Company and the Bank ranged from $55.3 million to $74.8 million (the
"Estimated Valuation Range") with a midpoint of $65.0 million.  The Company is
offering to sell 46.6% of its Common Stock in the Offering and, based on the
Independent Valuation, 46.6% of the Common Stock ranged in value from $25.8
million to $34.8 million, with a midpoint of $30.3 million (the "Offering
Range").  The Company is offering its Common Stock for sale at $10.00 per share,
representing 2,575,500 shares and 3,484,500 shares at the minimum and maximum of
the Offering Range, respectively, with a midpoint of 3,030,000 shares.  The
Independent Valuation was based in part upon the Bank's financial condition and
operations and the effect of the additional capital raised by the sale of Common
Stock in the Offering.  In addition to the 2,575,500 to 3,484,500 shares to be
sold in the Offering, between 2,949,500 and 3,990,500 shares will be issued to
the Mutual Holding Company, which will represent 53.4% of the outstanding shares
of Common Stock.  The Independent Valuation will be updated prior to the
completion of the Offering.  If the Independent Valuation increases, there will
be a corresponding change in the total number of shares issued to the Mutual
Holding Company in the Reorganization and sold to subscribers in the Offering,
but the percentage of shares of the Company's Common Stock owned by the Mutual
Holding Company and the Minority Stockholders will not change as a result of a
change in the Independent Valuation.  If the Independent Valuation increases by
15%, or up to $86.0 million, the number of shares sold in the Offering will,
subject to OTS approval, increase to 4,007,175 shares and the number of shares
issued to the Mutual Holding Company will increase to 4,589,075 shares.
Prospective purchasers will be given the opportunity to change or withdraw their
purchase orders only if the Estimated Valuation Range decreases below the
minimum or increases by more than 15% above the maximum of such range, or if
fewer than 2,575,500 shares or more than 4,007,175 shares are sold in the
Offering. See pages __ to __.

                                       10
<PAGE>
 
TERMINATION OF THE OFFERING

     The Subscription Offering will terminate at 10:00 a.m., New York time, on
December __, 1998. The Community Offering, if one is held, is expected to begin
immediately after the termination of the Subscription Offering, but may begin at
any time during the Subscription Offering.  The Community Offering may terminate
on or after December __, 1998, but in any event, no later than __________, 1999,
without OTS approval.

BENEFITS TO MANAGEMENT AND EMPLOYEES FROM THE OFFERING

     The Bank's full-time employees will be eligible to participate in the ESOP.
The Company also intends to implement a stock recognition plan (the "Recognition
Plan") and a stock option plan (the "Stock Option Plan") following completion of
the Reorganization, which will benefit the Bank's and the Company's officers and
directors. If the Recognition Plan is adopted, certain officers and directors
will be awarded shares of Common Stock at no cost to them.  However, the
Recognition Plan and Stock Option Plan may not be adopted until at least six
months after completion of the Reorganization and are subject to shareholder
approval.   The Bank will also enter into employment agreements with certain
officers of the Bank, which will provide for benefits and cash payments in the
event of a change in control of the Company or the Bank.  See "Management of the
Bank--Benefit Plans."

     The following table presents the dollar value of the shares to be granted
pursuant to the proposed stock benefit plans and the percentage of the Company's
outstanding Common Stock which will be represented by these shares.

<TABLE>
<CAPTION>
                                               
                                                 PERCENTAGE OF
                                VALUE OF          OUTSTANDING 
                          SHARES GRANTED/(1)/    COMMON STOCK
                          -------------------   -------------
<S>                            <C>                  <C> 
     BENEFIT PLAN:                        
     ESOP...............       $2,424,000            3.73%
     Recognition Plan...        1,212,000            1.86
     Stock Option Plan..               --/(2)/       4.66
                               ----------           -----
                               $3,636,000           10.25%
                               ==========           =====
-------------------------
</TABLE>
/(1)/ Assumes shares are granted at $10.00 per share and that shares are sold in
      the Offering at the midpoint of the Offering Range.
/(2)/ Recipients of stock options realize value only in the event of an increase
      in the price of the Common Stock of the Company following the date of
      grant of the stock options. Options to purchase 303,000 shares at the
      midpoint of the Offering Range may be granted if the Stock Option Plan is
      approved by shareholders.

USE OF THE PROCEEDS RAISED FROM THE SALE OF COMMON STOCK

     The Company expects to use the net proceeds from the Offering as follows:

     .    50% will be used to buy all the capital stock of the Bank.
     .    8% will be loaned to the ESOP to fund its purchase of Common Stock.
     .    42% will be retained by the Company for general corporate purposes,
          and will be invested initially in short- and medium-term investments.

     The proceeds to be received by the Bank will be available for general
corporate purposes including continued expansion of the retail banking franchise
through new branch openings or acquisitions, continued growth in the loan
portfolio, and the purchase of investment and mortgage-backed securities.  See
pages __ and __.

                                       11
<PAGE>
 
DIVIDENDS

     The decision as to whether or not to declare dividends by the Company will
depend upon a number of factors including investment opportunities available to
the Company or the Bank, and upon the Company's financial condition and results
of operations.  If the Company decides to pay dividends on the Common Stock, the
Mutual Holding Company may waive its receipt of cash dividends, subject to
regulatory approval.  See pages __ to __.

MARKET FOR THE COMMON STOCK

     The Company has never issued capital stock.  The Company expects that the
Common Stock will be quoted on the Nasdaq National Market under the symbol
"______", but there can be no assurance that an active and liquid trading market
in the Common Stock will develop or be maintained.  The requirements for listing
include a minimum number of publicly traded shares, market makers and record
holders, and a minimum market capitalization.  Ryan Beck has indicated its
intention to make a market in the Common Stock, subject to compliance with
applicable provisions of federal and state securities laws and other regulatory
requirements, although Ryan Beck is not required to do so.  If you purchase
shares, you may not be able to sell them when you want to at a price that is
equal to or more than the price you paid. See page ____.

CONVERSION OF THE MUTUAL HOLDING COMPANY TO THE STOCK FORM OF ORGANIZATION

     OTS regulations and the Bank's Plan of Reorganization from a Mutual Savings
Bank to a Mutual Holding Company and Stock Issuance Plan (the "Plan") permit the
Mutual Holding Company to convert from the mutual to the capital stock form of
organization.  There can be no assurance that such a transaction will ever
occur, and the Board of Directors has no current intention or plan to undertake
such a transaction.  If the Mutual Holding Company were to convert to the
capital stock form of organization, eligible depositors and borrowers would
receive the right to subscribe for additional shares of the new stock holding
company that would be formed in the transaction.  Any such transaction would be
subject to OTS regulations in effect at that time.  In such a transaction, under
current OTS policy, each share of Common Stock outstanding and held by persons
other than the Mutual Holding Company would be converted automatically into
shares of common stock of the new stock holding company.  The number of shares
that each stockholder would receive would be determined pursuant to an exchange
ratio that ensures that after the transaction (subject only to an adjustment to
reflect any dividends that the Mutual Holding Company may have waived and any
assets that the Mutual Holding Company may have other than common stock of the
Company), the percentage of the to-be outstanding shares of the new stock
holding company received by such stockholder in exchange for his/her Common
Stock equals the percentage of the outstanding shares of Common Stock owned by
such stockholder immediately prior to the conversion transaction.

                                       12
<PAGE>
 
                SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

     The following selected historical financial data at and for each of the
years in the five-year period ended September 30, 1997 is derived in part from
the audited consolidated financial statements of the Bank.  Data at and for the
nine-month periods ended June 30, 1998 and 1997 is derived in part from the
unaudited consolidated financial statements of the Bank. The selected financial
data set forth below is qualified in its entirety by, and should be read in
conjunction with, the unaudited consolidated financial statements as of June 30,
1998 and for the nine months ended June 30, 1998 and 1997, and the audited
consolidated financial statements as of September 30, 1997 and 1996 and for the
years ended September 30, 1997, 1996 and 1995, including the notes thereto,
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
 
                                                  AT JUNE 30,                    AT SEPTEMBER 30,
                                             ------------------    ----------------------------------------------
                                               1998      1997       1997     1996      1995      1994      1993
                                             --------  --------  --------  --------  --------  --------  --------
<S>                                          <C>       <C>       <C>       <C>       <C>       <C>       <C>
                                                                    (IN THOUSANDS)
SELECTED FINANCIAL CONDITION DATA:         
                                           
Total assets...........................      $679,104  $641,583  $648,742  $634,250  $526,593  $480,478  $470,021
Loans receivable, net..................       440,360   389,213   404,497   369,487   331,947   315,154   295,077
Mortgage-backed securities (1):            
  Held to maturity.....................        89,334   104,186   104,071   112,863    80,735        --        --
  Available for sale...................        43,775    35,873    36,153    41,482    30,329        --     1,010
  Held for investment..................            --        --        --        --        --    97,780    96,544
Investment securities (1):                 
  Held to maturity.....................        20,197    27,181    22,195    22,138    37,920        --        --
  Available for sale...................        48,629    49,367    48,517    47,313    21,456        --        --
  Held for investment..................            --        --        --        --        --    47,356    58,155
Deposits...............................       580,075   557,934   546,846   545,286   443,667   419,808   413,816
Borrowings.............................        25,048    13,000    24,000    13,000    13,900    10,100     9,800
Equity.................................        53,879    49,141    50,399    45,536    43,828    38,551    33,746
 
                                                  NINE MONTHS
                                                 ENDED JUNE 30,              YEARS ENDED SEPTEMBER 30,
                                             ------------------  ------------------------------------------------
                                               1998      1997      1997      1996      1995      1994      1993
                                             --------  --------  --------  --------  --------  --------  --------
                                                                          (IN THOUSANDS)                     
SELECTED OPERATING DATA:                 
                                         
Interest and dividend income...........      $ 35,739  $ 34,755  $ 46,555  $ 42,566  $ 37,030  $ 32,175  $ 33,543
Interest expense.......................        15,609    15,070    20,179    18,585    15,064    11,556    13,945
                                             --------  --------  --------  --------  --------  --------  --------
  Net interest income..................        20,130    19,685    26,376    23,981    21,966    20,619    19,598
Provision for loan losses..............         1,347       875     1,058       911       760       452       760
                                             --------  --------  --------  --------  --------  --------  --------
  Net interest income after provision    
   for loan losses.....................        18,783    18,810    25,318    23,070    21,206    20,167    18,838
Non-interest income....................         2,298     2,212     2,711     2,451     2,100     2,168     2,247
Non-interest expense (excluding special  
 assessment)...........................        15,642    15,188    20,602    19,436    15,264    13,518    12,154
SAIF special assessment (2)............            --        --        --     3,298        --        --        --
                                             --------  --------  --------  --------  --------  --------  --------
  Income before income tax expense and   
   cumulative effect of change in        
   accounting principle................         5,439     5,834     7,427     2,787     8,042     8,817     8,931
Income tax expense.....................         1,995     2,370     2,829       690     3,239     3,611     3,593
                                             --------  --------  --------  --------  --------  --------  --------
  Income before cumulative effect of     
    change in accounting principle.....         3,444     3,464     4,598     2,097     4,803     5,206     5,338
Cumulative effect of change in           
 accounting                              
 for income taxes......................            --        --        --        --        --       401        --
                                             --------  --------  --------  --------  --------  --------  --------
                                         
  Net income (2).......................      $  3,444  $  3,464  $  4,598  $  2,097  $  4,803  $  4,805  $  5,338
                                             ========  ========  ========  ========  ========  ========  ========
 
</TABLE>

                                                        (Footnotes on next page)

                                       13
<PAGE>
 
<TABLE>
<CAPTION>
                                                AT OR FOR THE
                                                NINE MONTHS
                                                ENDED JUNE 30,      AT OR FOR THE YEARS ENDED SEPTEMBER 30,
                                               --------------    -------------------------------------------
                                                1998     1997      1997    1996     1995      1994    1993
                                                ----     -----    ------  ------   ------    ------  ------

<S>                                            <C>      <C>      <C>      <C>      <C>      <C>      <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:
PERFORMANCE RATIOS (3):
Return on assets (ratio of net income to
 average total assets) (2)(4)...............    0.70%    0.73%    0.72%    0.36%    0.96%    1.01%    1.15%
Return on equity (ratio of net income
 to average equity) (2)(4)..................    8.72     9.72     9.51     4.60    11.77    13.37    17.54
Average interest rate spread (4)(5).........    3.80     3.95     3.92     3.88     4.15     4.19     4.06
Net interest margin (4) (6).................    4.30     4.37     4.36     4.30     4.53     4.46     4.35
Efficiency ratio (7)........................   69.74    69.36    70.83    73.53    63.43    59.32    55.64
Non-interest expense to average total
 assets (4) (8).............................    3.19     3.20     3.24     3.91     3.06     2.83     2.62
Average interest-earning assets to average
interest-bearing liabilities................  114.95   112.75   113.07   112.60   112.38   110.86   109.35
 
ASSET QUALITY RATIOS:
Non-performing assets to total assets.......    0.90     0.67     0.75     1.21     1.29     0.94     1.17
Non-performing loans to total loans.........    1.30     0.89     1.16     1.72     1.99     1.19     1.46
Allowance for loan losses to
 non-performing loans.......................   79.27   112.08    80.80    52.87    52.59    75.55    59.49
Allowance for loan losses to total loans
 receivable, net............................    1.03     1.00     0.93     0.91     1.05     0.90     0.87
 
CAPITAL RATIOS:
Equity to total assets at end of period.....    7.93     7.66     7.77     7.18     8.32     8.02     7.18
Average equity to average assets............    8.05     7.51     7.59     7.83     8.17     7.53     6.56
 
OTHER DATA:
Number of full-service offices..............      11       11       11       11        9        9        9
</TABLE>
_______________________________
/(1)/ The Bank has classified its securities as "held to maturity" or "available
      for sale" since October 1, 1994, when it adopted Statement of Financial
      Accounting Standards No. 115, "Accounting for Certain Investments in Debt
      and Equity Securities."  Prior thereto, substantially all securities were
      classified as "held for investment."
/(2)/ The SAIF special assessment in fiscal 1996 represents the Bank's share of
      an assessment imposed on all financial institutions with deposits insured
      by the Savings Association Insurance Fund (the "SAIF").  On an after-tax
      basis, the special assessment reduced net income for fiscal 1996 by
      approximately $2.0 million.  See "Management's Discussion and Analysis of
      Financial Condition and Results of Operations--Comparison of Operating
      Results for the Years Ended September 30, 1997 and 1996" and Note 8 of the
      Notes to Consolidated Financial Statements.
/(3)/ Ratios for the nine-month periods have been annualized.
/(4)/ Ratio is based on average monthly balances during the indicated periods.
/(5)/ The average interest rate spread represents the difference between the
      weighted-average yield on interest-earning assets and the weighted-average
      cost of interest-bearing liabilities for the period.
/(6)/ The net interest margin represents net interest income as a percent of
      average interest-earning assets for the period.
/(7)/ The efficiency ratio represents non-interest expense (other than the SAIF
      special assessment in fiscal 1996) divided by the sum of net interest
      income and non-interest income.
/(8)/ Excluding the SAIF special assessment, the ratio of non-interest expense
      to average total assets for fiscal 1996 was 3.34%.

                                       14
<PAGE>
 
                                  RISK FACTORS

     In addition to the other information in this Prospectus, you should
consider carefully the following risk factors in evaluating an investment in the
Common Stock.

POTENTIAL EFFECTS OF CHANGES IN INTEREST RATES AND THE CURRENT INTEREST RATE
ENVIRONMENT

     The Bank's net income and financial condition are significantly affected by
changes in market interest rates, and its results of operations substantially
depend on its net interest income.  Net interest income is the difference
between the interest income earned on the Bank's interest-earning assets and the
interest expense paid on its interest-bearing liabilities. The Bank's interest-
bearing liabilities reprice or mature sooner than the contractual repricing
dates or maturities of its interest-earning assets.  Thus, if interest rates
were to rise quickly, interest-bearing liabilities would reprice to higher rates
sooner than would the interest-earning assets.  However, repayment options are
available to residential loan borrowers.  Should interest rates fall
precipitously, many borrowers would tend to refinance, and interest rates on
interest earning assets could fall as quickly, and perhaps lower, than the
interest rates on the Bank's liabilities.  As a result, large fluctuations in
interest rates in either direction would likely result in a decrease in the
Bank's average interest rate spread and net interest income.  Net interest
income could also be negatively impacted by a flat or inverted yield curve.  The
Bank has sought to manage its interest rate risk exposure by emphasizing bi-
weekly fixed-rate mortgage loans, residential and commercial adjustable-rate
mortgage loans and consumer loans. Depending on market interest rates and the
Bank's capital and liquidity position, the Bank may retain all of its newly
originated longer-term fixed-rate, fixed-term residential mortgage loans or may
decide to sell all or a portion of such loans on a servicing-retained basis.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Management of Market Risk."
 
     Changes in interest rates also affect the value of the Bank's interest-
earning assets, and in particular the Bank's securities portfolios.  Generally,
the value of debt securities fluctuates inversely with changes in interest
rates. That is, an increase in interest rates would result in a decrease in the
value of debt securities.  At June 30, 1998, the Bank's investment securities
and mortgage-backed securities portfolios totaled $201.9 million, and included
$92.4 million of securities available for sale.  After-tax unrealized gains and
losses on securities available for sale are reported as a separate component of
equity.  Decreases in the fair value of securities available for sale therefore
could have an adverse effect on stockholders' equity.  See "Business of the
Bank--Investment Activities."

     The Bank is also subject to reinvestment risk relating to interest rate
movements.  Changes in interest rates can affect the average life of loans and
mortgage-backed securities.  Decreases in interest rates can result in increased
prepayments of loans and mortgage-backed securities, as borrowers refinance to
reduce borrowing costs.  Under these circumstances, the Bank is subject to
reinvestment risk to the extent that it is not able to reinvest such prepayments
at rates that are comparable to the rates on the maturing loans or securities.
Moreover, volatility in interest rates can also result in the flow of funds away
from the Bank into investments such as U.S. Government and corporate securities
and other investments that generally pay higher rates of return than the rates
paid on deposits by financial institutions.

LENDING RISKS ASSOCIATED WITH COMMERCIAL AND MULTI-FAMILY REAL ESTATE,
CONSTRUCTION AND LAND AND COMMERCIAL BUSINESS LENDING

     At June 30, 1998, the Bank's portfolio of commercial and multi-family real
estate loans totaled $70.8 million or 15.5% of total loans, its portfolio of
construction and land loans totaled $27.8 million or 6.1% of total loans and its
portfolio of commercial business loans totaled $24.0 million or 5.3% of total
loans.  As part of management's strategy of operating the Bank as a community
bank, it is expected that these loans will increase as a percentage of the
Bank's total loan portfolio.  These types of loans generally expose a lender to
a greater risk of loss than one- to four-family residential loans.  See
"Business of the Bank--Lending Activities" and "Business of the Bank--Lending
Activities--Non-performing Assets and Delinquencies."

                                       15
<PAGE>
 
GEOGRAPHIC CONCENTRATION OF LOANS
 
     The Bank's mortgage loans are secured by residential and commercial real
estate properties located primarily in Rockland County, New York.  If the local
economy, national economy or real estate market weakens, the financial condition
and results of operations of the Bank could be adversely affected.  A weakening
in the local real estate market or a decline in the local economy could increase
the number of delinquent or non-performing loans and reduce the value of the
collateral securing such loans, which would reduce the Bank's net income.

COMPETITION

     Numerous commercial banks and savings institutions have branches in the
immediate vicinity of the Bank. There is strong competition from financial
institutions and mortgage brokers in the Bank's local market, as well as from
mutual funds, in both originating loans and attracting funds.  The Bank's
primary competitors are commerical banks, other savings institutions, commercial
banks, mortgage banking companies and mortgage brokers.  Trends toward the
consolidation of the financial institutions industry and removal of restrictions
on interstate banking and branching may make it more difficult for smaller
institutions such as the Bank to compete effectively with large national and
regional banking institutions.  Such competition may have an adverse effect on
the Bank's growth and profitability in the future.  See "Competition."

DECREASED RETURN ON AVERAGE EQUITY IMMEDIATELY AFTER REORGANIZATION

     At June 30, 1998, the Bank's equity as a percentage of assets was 7.93%,
and for the nine months ended June 30, 1998 the Bank's annualized return on
average equity (net income divided by average equity) was 8.72%.  The Company's
consolidated equity as a percentage of assets will significantly increase as a
result of its receipt of the net proceeds received in the Offering.  On a pro
forma basis as of June 30, 1998, the Company's equity as a percentage of
consolidated assets would be approximately 12.31% at the adjusted maximum of the
Offering Range.  Management believes that it will take time to prudently deploy
the capital raised in the Offering.  As a result, until the Company has
leveraged the capital raised in the Offering by increasing the  Company's
interest-earning assets (and its interest-bearing liabilities) and reducing its
equity as a percentage of assets, the  Company's return on average equity is
expected to be below the Bank's historical returns.  There can be no assurances
that the  Company will be able to successfully leverage the capital raised in
the Offering, or that the  Company will be successful in generating future
returns on equity equal to the Bank's historical returns or industry averages.

MINORITY PUBLIC OWNERSHIP AND CERTAIN ANTI-TAKEOVER PROVISIONS

     VOTING CONTROL OF THE MUTUAL HOLDING COMPANY.  Under regulations of the
OTS, the Plan, and the Company's governing corporate instruments, a majority of
the Company's voting shares must be owned by the Mutual Holding Company, and the
Mutual Holding Company will own 53.4% of the Common Stock outstanding at the
completion of the Offering.  The Mutual Holding Company will be controlled by
its executive officers and directors, who initially will consist of persons who
are executive officers and directors of the Company.  The Mutual Holding Company
will elect all members of the Board of Directors of the Company, and, with
certain exceptions, will control the outcome of matters presented to the
stockholders of the Company for resolution by vote.   The situations in which
the Mutual Holding Company may not control the outcome of such vote include any
stockholder vote to approve a restricted stock plan or stock option plan
instituted within one year of the Offering (which would require the approval of
a majority of the shares other than shares held by the Mutual Holding Company),
any stockholder vote relating to the Mutual Holding Company's conversion from
the mutual to the stock form of organization (which would require the approval
of a majority of shares other than shares held by the Mutual Holding Company and
of two-thirds of all shares  including shares held by the Mutual Holding
Company), or any other stockholder vote in which the OTS may impose such a
requirement.  The Mutual Holding Company, acting through its Board of Directors,
will be able to control the business and operations of the Company and the Bank
and will be able to prevent any challenge to the ownership or control of the
Company by stockholders other than the Mutual Holding Company ("Minority

                                       16
<PAGE>
 
Stockholders").  Although OTS regulations and the Plan permit the Mutual Holding
Company to convert from the mutual to the capital stock form of organization,
there can be no assurance when, if ever, a conversion of the Mutual Holding
Company will occur.

     PROVISIONS IN THE COMPANY'S AND THE BANK'S GOVERNING INSTRUMENTS.  In
addition, certain provisions of the Company's charter and bylaws, particularly a
provision limiting voting rights, as well as certain federal regulations will
assist the Company in maintaining its status as an independent publicly-owned
corporation. These provisions provide for, among other things, staggered boards
of directors, no cumulative voting for directors, limits on the calling of
special meetings of shareholders, and limits on the ability to vote Common Stock
in excess of 10% of outstanding shares (except as to shares held by the Mutual
Holding Company and the ESOP).

POSSIBLE DILUTION IN OWNERSHIP INTEREST

     DIVIDEND WAIVERS BY THE MUTUAL HOLDING COMPANY.  It has been the policy of
many mutual holding companies to waive the receipt of dividends declared by
their subsidiaries.  OTS regulations require that mutual holding companies
request OTS approval before they waive dividends.  The OTS has generally
permitted mutual holding companies to waive dividends under certain conditions,
including that in the event the Mutual Holding Company converts to stock form in
the future (a "Conversion Transaction"), any waived dividends would reduce the
percentage of the resulting entity's shares of common stock issued to Minority
Stockholders in exchange for their shares of Common Stock.  The reduction would
be calculated by multiplying the Minority Ownership Interest (expressed as a
percentage) immediately prior to the Conversion Transaction by the following
fraction:

  (Company stockholders' equity immediately prior to Conversion Transaction) -
  ----------------------------------------------------------------------------
        (aggregate amount of dividends waived by Mutual Holding Company)
        --------------------------------------------------------------- 
    Company stockholders' equity immediately prior to Conversion Transaction

     See "Regulation--Holding Company Regulation--Conversion of the Mutual
Holding Company to Stock Form."  The Mutual Holding Company has not determined
whether it will waive dividends declared by the Company and there is no
assurance that the OTS would approve any request by the Mutual Holding Company
to waive dividends.

     TERMS OF ANY CONVERSION TRANSACTION.  If the Mutual Holding Company
conducts a Conversion Transaction, the stock offering that would be conducted as
part of the Conversion Transaction would include maximum purchase limitations
that restrict the amount of stock that a person could purchase.  Minority
Stockholders would be likely to receive shares of the resulting entity in
exchange for their shares of Common Stock.  Under current OTS policy, the shares
of the resulting entity that Minority Stockholders receive in exchange for their
shares of Common Stock will be included in the maximum purchase limitations that
apply to the stock offering.  This means that certain Minority Stockholders may
not be able to exercise subscription rights to purchase shares of common stock
sold in the Conversion Transaction.

POSSIBLE DILUTIVE EFFECT OF ISSUANCE OF ADDITIONAL SHARES

     Various possible and planned issuances of additional shares of Common Stock
could dilute the interests of prospective stockholders of the Company following
consummation of the Offering, as noted below.

     The number of shares to be sold in the Offering may be increased as a
result of an increase in the Estimated Valuation Range of up to 15% to reflect
changes in the market and financial conditions and demand for the stock
following the commencement of the Offering.  In the event that the Estimated
Valuation Range is so increased, it is expected that the Company will issue up
to 8,596,250 shares of Common Stock.  An increase in the number of shares will
decrease net income per share and stockholders' equity per share on a pro forma
basis and will increase the Company's consolidated stockholders' equity and net
income.  See "Capitalization" and "Pro Forma Data."

     The Recognition Plan that the Bank intends to implement no earlier than six
months after the Reorganization intends to acquire an amount of Common Stock
equal to 4% of the shares of Common Stock sold in the Offering. 

                                       17
<PAGE>
 
Such shares of Common Stock may be acquired in the open market with funds
provided by the Company, if permissible, or from authorized but unissued shares
of Common Stock. See "Pro Forma Data" and "Management of the Bank--Recognition
Plan." Moreover, the Company's Stock Option Plan will reserve for future
issuance pursuant to such plan a number of shares of Common Stock equal to 10%
of the Common Stock sold in the Offering (303,000 shares, based on the midpoint
of the Offering Range). See "Pro Forma Data" and "Management of the Bank--
Executive Compensation--Stock Option Plan."

     If the Company issues additional shares of Common Stock in a supplemental
offering to increase the Minority Ownership Interest to 49.9% of the outstanding
Common Stock, the additional shares of Common Stock to be issued would be
received from the Mutual Holding Company and, as a result, no dilution of
Minority Stockholders would occur as a result of such an incremental stock
offering.

EXPENSES ASSOCIATED WITH ESOP AND RECOGNITION PLAN

     The Bank will recognize material employee compensation and benefit expenses
assuming the ESOP and the Recognition Plan are implemented.  The actual
aggregate amount of these new expenses cannot be predicted at the present time
because applicable accounting practices require that such expenses be measured
based on the fair market value of the shares of Common Stock.  In the case of
the ESOP, fair market value would be measured when shares are committed to be
released for allocation to the ESOP participants; in the case of the Recognition
Plan, fair market value would be measured at the grant date and amortized over
the award's vesting period.  These expenses have been reflected in the pro forma
financial information under "Pro Forma Data" assuming the Purchase Price ($10.00
per share) represents the fair market value for accounting purposes.  Actual
expenses, however, will be based on the fair market value of the Common Stock at
future dates, which may be higher or lower than the Purchase Price.  See
"Management of the Bank--Executive Compensation--Benefits--Employee Stock
Ownership Plan and Trust" and "--Benefits--Recognition Plan."

CAPABILITY OF THE BANK'S DATA PROCESSING TO ACCOMMODATE THE YEAR 2000

     The Bank, like all companies that utilize computer technology, is facing
the significant challenge of ensuring that its computer systems will be able to
process time-sensitive data accurately beyond the Year 1999 (referred to as the
"Year 2000 issue").  The Year 2000 issue has arisen since many existing computer
programs use two digits rather than four in data fields that define the year.
Such computer programs may recognize a data field using "00" as the Year 1900
rather than the Year 2000.  If the Bank's computer systems are not adequately
changed to properly identify the Year 2000, computer applications could fail or
create erroneous results, and the Bank could experience a temporary inability to
process transactions and engage in other normal business activities.  The Year
2000 issue could have a significant adverse impact on the Bank's products,
services and competitive condition.

     The Bank has conducted a comprehensive review of its computer systems to
identify systems that could be affected by the Year 2000 issue, and has
developed an implementation plan (including establishing priorities for mission-
critical applications) to modify or replace the affected systems and test them
for Year 2000 compliance.  The Bank's most significant mission-critical
applications are those that compromise its "core" data processing system for
loans, deposits and the general ledger.  The Bank plans to convert to a new core
system by December 31, 1998, which it believes will enhance the quality of its
information technology and result in improved customer service.  Like the Bank's
present core system, the new system is maintained by a third-party vendor.  The
Bank plans to begin Year 2000 testing on the new core system promptly following
the conversion, with a targeted testing completion date of March 31, 1999.

     The Bank presently believes that, with modifications to existing software
and conversions to new software, the Year 2000 issue will be mitigated without
causing a material adverse impact on its operations.  However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 issue could have a material adverse impact on the Bank's operations.
Monitoring and managing the Year 2000 issue will result in additional direct and
indirect costs for the Bank.  Costs incurred to date have not been material, and
management does not expect that 

                                       18
<PAGE>
 
additional costs to be incurred in connection with the Year 2000 issue will have
a material impact on the Bank's financial condition or results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Capability of the Bank's Data Processing to Accommodate the Year
2000."

RECENT MARKET VOLATILITY

     In recent months, stock markets in the United States and worldwide have
been extremely volatile.  The securities of individual companies have, in many
instances, experienced significant fluctuations in price for reasons unrelated
to the specific company's financial condition, results of operations or business
prospects.  In particular, the value of all financial institution securities has
been adversely affected by weakening economies worldwide, even though local
community-based financial institutions may not have any credit exposure outside
the United States.  An investor should understand that, in the short-term, the
value of an investment in the Common Stock is subject to fluctuation, including
loss, due to volatility in stock markets generally.

INTENT TO REMAIN INDEPENDENT

     The Bank has operated as an independent community-oriented savings
institution since 1888.  The Bank intends to continue to operate as an
independent community-oriented savings institution following the Reorganization.
The Bank and the Company will be controlled by the Mutual Holding Company, and,
under current OTS policy, control of the Mutual Holding Company may not be sold
to a third party.  Accordingly, you are urged not to subscribe for shares of
Common Stock if you are anticipating a sale of control of the Bank or the
Company.  See "Business of the Bank."

MARKET FOR THE COMMON STOCK

     The Company has never issued capital stock to the public, and there can be
no assurance that an active and liquid trading market for the Common Stock will
develop or be maintained.  It is anticipated that the Common Stock will be
quoted on the Nasdaq National Market under the symbol "____."  Ryan Beck has
indicated its intention to make a market in the Common Stock, subject to
compliance with applicable provisions of federal and state securities laws and
other regulatory requirements, although Ryan Beck is not required to do so.  If
you purchase shares of Common Stock, you may not be able to sell them when you
want to at a price that equals or exceeds the price you paid for the Common
Stock.

RISK OF DELAYED OFFERING

     Although the Reorganization and Offering are expected to be completed
within the time periods indicated in this Prospectus, it is possible that
adverse market, economic or other factors may significantly delay the completion
of the Reorganization and Offering, which could significantly increase the costs
of the Reorganization and Offering. See "The Reorganization and Offering."

                             PROVIDENT BANCORP, MHC

     The Mutual Holding Company will be formed as a federal mutual holding
company and will initially own 53.4% of the Common Stock.  The Company has not
yet been formed, although the OTS has approved an application for the Mutual
Holding Company to become a savings and loan holding company.  The Mutual
Holding Company will have all of the powers set forth in its federal charter,
and federal law and OTS regulations.  The Mutual Holding Company initially will
not conduct any active business other than activities relating to its investment
in a majority of the Common Stock and maintenance of books and records relating
to its members.  The Mutual Holding Company does not intend to employ any
persons other than its officers, although it may use the Bank's support staff
from time to time.  Federal law and OTS regulations, and the Plan, require that
as long as the Mutual Holding Company is in existence it must own a majority of
the Company's common stock.  Federal law and OTS regulations, and the Plan,
permit the Mutual Holding Company to convert to the capital stock form of
organization.  The manner in which such

                                       19
<PAGE>
 
a transaction would be conducted and the regulations and policy affecting such a
transaction are described in "Regulation--Holding Company Regulation."

     Although many federal mutual holding companies waive the receipt of cash
dividends declared by their subsidiaries, the Mutual Holding Company has not
determined whether or not it will do so, and intends to make such a
determination at the time the Company declares a dividend.   OTS regulations
require the Mutual Holding Company to give the OTS prior written notice of any
such waiver, and the conditions pursuant to which the OTS generally approves
dividend waivers are described in "Regulation--Holding Company Regulation."  The
Mutual Holding Company's Board of Directors will waive dividends paid by the
Company if the Board determines that such a waiver is in the Mutual Holding
Company's members' best interest because, among other reasons: (i) the Mutual
Holding Company has no need for the dividend considering its business
operations;  (ii) the cash that would be received could be invested by the
Company or the Bank at a more favorable rate of return; (iii) such waiver may
increase the capital of the Bank and enhance its business so that members will
continue to have access to the offices and services of the Bank; and (iv) such
waiver preserves the net worth of the Mutual Holding Company through its
principal asset (the Company, and indirectly, the Bank), which would be
available for distribution in the unlikely event of a voluntary liquidation of
the Company and the Bank after satisfaction of claims of depositors and
creditors.  The Board of Directors may consider other factors in determining
whether such waiver is consistent with its fiduciary duties to members of the
Mutual Holding Company.  Any waiver of dividends by the Mutual Holding Company
is likely to result in a downward adjustment to the ratio pursuant to which
shares of Common Stock are exchanged for shares of the resulting company in a
Conversion Transaction.

     The Mutual Holding Company's Board of Directors will accept dividends paid
by the Company in an amount necessary to pay the Mutual Holding Company's
expenses, and will accept additional dividends if it determines that accepting
such dividends is in the Mutual Holding Company's best interest because, among
other reasons: (i) the Mutual Holding Company may increase its direct ownership
of the Company, and indirect ownership of the Bank, by using cash dividends to
purchase additional shares of Common Stock in the open market from time to time;
and (ii) such dividends may be used to promote activities that are in the
interest of members and the Bank's community. Any purchases of Common Stock by
the Mutual Holding Company will increase the percentage of the outstanding
shares of Common Stock held by the Mutual Holding Company and, in a Conversion
Transaction, will decrease the aggregate number of shares of the resulting
company issued to Minority Stockholders in exchange for their shares of Common
Stock.

     The Mutual Holding Company's executive office will located at the executive
offices of the Bank, at 400 Rella Boulevard, Montebello, New York 10901. Its
telephone number will be (914) 369-8040.

                            PROVIDENT BANCORP, INC.

     The Company will be formed as a federal corporation and will own 100% of
the Bank's common stock.  The Company has not yet been formed, and, accordingly,
no financial statements of the Company are included in this Prospectus.  The OTS
has approved an application for the Company to become a savings and loan holding
company through the acquisition of all of the capital stock of the Bank to be
issued and outstanding upon completion of the Reorganization.  The Company will
have all of the powers set forth in its federal charter and federal law and OTS
regulations.

     The Company will retain up to 50% of the net proceeds of the offering.
Part of the net proceeds will be used to fund a loan to the Bank's ESOP, which
is expected to purchase up to 8% of the Common Stock sold in the Offering.  The
remainder of the net proceeds will be used for general corporate purposes.  The
holding company structure will provide the Company with greater flexibility than
is currently available to the Bank to diversify its business activities, either
through newly-formed subsidiaries or through acquisitions. The business
activities of the Company will be subject to the same restrictions under federal
law as the Mutual Holding Company.  The Company has no present plans regarding
diversification, acquisitions or expansion. The Company initially will not
conduct any

                                       20
<PAGE>
 
active business and does not intend to employ any persons other than its
officers, although it may utilize the Bank's support staff from time to time.

     The Company's executive office will be located at the executive offices of
the Bank, at 400 Rella Boulevard, Montebello, New York 10901. Its telephone
number will be (914) 369-8040.

                                 PROVIDENT BANK

     The Bank was organized in 1888 as a New York-chartered mutual savings and
loan association and adopted a federal mutual charter in _______.  The Bank's
deposits are insured by the Savings Association Insurance Fund (the "SAIF"), as
administered by the FDIC, up to the maximum amount permitted by law.  The Bank
is engaged primarily in the business of offering various FDIC-insured savings
and demand deposits to customers through its eleven full-service offices, and
using those deposits, together with funds generated from operations and
borrowings, to originate one-to four-family residential and commercial real
estate loans, consumer loans, construction and land loans, commercial business
loans, and multi-family residential loans.  The Bank also invests in investment
securities and mortgage-backed securities.  At June 30, 1998, the Bank had total
assets of $679.1 million, total deposits of $580.1 million and total equity of
$53.9 million.

     The Bank's executive office is located at 400 Rella Boulevard, Montebello,
New York 10901. Its telephone number is (914) 369-8040.

                                       21
<PAGE>
 
                         REGULATORY CAPITAL COMPLIANCE

     At June 30, 1998, the Bank exceeded each of its regulatory capital
requirements. Set forth below is a summary of the Bank's compliance with the OTS
capital standards as of June 30, 1998, on an 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 from the Offering. For purposes
of the table below, the entire amount expected to be borrowed by the ESOP and
the cost of all shares expected to be acquired by the Recognition Plan are
deducted from pro forma regulatory capital.  See "Management of the Bank."
<TABLE>
<CAPTION>
 
                                                           PRO FORMA AT JUNE 30, 1998, BASED UPON THE SALE OF
                                                ---------------------------------------------------------------------------
                                                                                                          4,007,175 SHARES/(1)/
                                                 2,575,500 SHARES     3,030,000 SHARES   3,484,500 SHARES      AT ADJUSTED
                               HISTORICAL AT       AT MINIMUM OF      AT MIDPOINT OF      AT MAXIMUM OF        MAXIMUM OF
                               JUNE 30, 1998       OFFERING RANGE      OFFERING RANGE    OFFERING RANGE     OFFERING RANGE
                             ----------------   ------------------- ------------------  ----------------  -----------------
                             AMOUNT   PERCENT   AMOUNT    PERCENT   AMOUNT     PERCENT  AMOUNT   PERCENT   AMOUNT   PERCENT
                             ------   -------   ------    --------- ------     -------  ------   -------  -------  --------
                                                               (DOLLARS IN THOUSANDS)
<S>                          <C>      <C>       <C>       <C>      <C>         <C>     <C>       <C>      <C>       <C> 
Equity under generally
 accepted accounting
 principles................  $53,879    7.93%   $62,942    9.12%   $64,668      9.34%  $66,395    9.56%   $68,381    9.81%
                             =======   =====    =======   =====    =======     =====   =======   =====    =======   =====
                                                                                                                   
Tangible capital/(2)/:                                                                                             
  Tangible capital/ (3)/...  $49,402    7.32%   $58,465    8.53%   $60,191      8.75%  $61,918    8.97%   $63,904    9.23%
  Requirement..............   10,120    1.50     10,286    1.50     10,318      1.50    10,349    1.50     10,385    1.50
                             -------   -----    -------   -----    -------     -----   -------   -----    -------   -----
    Excess.................  $39,282    5.82%   $48,179    7.03%   $49,873      7.25%  $51,569    7.47%   $53,519    7.73%
                             =======   =====    =======   =====    =======     =====   =======   =====    =======   =====
                                                                                                                   
Core capital/(2)/:                                                                                                 
  Core capital /(3)/.......  $49,402    7.32%   $58,465    8.53%   $60,191      8.75%  $61,918    8.97%   $63,904    9.23%
  Requirement /(4)/........   20,239    3.00     20,573    3.00     20,636      3.00    20,698    3.00     20,771    3.00
                             -------   -----    -------   -----    -------     -----   -------   -----    -------   -----
    Excess.................  $29,163    4.32%   $37,892    5.53%   $39,555      5.75%  $41,220    5.97%   $43,133    6.23%
                             =======   =====    =======   =====    =======     =====   =======   =====    =======   =====
Risk-based capital/(2)/:                                                                                           
  Risk-based capital
  /(3)(5)/.................   $53,950   14.23%   $63,013   16.38%   $64,739     16.79%  $66,466   17.19%   $68,452   17.65%
  Requirement..............   30,331    8.00     30,771    8.00     30,855      8.00    30,939    8.00     31,035    8.00
                             -------   -----    -------   -----    -------     -----   -------   -----    -------   -----
    Excess.................  $23,619    6.23%   $32,242    8.38%   $33,884      8.79%  $35,527    9.19%   $37,417    9.65%
                             =======   =====    =======   =====    =======     =====   =======   =====    =======   =====
</TABLE>

___________________________
/(1)/ As adjusted to give effect to an increase in the number of shares which
      could occur due to an increase in the Offering Range of up to 15% as a
      result of regulatory considerations, demand for the shares, or changes in
      market conditions or general financial and economic conditions following
      the commencement of the Offering.
/(2)/ Tangible capital levels are shown as a percentage of tangible 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)/ Pro forma capital levels assume that (i) the Bank funds the
      Recognition Plan through purchases in the open market of a number of
      shares equal to 4% of the Common Stock sold in the Offering, (ii) the ESOP
      purchases 8% of the shares sold in the Offering and (iii) the Mutual
      Holding Company is capitalized with $100,000. See "Management of the Bank"
      for a discussion of the Recognition Plan and ESOP.
/(4)/ The current core capital requirement for savings associations is 3% of
      total adjusted assets. The OTS has proposed core capital requirements that
      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.

                                       22
<PAGE>
 
                                USE OF PROCEEDS

     Although the actual net proceeds from the sale of the Common Stock cannot
be determined until the Offering is completed, it is presently anticipated
(based on the assumptions set forth in "Pro Forma Data") that the net proceeds
from the sale of the Common Stock will be as set forth in the following table.
<TABLE>
<CAPTION>
 
                                        NET OFFERING PROCEEDS
                                BASED UPON THE SALE FOR $10.00 PER SHARE OF
                          -------------------------------------------------
<S>                       <C>          <C>         <C>         <C>
                                                                 4,007,175
                            2,575,500    3,030,000   3,484,500   SHARES AT
                           SHARES AT     SHARES AT   SHARES AT   ADJUSTED
                           MINIMUM OF    MIDPOINT OF MAXIMUM OF  MAXIMUM OF
                           OFFERING      OFFERING    OFFERING    OFFERING
                             RANGE        RANGE       RANGE        RANGE
                           ----------  ----------  ----------    -------
                                           (IN THOUSANDS)
 
Gross proceeds..........   $   25,755  $   30,300  $   34,845    $40,072
Offering expenses.......        1,250       1,250       1,250      1,250
                           ----------  ----------  ----------    -------
Estimated net proceeds..   $   24,505  $   29,050  $   33,595    $38,822
                           ==========  ==========  ==========    =======
 
</TABLE>

     The Company will use 50% of the net proceeds of the Offering to purchase
all of the Common Stock to be issued by the Bank.  Such portion of net proceeds
received by the Bank from the Company will be added to the Bank's general funds
which the Bank currently intends to use for general corporate purposes,
including increasing its origination of mortgage, consumer and commercial
business loans and purchasing investment and mortgage-backed securities.  The
Bank may also use such funds for the expansion of its retail banking franchise
through new branch openings or acquisitions.  To the extent that the stock-based
benefit programs which the Company intends to adopt subsequent to the Offering
are not funded with authorized but unissued shares of Common Stock, the Company
or Bank may use net proceeds from the Offering to fund the purchase of stock to
be awarded under such stock benefit programs. See "Risk Factors--Possible
Dilutive Effect of Issuance of Additional Shares" and "Management of the Bank--
Stock Option Plan" and "--Recognition Plan."

     The Company intends to use a portion of the net proceeds it retains to make
a loan directly to the ESOP to enable the ESOP to purchase 8% of the shares sold
in the Offering.  See "Management of the Bank--Employee Stock Ownership Plan and
Trust." The remaining net proceeds retained by the Company will be invested
initially in short-and medium-term investments.  The net proceeds retained by
the Company may also be used to support the future expansion of operations,
including the acquisition of other financial institutions or diversification
into other banking related businesses. However, the Company and the Bank have no
current arrangements, understandings or agreements regarding any such
transactions.  Upon completion of the Reorganization, the Company will be
regulated as a mutual holding company under the Home Owners' Loan Act (the
"HOLA") and regulations of the OTS.  See "Regulation --Holding Company
Regulation."

     Upon completion of the Reorganization, the Board of Directors of the
Company will have the authority to repurchase stock, subject to statutory and
regulatory requirements.  Based upon facts and circumstances following the
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, 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 repurchases stock,
such repurchases may be made at market prices which may be in excess of the
Subscription Price in the Offering.  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 stockholders' equity per share of Common Stock.

                                       23
<PAGE>
 
                                DIVIDEND POLICY

     Upon completion of the Offering, the Board of Directors of the Company will
have the authority to declare dividends on the Common Stock, subject to
statutory and regulatory requirements.  While the Board of Directors may
consider a policy of paying cash dividends on the Common Stock in the future,
there can be no assurance that dividends will be paid or, if paid, what the
amounts of dividends will be, or whether such dividends, once paid, will
continue to be paid.

     Dividends will be subject to determination and declaration by the Board of
Directors in its discretion, which will take into account the Company's
consolidated financial condition and results of operations, tax considerations,
industry standards, economic conditions, capital levels, regulatory restrictions
on dividend payments by the Bank to the Company, general business practices and
other factors. The Company will not be subject to OTS regulatory restrictions on
the payment of dividends although the source of such dividends depends in part
upon the receipt of dividends from the Bank.  The Bank must provide the OTS with
30 days prior notice of its intention to make a capital distribution to the
Company.  OTS regulations in certain circumstances limit the amount of any
capital distribution by federal savings associations.  In addition, the portion
of the Bank's earnings which has been appropriated for bad debt reserves and
deducted for federal income tax purposes cannot be used by the Bank to pay cash
dividends to the Company without the payment of federal income taxes by the Bank
at the then current income tax rate on the amount deemed distributed, which
would include the amount of any federal income taxes attributable to the
distribution. The Company does not contemplate any distribution by the Bank that
would result in a recapture of the Bank's bad debt reserve or otherwise create
federal tax liabilities.   See "Federal and State Taxation--Federal Taxation,"
Note 10 to the Consolidated Financial Statements, and "Regulation--Federal
Regulation of Savings Institutions--Limitations on Capital Distributions."

     If permitted by regulatory authorities, the Mutual Holding Company may
waive the receipt of any cash dividends declared on the Common Stock if the
Mutual Holding Company's Board of Directors determines that such waiver is in
the best interests of the Mutual Holding Company.  The Board of Directors may
conclude that such waiver, which permits retention of capital by the Company, is
in the best interests of the Mutual Holding Company because, among other
reasons, (i) the Mutual Holding Company has no need for the dividend considering
its current business operations, and (ii) the cash that would be received could
be invested by the Company at a more favorable rate of return. The Board of
Directors may consider other factors in  determining whether such waiver is
consistent with its fiduciary duties to the Mutual Holding Company.  A waiver of
dividends by the Mutual Holding Company will result in a greater likelihood that
dividends will be paid to stockholders other than the Mutual Holding Company.
There is no assurance that the Mutual Holding Company will waive the receipt of
dividends.

     Additionally, in connection with the Reorganization, the Company and Bank
have committed to the OTS that during the one-year period following the
consummation of the Reorganization, the Company will not 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 COMMON STOCK

     The Company has received conditional approval to have the Common Stock
quoted on the Nasdaq National Market System under the symbol "______" subject to
the completion of the Offering and compliance with certain conditions including
the presence of at least three registered and active market makers.  Ryan Beck
has indicated its intention to make a market in the Common Stock, and based on
the Bank's analysis of the results of recent conversion stock offerings, it is
anticipated that the Company will satisfy the listing requirements.

     The existence of a public trading market will depend upon the presence in
the market of both willing buyers and willing sellers at any given time. The
presence of a sufficient number of buyers and sellers at any given time is a
factor over which neither the Company nor any broker or dealer has control.  The
absence of an active and liquid trading market may make it difficult to sell the
Common Stock and may have an adverse effect on the price of the

                                       24
<PAGE>
Common Stock. Purchasers should consider the potentially illiquid and long-term
nature of their investment in the Common Stock.

                                 CAPITALIZATION

     The following table presents the historical capitalization of the Bank at
June 30, 1998, and the pro forma consolidated capitalization of the Company as
of that date, giving effect to the Offering based upon the sale of the number of
shares indicated in the table and the other assumptions set forth below and
under "Pro Forma Data."
<TABLE>
<CAPTION>
                                                                        PRO FORMA CONSOLIDATED CAPITALIZATION
                                                                       BASED UPON THE SALE FOR $10.00 PER SHARE OF
                                                                  ---------------------------------------------------
                                                                                                             4,007,175        
                                                                    2,575,500     3,030,000    3,484,500     SHARES AT
                                                                   SHARES AT     SHARES AT     SHARES AT     ADJUSTED
                                                                   MINIMUM OF    MIDPOINT OF    MAXIMUM      MAXIMUM OF
                                                    HISTORICAL      OFFERING      OFFERING      OFFERING     OFFERING
                                                  CAPITALIZATION     RANGE         RANGE         RANGE        RANGE /(1)/
                                                  --------------  ----------     --------     ----------    -----------
                                                                              (DOLLARS IN THOUSANDS)
<S>                                                 <C>           <C>          <C>          <C>           <C> 
Deposits /(2)/....................................   $  580,075   $  580,075     $580,075      $580,075     $580,075
Borrowings........................................       25,048       25,048       25,048        25,048       25,048
                                                     ----------   ----------     --------      --------     --------
  Total deposits and borrowings...................   $  605,123   $  605,123     $605,123      $605,123     $605,123
                                                     ==========   ==========     ========      ========     ========

Stockholders' equity:
 Preferred stock, $0.10 par value, per share;
  10,000,000 shares authorized; none to be
  issued /(3)/....................................   $       --   $       --     $     --      $     --     $     --
 Common stock, $0.10 par value per share;
  20,000,000 shares authorized; shares to be
  issued as shown /(3)/...........................           --          553          650           748          860
 Additional paid-in capital /(3)/.................           --       23,952       28,400        32,847       37,962
 Retained earnings /(4)/..........................       53,493       53,393       53,393        53,393       53,393
 Net unrealized gain on securities available for
  sale, net of income taxes.......................          386          386          386           386          386
 Less:
  Common Stock acquired by ESOP /(5)/.............           --       (2,060)      (2,424)       (2,788)      (3,206)
  Common Stock acquired by
   Recognition Plan /(6)/.........................           --       (1,030)      (1,212)       (1,394)      (1,603)
                                                     ----------   ----------     --------      --------     --------

   Total stockholders' equity.....................   $   53,879   $   75,194     $ 79,193      $ 83,192     $ 87,792
                                                     ==========   ==========     ========      ========     ========

 Total stockholders' equity as a percentage of
  total assets....................................         7.93%       10.74%       11.24%        11.74%       12.31%
                                                     ==========   ==========     ========      ========     ========
--------------------------------------
</TABLE>
/(1)/ As adjusted to give effect to an increase in the number of shares which
      could occur due to a 15% increase in the Estimated Valuation Range to
      reflect changes in market or general financial conditions following the
      commencement of the Offering.
/(2)/ Does not reflect withdrawals from deposit accounts for the purchase of
      Common Stock in the Offering.  Such withdrawals would reduce pro forma
      deposits by the amount of such withdrawals.
/(3)/ Reflects the sale of shares in the Offering. Does not include proceeds
      from the Offering that the Company intends to lend to the ESOP to enable
      it to purchase shares of Common Stock in the Offering. No effect has been
      given to the issuance of additional shares of Common Stock pursuant to the
      Stock Option Plan that the Company expects to adopt. If such plan is
      approved by stockholders, an amount equal to 10% of the shares of Common
      Stock issued in the Offering will be reserved for issuance upon the
      exercise of options. See "Management of the Bank."
/(4)/ The retained earnings of the Bank will be substantially restricted after
      the Reorganization.  See "Dividend Policy" and "Regulation--Federal
      Regulation of Savings Institutions--Limitations on Capital Distributions."
      Pro forma amounts are reduced by the $100,000 that will be used to
      capitalize the Mutual Holding Company.
/(5)/ Assumes that 8% of the shares sold in  the Offering will be purchased by
      the ESOP and that the funds used to acquire the ESOP shares will be
      borrowed from the Company. The Common Stock acquired by the ESOP is
      reflected as a reduction of stockholders' equity. As the ESOP debt is
      repaid, shares will be released and allocated to participants' accounts,
      and a corresponding reduction in the charge against stockholders' equity
      will occur.  See "Executive Compensation and Related Transactions of the
      Bank-- Employee Stock Ownership Plan and Trust."
/(6)/ Assuming the receipt of shareholder approval, the Company intends to
      implement the Recognition Plan. Assuming such implementation, the
      Recognition Plan will purchase an amount of shares equal to 4% of the
      shares of Common Stock sold in the Offering if the Recognition Plan is
      implemented within one year of the completion of the Reorganization or up
      to 5% of the shares of Common Stock sold in the Offering  if the
      Recognition Plan is implemented more than one year after the
      Reorganization.  Such shares may be purchased from authorized but unissued
      shares or in the open market.  Under the terms of the Recognition Plan,
      assuming it is implemented within one year of the Reorganization, shares
      awarded to officers and directors will vest at the rate of 20% per year.
      The Common Stock to be purchased by the Recognition Plan

                                       25
<PAGE>
 
     represents unearned compensation and is, accordingly, reflected as a
     reduction to pro forma stockholders' equity. As shares of the Common Stock
     granted pursuant to the Recognition Plan vest, a corresponding reduction in
     the charge against stockholders' equity will occur.


                                 PRO FORMA DATA

     The actual net proceeds from the sale of the Common Stock cannot be
determined until the Offering is completed. The following estimated pro forma
information is based upon assumptions, including that: (i) the ESOP will
purchase 8% of the Common Stock sold in the Offering, and the remaining shares
will be sold in the Subscription and/or Community Offering; (ii) Ryan Beck will
receive a fee of $450,000; (iii) Offering expenses, excluding the fee paid to
Ryan Beck, will be approximately $800,000; and (iv) the Mutual Holding Company
will be capitalized with $100,000 which will be contributed by the Bank from
equity.  Actual Offering expenses may vary from those estimated.  Additional
assumptions are described in the footnotes to the table.

     Pro forma consolidated net income of the Company for the nine months ended
June 30, 1998 and for the fiscal year ended September 30, 1997 has been
calculated as if the Common Stock had been sold at the beginning of the
respective periods and the net proceeds had been invested at 5.37% and 5.44%,
respectively (the one year U.S. Treasury bill rate as of June 30, 1998 and
September 30, 1997, respectively).  The U.S. Treasury bill rate was used on the
reinvestment of proceeds because it more appropriately reflects a market rate of
return, as compared to using the rate equal to the arithmetic average of the
average yield on the Bank's interest-earning assets and its average cost of
deposits.  The tables do not reflect the effect of withdrawals from deposit
accounts for the purchase of Common Stock. The pro forma after-tax yield on
reinvestment of the net proceeds is assumed to be 3.22% for the nine months
ended June 30, 1998 and 3.26% for the fiscal year ended September 30, 1997 (in
both cases, based on an assumed tax rate of 40%).  Historical and pro forma per
share amounts have been calculated by dividing historical and pro forma amounts
by the indicated number of shares of Common Stock, as adjusted to give effect to
the purchase of shares by the ESOP.  No effect has been given in the pro forma
stockholders' equity calculations for the assumed earnings on the net proceeds.
As discussed under "Use of Proceeds," the Company will retain 50% of the net
proceeds of the Offering.

     The pro forma information derived from the above assumptions 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 considered
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.

                                       26
<PAGE>
     The following tables set forth pro forma data of the Company at or for the
nine months ended June 30, 1998 and at or for the fiscal year ended September
30, 1997, based on the assumptions set forth above and in the footnotes to the
tables, and should not be used as a basis for projections of market value of the
common stock following the Offering. The tables below give effect to the
Recognition Plan, which is expected to be adopted by the Company following the
Offering and presented to stockholders for approval. See "Management of the
Bank--Recognition Plan." No effect has been given in the tables to the possible
issuance of additional shares reserved for future issuance pursuant to the Stock
Option Plan to be adopted by the Board of Directors of the Company and presented
to stockholders for approval, nor does book value as presented give any effect
to the liquidation account to be established for the benefit of Eligible Account
Holders or Supplemental Eligible Account Holders, or the tax effect of the bad
debt reserve and other factors.
<TABLE>
<CAPTION>
                                                                           AT OR FOR THE NINE MONTHS ENDED JUNE 30, 1998
                                                                            BASED UPON THE SALE FOR $10.00 PER SHARE OF
                                                                ------------------------------------------------------------------
                                                                                                                     4,007,175 
                                                                   2,575,500        3,030,000       3,484,500       SHARES/(1)/
                                                                    SHARES           SHARES           SHARES        AT ADJUSTED
                                                                  AT MINIMUM OF   AT MIDPOINT OF   AT MAXIMUM OF     MAXIMUM OF
                                                                 OFFERING RANGE   OFFERING RANGE   OFFERING RANGE   OFFERING RANGE
                                                                 --------------   --------------   --------------   --------------
                                                                           (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<S>                                                              <C>              <C>              <C>              <C> 
Gross proceeds.................................................      $   25,755       $   30,300       $   34,845    $   40,072
Less offering expenses.........................................           1,250            1,250            1,250         1,250
                                                                     ----------       ----------       ----------    ----------
 Estimated net proceeds........................................          24,505           29,050           33,595        38,822
Less common stock acquired by ESOP.............................          (2,060)          (2,424)          (2,788)       (3,206)
Less common stock acquired by Recognition Plan.................          (1,030)          (1,212)          (1,394)       (1,603)
                                                                     ----------       ----------       ----------    ----------
  Estimated net proceeds, as adjusted..........................      $   21,415       $   25,414       $   29,413    $   34,013
                                                                     ==========       ==========       ==========    ==========
 
FOR THE NINE MONTHS ENDED JUNE 30, 1998
Consolidated net income:
 Historical net income.........................................      $    3,444       $    3,444       $    3,444    $    3,444
 Pro forma income on net proceeds /(2)/........................             515              612              708           820
 Less pro forma ESOP adjustment /(3)/..........................             (93)            (109)            (125)         (144)
 Less pro forma Recognition Plan adjustment /(4)/..............             (93)            (109)            (125)         (144)
                                                                     ----------       ----------       ----------    ----------
  Pro forma net income.........................................      $    3,773       $    3,838       $    3,902    $    3,976
                                                                     ==========       ==========       ==========    ==========
 
Net income per share:
 Historical....................................................      $     0.65       $     0.55       $     0.48    $     0.42
 Pro forma income on net proceeds /(2)/........................            0.10             0.10             0.10          0.10
 Less pro forma ESOP adjustment/ (3)/..........................           (0.02)           (0.02)           (0.02)        (0.02)
 Less pro forma Recognition Plan adjustment /(4)/..............           (0.02)           (0.02)           (0.02)        (0.02)
                                                                     ----------       ----------       ----------    ----------
  Pro forma net income per share/ (3)(4)(5)/...................      $     0.71       $     0.61       $     0.54    $     0.48
                                                                     ==========       ==========       ==========    ==========
 
Number of shares used in calculating earnings per share /(6)/..       5,326,687        6,266,690        7,206,694     8,287,698
                                                                     ==========       ==========       ==========    ==========
 
AT JUNE 30, 1998
Stockholders' equity:
 Historical /(7)/..............................................      $   53,879       $   53,879       $   53,879    $   53,879
 Estimated net proceeds /(8)/..................................          24,505           29,050           33,595        38,822
 Less capitalization of the Mutual Holding Company.............            (100)            (100)            (100)         (100)
 Less common stock acquired by ESOP /(3)/......................          (2,060)          (2,424)          (2,788)       (3,206)
 Less common stock acquired by Recognition Plan /(4)/..........          (1,030)          (1,212)          (1,394)       (1,603)
                                                                     ----------       ----------       ----------    ----------
  Pro forma stockholders' equity /(5)/.........................      $   75,194       $   79,193       $   83,192    $   87,792
                                                                     ==========       ==========       ==========    ==========
 
Stockholders' equity per share:
 Historical /(7)/..............................................      $     9.75       $     8.29       $     7.21    $     6.27
 Estimated net proceeds /(8)/..................................            4.44             4.47             4.49          4.52
 Less capitalization of the Mutual Holding Company.............           (0.02)           (0.02)           (0.02)        (0.01)
 Less common stock acquired by ESOP /(3)/......................           (0.37)           (0.37)           (0.37)        (0.37)
 Less common stock acquired by Recognition Plan /(4)/..........           (0.19)           (0.19)           (0.19)        (0.19)
                                                                     ----------       ----------       ----------    ----------
   Pro forma stockholders' equity per share/(4)(5)/............      $    13.61       $    12.18       $    11.12    $    10.22
                                                                     ==========       ==========       ==========    ==========
 
Number of shares used in calculating
 stockholders' equity per share................................       5,525,000        6,500,000        7,475,000     8,596,250
                                                                     ==========       ==========       ==========    ==========
Offering price as a multiple of pro forma net earnings
 per share (annualized)........................................          10.56x           12.30x           13.89x        15.63x
                                                                     ==========       ==========       ==========    ==========
 
Offering price as a percentage of pro forma stockholders'
 equity per share..............................................           73.48%           82.10%           89.93%        97.85%
                                                                     ==========       ==========       ==========    ==========
</TABLE>
                                                  (Footnotes begin on next page)
                                       27
<PAGE>
 
_________________________
/(1)/ As adjusted to give effect to an increase in the number of shares which
      could occur due to a 15% increase in the Estimated Valuation Range to
      reflect changes in market or general financial conditions following the
      commencement of the Offering.
/(2)/ No effect has been given to withdrawals from deposit accounts for the
      purpose of purchasing Common Stock. Since funds on deposit at the Bank may
      be withdrawn to purchase shares of Common Stock (which will reduce
      deposits by the amount of such purchases), the net amount of additional
      funds available to the Bank for investment following receipt of the net
      proceeds of the Offering will be reduced by the amount of such
      withdrawals.
/(3)/ It is assumed that 8% of the shares sold in the Offering 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 payment of the ESOP debt is based upon equal principal installments
      plus interest over a 10-year period. Assuming the Company makes the ESOP
      loan, interest income earned by the Company on the ESOP debt will offset
      the interest paid by the Bank. Accordingly, only the principal payments on
      the ESOP debt are recorded as an expense (tax-effected) to the Company on
      a consolidated basis. The pro forma net earnings information makes the
      following assumptions: (i) the Bank's contribution to the ESOP is
      equivalent to the debt service requirement for a nine-month period and was
      made at the end of the period; (ii) 7,726, 9,090, 10,453 and 12,022 shares
      at the minimum, midpoint, maximum and adjusted maximum of the Offering
      Range, respectively, were committed to be released during the nine months
      ended June 30, 1998, on a weighted average basis, at an average fair value
      of $10.00 per share in accordance with Statement of Position ("SOP") No.
      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--Employee Stock Ownership Plan
      and Trust."
/(4)/ Gives effect to the Recognition Plan expected to be adopted by the Company
      following the Offering. This plan intends to acquire a number of shares of
      common stock equal to 4% of the shares sold in the Offering, or 103,020,
      121,200, 139,380 and 160,287 shares of common stock at the minimum,
      midpoint, maximum and adjusted maximum of the Offering Range,
      respectively, either through open market purchases, or from authorized but
      unissued shares of common stock or treasury stock of the Company, if any.
      Funds used by the Recognition Plan to purchase the shares will be
      contributed to the plan by the Company. In calculating the pro forma
      effect of the Recognition Plan, it is assumed that the shares were
      acquired by the plan in open market purchases at the beginning of the
      period presented for a purchase price equal to the Subscription Price, and
      that 20% of the amount contributed was an amortized expense during the
      period. The issuance of authorized but unissued shares of the common stock
      to the Recognition Plan instead of open market purchases would dilute the
      voting interests of existing stockholders by approximately 1.9% and pro
      forma net earnings per share would be $0.69, $0.60, $0.53 and $0.47 at the
      minimum, midpoint, maximum and adjusted maximum of the Offering Range,
      respectively, and pro forma stockholders' equity per share would be
      $13.55, $12.14, $11.11 and $10.21 at the minimum, midpoint, maximum and
      adjusted maximum of the Offering Range, respectively. The actual purchase
      price of the shares granted under the Recognition Plan may be higher or
      lower than the Subscription Price. See "Management of the Bank--
      Recognition Plan."
/(5)/ No effect has been given to the issuance of additional shares of Common
      Stock pursuant to the Stock Option Plan expected to be adopted by the
      Company following the Offering. An amount equal to 10% of the common stock
      sold in the Offering, or 257,550, 303,000, 348,450 and 400,718 shares at
      the minimum, midpoint, maximum and adjusted maximum of the Offering Range,
      respectively, will be reserved for future issuance upon the exercise of
      options to be granted under the Stock Option Plan. The issuance of common
      stock pursuant to the exercise of options under the Stock Option 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 equal
      to the Subscription Price, existing stockholders' voting interest would be
      diluted by 4.5%, and at the minimum, midpoint, maximum and adjusted
      maximum of the Offering Range, the pro forma net earnings per share would
      be $0.68, $0.58, $0.52 and $0.47, respectively, and the pro forma
      stockholders' equity per share would be $13.44, $12.09, $11.07 and $10.20,
      respectively. See "Management of the Bank--Stock Option Plan."
/(6)/ Such number of shares includes shares sold in the Offering and shares
      issued to the Mutual Holding Company in the Reorganization.  The number of
      shares outstanding excludes shares to be acquired by the ESOP amounting to
      198,314, 233,310, 268,307 and 308,552 at the minimum, midpoint, maximum
      and adjusted maximum of the Offering Range, respectively. The number of
      shares outstanding includes ESOP shares committed to be released

                                       28
<PAGE>
 
      of 7,726, 9,090, 10,453 and 12,022 at the minimum, midpoint, maximum and
      adjusted maximum, respectively. No effect has been given to the issuance
      of additional shares of Common Stock pursuant to the Stock Option Plan
      (which will not be established within the first year after the conclusion
      of the Offering unless approved by Minority Stockholders). Recognition
      Plan shares are assumed to be fully vested for purposes of computing net
      earnings per share.
/(7)/ Stockholders' equity represents the excess of the carrying value of the
      assets of the Bank over its liabilities.  The amounts shown do not reflect
      the federal income tax consequences of the potential restoration to income
      of the bad debt reserves for income tax purposes, which would be required
      in the event of liquidation.  Retained earnings will be substantially
      restricted following the Reorganization. See "Dividends" and Note 10 of
      Notes to the Consolidated Financial Statements. For purposes of
      calculating pro forma stockholders' equity per share, shares outstanding
      represent total shares issued in the Offering and to the Mutual Holding
      Company of 5,525,000, 6,500,000, 7,475,000 and 8,596,250 at the minimum,
      midpoint, maximum and adjusted maximum of the Offering Range,
      respectively.
/(8)/ Includes assumed proceeds from sale to the Recognition Plan for $10.00 per
      share of a number of authorized but unissued shares equal to 4% of the
      Minority Ownership Interest. Purchases by the Recognition Plan will be
      made at the fair market value of such shares at the time of purchase,
      which may be more or less than $10.00.

                                       29
<PAGE>
 
<TABLE>
<CAPTION>
                                                                            AT OR FOR THE YEAR ENDED SEPTEMBER 30, 1997
                                                                            BASED UPON THE SALE FOR $10.00 PER SHARE OF
                                                                 -----------------------------------------------------------------
                                                                                                                      4,007,175
                                                                   2,575,500        3,030,000        3,484,500       SHARES/(1)/
                                                                     SHARES           SHARES           SHARES        AT ADJUSTED
                                                                 AT MINIMUM OF    AT MIDPOINT OF   AT MAXIMUM OF      MAXIMUM OF
                                                                 OFFERING RANGE   OFFERING RANGE   OFFERING RANGE   OFFERING RANGE
                                                                 --------------   --------------   --------------   --------------
                                                                           (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                              <C>              <C>              <C>              <C>
Gross proceeds.................................................      $   25,755       $   30,300       $   34,845    $   40,072
Less offering expenses.........................................           1,250            1,250            1,250         1,250
                                                                     ----------       ----------       ----------    ----------
 Estimated net proceeds........................................          24,505           29,050           33,595        38,822
Less common stock acquired by ESOP.............................          (2,060)          (2,424)          (2,788)       (3,206)
Less common stock acquired by Recognition Plan.................          (1,030)          (1,212)          (1,394)       (1,603)
                                                                     ----------       ----------       ----------    ----------
  Estimated net proceeds, as adjusted..........................      $   21,415       $   25,414       $   29,413    $   34,013
                                                                     ==========       ==========       ==========    ==========
FOR THE YEAR ENDED SEPTEMBER 30, 1997
Consolidated net income:
 Historical net income.........................................      $    4,598       $    4,598       $    4,598    $    4,598
 Pro forma income on net proceeds /(2)/........................             696              826              957         1,107
 Less pro forma ESOP adjustment /(3)/..........................            (124)            (145)            (167)         (192)
 Less pro forma Recognition Plan adjustment /(4)/..............            (124)            (145)            (167)         (192)
                                                                     ----------       ----------       ----------    ----------
  Pro forma net income.........................................      $    5,046       $    5,134       $    5,221    $    5,321
                                                                     ==========       ==========       ==========    ==========
Net income per share:
 Historical....................................................      $     0.86       $     0.73       $     0.64    $     0.55
 Pro forma income on net proceeds /(2)/........................            0.13             0.13             0.13          0.13
 Less pro forma ESOP adjustment/ (3)/..........................           (0.02)           (0.02)           (0.02)        (0.02)
 Less pro forma Recognition Plan adjustment /(4)/..............           (0.02)           (0.02)           (0.02)        (0.02)
                                                                     ----------       ----------       ----------    ----------
  Pro forma net income per share/ (3)(4)(5)/...................      $     0.95       $     0.82       $     0.73    $     0.64
                                                                     ==========       ==========       ==========    ==========
 
Number of shares used in calculating earnings per share /(6)/..       5,329,262        6,269,720        7,210,178     8,291,705
                                                                     ==========       ==========       ==========    ==========
AT SEPTEMBER 30, 1997
Stockholders' equity:
 Historical /(7)/..............................................      $   50,399       $   50,399       $   50,399    $   50,399
 Estimated net proceeds /(8)/..................................          24,505           29,050           33,595        38,822
 Less capitalization of the Mutual Holding Company.............            (100)            (100)            (100)         (100)
 Less common stock acquired by ESOP /(3)/......................          (2,060)          (2,424)          (2,788)       (3,206)
 Less common stock acquired by Recognition Plan /(4)/..........          (1,030)          (1,212)          (1,394)       (1,603)
                                                                     ----------       ----------       ----------    ----------
  Pro forma stockholders' equity /(5)/.........................      $   71,714       $   75,713       $   79,712    $   84,312
                                                                     ==========       ==========       ==========    ==========
Stockholders' equity per share:
 Historical /(7)/..............................................      $     9.12       $     7.75       $     6.74    $     5.86
 Estimated net proceeds /(8)/..................................            4.44             4.47             4.49          4.52
 Less capitalization of the Mutual Holding Company.............           (0.02)           (0.01)           (0.01)        (0.01)
 Less common stock acquired by ESOP/(3)/.......................           (0.37)           (0.37)           (0.37)        (0.37)
 Less common stock acquired by Recognition Plan/(4)/...........           (0.19)           (0.19)           (0.19)        (0.19)
                                                                     ----------       ----------       ----------    ----------
   Pro forma stockholders' equity per share/(4)(5)/............      $    12.98       $    11.65       $    10.66    $     9.81
                                                                     ==========       ==========       ==========    ==========
Number of shares used in calculating
 stockholders' equity per share................................       5,525,000        6,500,000        7,475,000     8,596,250
                                                                     ==========       ==========       ==========    ==========
Offering price as a multiple of pro forma net earnings
 per share.....................................................          10.53x           12.20x           13.70x        15.63x
                                                                     ==========       ==========       ==========    ==========
Offering price as a percentage of pro forma stockholders'
 equity per share..............................................           77.04%           85.84%           93.81%       101.94%
                                                                     ==========       ==========       ==========    ==========
</TABLE>
                                                  (Footnotes begin on next page)

                                       30
<PAGE>
 
_________________________
/(1)/ As adjusted to give effect to an increase in the number of shares which
      could occur due to a 15% increase in the Estimated Valuation Range to
      reflect changes in market or general financial conditions following the
      commencement of the Offering.
/(2)/ No effect has been given to withdrawals from deposit accounts for the
      purpose of purchasing Common Stock. Since funds on deposit at the Bank may
      be withdrawn to purchase shares of Common Stock (which will reduce
      deposits by the amount of such purchases), the net amount of additional
      funds available to the Bank for investment following receipt of the net
      proceeds of the Offering will be reduced by the amount of such
      withdrawals.
/(3)/ It is assumed that 8% of the shares sold in the Offering 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 payment of the ESOP debt is based upon equal principal installments
      plus interest over a 10-year period. Assuming the Company makes the ESOP
      loan, interest income earned by the Company on the ESOP debt will offset
      the interest paid by the Bank. Accordingly, only the principal payments on
      the ESOP debt are recorded as an expense (tax-effected) to the Company on
      a consolidated basis. The pro forma net earnings information makes the
      following assumptions: (i) the Bank's contribution to the ESOP is
      equivalent to the debt service requirement for a full year and was made at
      the end of the period; (ii) 10,302, 12,120, 13,938 and 16,029 shares at
      the minimum, midpoint, maximum and adjusted maximum of the Offering Range,
      respectively, were committed to be released during the year ended
      September 30, 1997 on a weighted average basis, at an average fair value
      of $10.00 per share in accordance with SOP No. 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--Employee Stock Ownership Plan and Trust."
/(4)/ Gives effect to the Recognition Plan expected to be adopted by the Company
      following the Offering. This plan intends to acquire a number of shares of
      common stock equal to 4% of the shares sold in the Offering, or 103,020,
      121,200, 139,380 and 160,287 shares of common stock at the minimum,
      midpoint, maximum and adjusted maximum of the Offering Range,
      respectively, either through open market purchases, or from authorized but
      unissued shares of common stock or treasury stock of the Company, if any.
      Funds used by the Recognition Plan to purchase the shares will be
      contributed to the plan by the Company. In calculating the pro forma
      effect of the Recognition Plan, it is assumed that the shares were
      acquired by the plan in open market purchases at the beginning of the
      period presented for a purchase price equal to the Subscription Price, and
      that 20% of the amount contributed was an amortized expense during the
      period. The issuance of authorized but unissued shares of the common stock
      to the Recognition Plan instead of open market purchases would dilute the
      voting interests of existing stockholders by approximately 1.9% and pro
      forma net earnings per share would be $0.94, $0.82, $0.73 and $0.64 at the
      minimum, midpoint, maximum and adjusted maximum of the Offering Range,
      respectively, and pro forma stockholders' equity per share would be
      $12.93, $11.62, $10.66 and $9.81 at the minimum, midpoint, maximum and
      adjusted maximum of the Offering Range, respectively. The actual purchase
      price of the shares granted under the Recognition Plan may be higher or
      lower than the Subscription Price. See "Management of the Bank--
      Recognition Plan."
/(5)/ No effect has been given to the issuance of additional shares of Common
      Stock pursuant to the Stock Option Plan expected to be adopted by the
      Company following the Offering. An amount equal to 10% of the common stock
      sold in the Offering, or 257,550, 303,000, 348,450 and 400,718 shares at
      the minimum, midpoint, maximum and adjusted maximum of the Offering Range,
      respectively, will be reserved for future issuance upon the exercise of
      options to be granted under the Stock Option Plan. The issuance of common
      stock pursuant to the exercise of options under the Stock Option 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 equal
      to the Subscription Price, existing stockholders' voting interest would be
      diluted by 4.5%, and at the minimum, midpoint, maximum and adjusted
      maximum of the Offering Range, the pro forma net earnings per share would
      be $0.92, $0.80, $0.71 and $0.63, respectively, and the pro forma
      stockholders' equity per share would be $12.84, $11.57, $10.63 and $9.81,
      respectively. See "Management of the Bank--Stock Option Plan."
/(6)/ Such number of shares includes shares sold in the Offering and shares
      issued to the Mutual Holding Company in the Reorganization. The number of
      shares outstanding excludes shares to be acquired by the ESOP amounting to
      195,738, 230,280, 264,822 and 304,545 at the minimum, midpoint, maximum
      and adjusted maximum of the Offering Range, respectively. The number of
      shares outstanding includes ESOP shares committed to be released 

                                       31
<PAGE>
 
      of 10,302, 12,120, 13,938 and 16,029 at the minimum, midpoint, maximum and
      adjusted maximum, respectively. No effect has been given to the issuance
      of additional shares of Common Stock pursuant to the Stock Option Plan
      (which will not be established within the first year after the conclusion
      of the Offering unless approved by Minority Stockholders). Recognition
      Plan shares are assumed to be fully vested for purposes of computing net
      earnings per share.
/(7)/ Stockholders' equity represents the excess of the carrying value of the
      assets of the Bank over its liabilities. The amounts shown do not reflect
      the federal income tax consequences of the potential restoration to income
      of the bad debt reserves for income tax purposes, which would be required
      in the event of liquidation. Retained earnings will be substantially
      restricted following the Reorganization. See "Dividends" and Note 10 of
      Notes to the Consolidated Financial Statements. For purposes of
      calculating pro forma stockholders' equity per share, shares outstanding
      represent total shares issued in the Offering and to the Mutual Holding
      Company of 5,525,000, 6,500,000, 7,475,000 and 8,596,250 at the minimum,
      midpoint, maximum and adjusted maximum of the Offering Range,
      respectively.
/(8)/ Includes assumed proceeds from sale to the Recognition Plan for $10.00 per
      share of a number of authorized but unissued shares equal to 4% of the
      Minority Ownership Interest. Purchases by the Recognition Plan will be
      made at the fair market value of such shares at the time of purchase,
      which may be more or less than $10.00.







        

                                       32
<PAGE>
 
             PROPOSED PURCHASES BY DIRECTORS AND EXECUTIVE OFFICERS
 
     The following table sets forth information regarding intended Common Stock
subscriptions by each of the Directors and executive officers of the Bank and
the Company and their associates, and by all such Directors and executive
officers as a group. In the event the individual maximum purchase limitation is
increased, persons subscribing for the maximum amount may increase their
purchase order. This table excludes shares to be purchased by the ESOP, and any
Recognition Plan awards or Stock Option Plan grants that may be made no earlier
than six months after the completion of the Reorganization. See "Management of
the Bank--Recognition Plan" and "--Stock Option Plan."

<TABLE> 
<CAPTION> 
                                                                                                                                   
                                                                                                           PERCENT OF   
                                                                            INTENDED SUBSCRIPTIONS        SHARES ISSUED 
                                              POSITION                ----------------------------------     IN THE
NAME                                        WITH THE BANK             TOTAL SHARES/(1)/  AGGREGATE PRICE  OFFERING/(2)/
--------------------------------  ----------------------------------  -----------------  ---------------  -------------
<S>                               <C>                                 <C>                <C>              <C>
William F. Helmer                       Chairman of the Board              40,000          $  400,000          1.1%
George Strayton                   President, Chief Executive Officer       40,000             400,000          1.1
                                             and Director                                                
Dennis L. Coyle                       Vice Chairman of the Board           40,000             400,000          1.1
Murray L. Korn                                 Director                    40,000             400,000          1.1
Donald T. McNelis                              Director                    20,000             200,000            *
Richard A. Nozell                              Director                     7,500              75,000            *
William R. Sichol, Jr.                         Director                    20,000             200,000            *
Wilbur C. Ward                                 Director                     7,500              75,000            *
F. Gary Zeh                                    Director                    40,000             400,000          1.1
Daniel G. Rothstein                   Executive Vice President,            35,000             350,000          1.0
                                         Chief Credit Officer                                            
                                        and Regulatory Counsel                                           
Robert J. Sansky                     Executive Vice President and          10,000             100,000            *
                                     Director of Human Resources                                         
Katherine A. Dering                   Senior Vice President and            10,000             100,000            *
                                       Chief Financial Officer                                           
Stephen G. Dormer                     Senior Vice President and            10,000             100,000            *
                                    Director of Business Activity                                        
John F. Fitzpatrick                   Senior Vice President and            10,000             100,000            *
                                     Director of Support Services                                        
                                                                          -------          ----------      
All Directors and executive                                                                              
officers as a group (14 persons)                                          330,000          $3,300,000          9.5%
                                                                          =======          ==========          ===
---------------- 
</TABLE>      
  *   Less than 1%.  
/(1)/ The maximum number of shares for which any officer or director may
      subscribe is 40,000 shares.
/(2)/ At the maximum of the Offering Range. 

                                       33
<PAGE>
 
                        THE REORGANIZATION AND OFFERING

     THE OTS HAS APPROVED THE PLAN AND THE OFFERING OF THE COMMON STOCK SUBJECT
TO THE APPROVAL OF THE BANK'S MEMBERS AND THE SATISFACTION OF CERTAIN CONDITIONS
IMPOSED BY THE OTS.  HOWEVER, SUCH APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION
OR ENDORSEMENT OF THE OFFERING OR THE PLAN BY THE OTS.

DESCRIPTION OF AND REASONS FOR THE REORGANIZATION

     Pursuant to the Plan, which has been approved unanimously by the Board of
Directors, the Bank will reorganize into what is called a "two-tier" mutual
holding company structure.  It is a two-tier structure because it will have two
levels of holding companies--a "mid-tier" stock holding company and a "top-tier"
mutual holding company.  Under the terms of the Plan (i) the Bank will form the
Company as a federal  corporation; (ii) the Bank will form the Mutual Holding
Company as a federal mutual holding company; (iii) the Bank will reorganize into
the capital stock form of organization and issue 100% of the Bank's to-be
outstanding common stock to the Company; and (iv) the Company will issue shares
of Common Stock to the public and the Mutual Holding Company.  The number of
shares of Common Stock sold to the public pursuant to this Prospectus will be
equal to 46.6% of the shares issued in the Reorganization, and the number of
shares issued to the Mutual Holding Company will be equal to 53.4% of the shares
issued in the Reorganization.

     In adopting the Plan, the Bank's Board of Directors determined that the
Reorganization is in the best interest of the Bank.  The primary purpose of the
Reorganization is to establish a structure that will enable the Bank to compete
and expand more effectively in the financial services marketplace, and that will
enable the Bank's depositors, certain borrowers, employees, management and
directors to obtain an indirect equity ownership interest in the Bank. The new
structure will permit the Company to issue capital stock, which is a source of
capital not available to mutual savings banks, and the Company will take
advantage of this new ability by issuing Common Stock in the Offering. Since the
Company is not offering all of its Common Stock for sale in the Offering (but is
issuing a majority of its stock to the Mutual Holding Company), the
Reorganization will result in less capital raised in comparison to a standard
mutual-to-stock conversion.  The Reorganization, however, also will offer the
Bank the opportunity to raise additional capital since the stock held by the
Mutual Holding Company will be available for sale in the future in the event the
Company sells additional shares to depositors and others in one or more
incremental stock offerings, or if the Mutual Holding Company converts to the
capital stock form of organization in a Conversion Transaction.  See
"Regulation--Holding Company Regulation--Conversion of the Mutual Holding
Company to Stock Form."

     The Reorganization will also give the Bank greater flexibility to structure
and finance the expansion of its operations, including the potential acquisition
of other financial institutions, and to diversify into other financial services.
The holding company form of organization is expected to provide additional
flexibility to diversify the Bank's business activities through existing or
newly formed subsidiaries, or through acquisitions of or mergers with other
financial institutions, as well as other companies.  Although the Bank has no
current arrangements, understandings or agreements regarding any such
opportunities, the Company will be in a position after the Reorganization,
subject to regulatory limitations and the Company's financial position, to take
advantage of any such opportunities that may arise.  Lastly, the Reorganization
will enable the Bank to better manage its capital by giving the Bank broader
investment opportunities through the holding company structure, and enable the
Company to distribute capital to its stockholders in the form of dividends and
stock repurchases.  Because only a minority of the Common Stock will be offered
for sale in the Offering, the Bank's ability to remain an independent savings
bank and to provide community-oriented financial services will be preserved
through the mutual holding company structure.

     The Board of Directors believes that these advantages outweigh the
potential disadvantages of the mutual holding company structure, which may
include: (i) the inability of stockholders other than the Mutual Holding Company
to obtain majority ownership of the Company and the Bank, which may result in
the perpetuation of the management and Board of Directors of the Bank and the
Company; and (ii) that the mutual holding company structure is a relatively new
form of corporate ownership, and new regulatory policies relating to the mutual
interest in the Mutual Holding Company that may be adopted from time-to-time may
have an adverse impact on minority stockholders.  A majority of the voting stock
of the Company will be owned by the Mutual Holding Company, which is a mutual
corporation that will be controlled by members.  While this structure will
permit management to focus 

                                       34
<PAGE>
 
on the Company's and the Bank's long-term business strategy for growth and
capital redeployment without excessive pressure from stockholders, it will also
serve to perpetuate the existing management and directors of the Bank. The
Mutual Holding Company will be able to elect all members of the Board of
Directors of the Company, and will be able to control the outcome of all matters
presented to the stockholders of the Company for resolution by vote except for
certain matters that must be approved by more than a majority of stockholders of
the Company. No assurance can be given that the Company will not take action
adverse to the interests of the Minority Stockholders.

     Following the completion of the Reorganization, all depositors of the Bank
as of the effective date of the Reorganization and all borrowers of the Bank as
of July 9, 1998 will become members of the Mutual Holding Company so long as
they continue to hold deposit accounts or their loans remain outstanding with
the Bank.  In addition, all persons who become depositors subsequent to the
Reorganization will become members of the Mutual Holding Company.

     All insured deposit accounts of the Bank that are transferred to the Bank
in stock form will continue to be federally insured by the FDIC and the SAIF up
to the legal maximum limit in the same manner as deposit accounts existing in
the Bank immediately prior to the Reorganization.  Upon completion of the
Reorganization, the Bank may exercise any and all powers, rights and privileges
of, and shall be subject to all limitations applicable to, capital stock savings
banks under federal law and OTS regulations.  Although the Company will have the
power to issue shares of capital stock to persons other than the Mutual Holding
Company, as long as the Mutual Holding Company is in existence, the Mutual
Holding Company will be required to own a majority of the voting stock of the
Company.  The Company may issue any amount of non-voting stock to persons other
than the Mutual Holding Company and the Company must own 100% of the voting
stock of the Bank.  The Bank and the Company may issue any amount of non-voting
stock or debt to persons other than the Mutual Holding Company.

     Completion of the Reorganization is subject to the approval of the Plan by
the Bank's members.  The Plan is being presented for a vote of the Bank's
members at a special meeting to be held on December __, 1998.

STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED IN THE REORGANIZATION AND
OFFERING

     The Plan and federal and state regulations require that the aggregate
purchase price of the Common Stock issued in the Offering must be based on the
appraised pro forma market value of the Common Stock, as determined by an
independent valuation.  The Bank has retained RP Financial, which has prepared
the Independent Valuation. For its services in making such appraisal, RP
Financial will receive a fee of $______ (which amount does not include a fee of
$______ to be paid to RP Financial for assistance in preparation of a business
plan).  The Bank and the Company have agreed to indemnify RP Financial 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 RP Financial's liability results from its
negligence or bad faith.

     The Independent Valuation was prepared by RP Financial in reliance upon the
information contained in the Prospectus, including the Consolidated Financial
Statements.  RP Financial also considered the following factors, among others:
the present and projected operating results and financial condition of the Bank
and the economic and demographic conditions in the Bank's existing marketing
area; certain historical, financial and other information relating to the Bank;
a comparative evaluation of the operating and financial statistics of the Bank
with those of other publicly traded savings institutions located in the
Northeast and Mid-Atlantic regions and on a national basis; the aggregate size
of the Offering; the impact of the Reorganization on the Bank's stockholders'
equity and earnings potential; the proposed dividend policy of the Company; and
the trading market for securities of comparable institutions and general
conditions in the market for such securities.

     The Board of Directors reviewed the Independent Valuation and, in
particular, considered (i) the Bank's financial condition and results of
operations for the nine months ended June 30, 1998, (ii) financial comparisons
of the Bank in relation to financial institutions of similar size and asset
quality, and (iii) stock market conditions generally and in particular for
financial institutions, all of which are set forth in the Independent Valuation.
The Board also reviewed the methodology and the assumptions used by RP Financial
in preparing the Independent Valuation.

                                       35
<PAGE>
 
     The Independent Valuation states that as of ____________, 1998, the
estimated pro forma market value of the Common Stock ranged from a minimum of
$55,250,000 to a maximum of $74,750,000 with a midpoint of $65,000,000 (the
"Estimated Valuation Range").  The Bank's Board of Directors determined to offer
the shares in the Offering for the Subscription Price of $10.00 per share.
Based on the Estimated Valuation Range and the Subscription Price, the number of
shares of Common Stock that the Company will issue will range from 5,525,000
shares to 7,475,000 shares, with a midpoint of 6,500,000 shares.  The Bank's
Board of Directors determined to offer 46.6% of such shares in the Offering, or
between 2,575,500 shares and 3,484,500 shares with a midpoint of 3,030,000
shares (the "Offering Range").  The 53.4% of the to-be outstanding shares of
Common Stock that are not sold in the Offering will be issued to the Mutual
Holding Company.

     Following commencement of the Subscription Offering, the maximum of the
Estimated Valuation Range may be increased by up to 15% to up to $85,962,500,
which will result in a corresponding increase in the maximum of the Offering
Range to up to 4,007,175 shares to reflect changes in market and financial
conditions, without the resolicitation of subscribers.  The minimum of the
Estimated Valuation Range and the minimum of the Offering Range may not be
decreased without a resolicitation of subscribers.  The Subscription Price of
$10.00 per share will remain fixed.  See "--Limitations Upon Purchases of Common
Stock" as to the method of distribution and allocation of additional shares that
may be issued in the event of an increase in the Offering Range to fill unfilled
orders in the Subscription and Community Offerings.  In the event the
Independent Valuation is updated to increase the pro forma market value of the
Common Stock to more than $85,962,500 or less than $55,250,000, such appraisal
will be filed with the Securities and Exchange Commission (the "SEC") by post-
effective amendment.

     THE INDEPENDENT VALUATION, HOWEVER, IS NOT INTENDED, AND MUST NOT BE
CONSTRUED, AS A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING
SUCH SHARES.  RP FINANCIAL DID NOT INDEPENDENTLY VERIFY THE CONSOLIDATED
FINANCIAL STATEMENTS AND OTHER INFORMATION PROVIDED BY THE BANK, NOR DID RP
FINANCIAL VALUE INDEPENDENTLY THE ASSETS OR LIABILITIES OF THE BANK.  THE
INDEPENDENT VALUATION CONSIDERS THE BANK AS A GOING CONCERN AND SHOULD NOT BE
CONSIDERED AS AN INDICATION OF THE LIQUIDATION VALUE OF THE BANK.  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 SUCH SHARES IN THE OFFERING WILL
THEREAFTER BE ABLE TO SELL SUCH SHARES AT PRICES AT OR ABOVE THE SUBSCRIPTION
PRICE.

     The Independent Valuation will be updated at the time of the completion of
the Offering.  If the update to the Independent Valuation at the conclusion of
the Offering results in an increase in the maximum of the Estimated Valuation
Range to more than $85,962,500 and a corresponding increase in the Offering
Range to more than 4,007,175 shares, or a decrease in the minimum of the
Estimated Valuation Range to less than $55,250,000 and a corresponding decrease
in the Offering Range to fewer than 2,575,500 shares, then the Company, after
consulting with the OTS, may terminate the Plan and return all funds promptly
with interest or resolicit subscribers relative to a new Estimated Valuation
Range and Offering Range, or take such other actions as permitted by the OTS in
order to complete the Reorganization and the Offering.  If a resolicitation is
commenced, unless subscribers respond affirmatively within a designated period
of time, all funds will be promptly returned with interest to subscribers 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 exceed 24 months
following the special meeting of the Bank's members at which the Plan is
presented for member approval, or December __, 2000.

     An increase in the Independent Valuation and the number of shares to be
issued in the Offering would decrease both a subscriber's ownership interest and
the Company's pro forma earnings and stockholders' equity on a per share basis
while increasing pro forma earnings and stockholder's equity on an aggregate
basis.  A decrease in the Independent Valuation and the number of shares to be
issued in the Offering would increase both a subscriber's ownership interest and
the Company's pro forma earnings and stockholders' equity on a per share basis
while decreasing pro forma net income and stockholders' equity on an aggregate
basis.  For a presentation of the effects of such changes, see "Pro Forma Data."

                                       36
<PAGE>
 
     Copies of the appraisal report of RP Financial 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."

     No sale of shares of Common Stock may be consummated unless, prior to such
consummation, RP Financial confirms to the Bank and the OTS that, to the best of
its knowledge, nothing of a material nature has occurred that, taking into
account all relevant factors, would cause RP Financial to conclude that the
Independent Valuation is incompatible with its estimate of the pro forma market
value of the Common Stock of the Company at the conclusion of the Offering.  Any
change that would result in an aggregate purchase price that is below the
minimum or above the maximum of the Estimated Valuation Range would be subject
to OTS approval.  If such confirmation is not received, the Bank may extend the
Offering, reopen or begin a new offering, establish a new Estimated Valuation
Range and begin a resolicitation of all purchasers with the approval of the OTS
or take such other actions as permitted by the OTS in order to complete the
Offering.

PURCHASE PRIORITIES AND METHOD OF OFFERING SHARES IN THE OFFERING

     Concurrent with the Reorganization, the Company is offering shares of
Common Stock to persons other than the Mutual Holding Company.  The Company  is
offering between 2,575,500 and 3,484,500 shares of the Common Stock (subject to
adjustment to up to 4,007,175 shares in the event of an increase in the maximum
of the Estimated Valuation Range).  The shares of Common Stock that will be sold
in the Offering will constitute no more than 46.6% of the shares that will be
outstanding immediately at the conclusion of the Offering.  Following the
Reorganization and the Offering, the Company also will be authorized to issue
additional Common Stock or preferred stock to persons other than the Mutual
Holding Company, without prior approval of the holders of the Common Stock.
Subject to the limitations set forth in the "--Limitations Upon Purchases of
Common Stock" section, the priorities for the purchase of shares are as follows:

     PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS.  Each depositor with aggregate
deposit account balances of $50 or more (a "Qualifying Deposit") as of December
31, 1996 (the "Eligibility Record Date," and such account holders, "Eligible
Account Holders") will receive nontransferable subscription rights to subscribe
for up to the greater of 20,000 shares or 15 times the product (rounded down to
the next whole number) obtained by multiplying the total number of shares to be
issued in the Offering by a fraction of which the numerator is the amount of the
Eligible Account Holder's Qualifying Deposit 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 shares purchased by the ESOP from any increase in the shares
offered pursuant to an increase in the maximum of the Offering Range.  See "--
Limitations Upon Purchases of Common Stock."  If there are not sufficient shares
available to satisfy all subscriptions, shares first 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 for which he subscribed.  Thereafter, unallocated shares
(except for additional shares issued to the ESOP upon an increase in the maximum
of the Offering Range) will be allocated to each subscribing Eligible Account
Holder whose subscription remains unfilled in the proportion that the amount of
his aggregate Qualifying Deposit bears to the total amount of Qualifying
Deposits of all subscribing Eligible Account Holders whose subscriptions remain
unfilled.

     To ensure proper allocation of stock, each Eligible Account Holder must
list on his Order Form all deposit accounts in which he or she has an ownership
interest on the Eligibility Record Date.  Failure to list an account could
result in fewer shares being allocated than if all accounts had been disclosed.
Neither the Company nor the Bank nor any of their agents shall be responsible
for orders on which all Qualifying Deposit Accounts have not been fully and
accurately 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 twelve months preceding the
Eligibility Record Date.  For allocation purposes, Qualifying Deposits will be
divided in the case of multiple orders.

     PRIORITY 2: EMPLOYEE PLANS.  To the extent that there are sufficient shares
remaining after satisfaction of subscriptions by Eligible Account Holders, the
tax-qualified employee plans, including the ESOP, will receive 

                                       37
<PAGE>
 
nontransferable subscription rights to purchase Common Stock in the Offering on
behalf of participants subject to the purchase limitations described herein. The
ESOP intends to subscribe for 8% of the Common Stock issued in the Offering,
including 8% of the total number of shares issued if the maximum of the Offering
Range is increased. The priority right of the ESOP to purchase shares is
subordinate to the rights of Eligible Account Holders to subscribe for shares,
except that the ESOP shall have first priority to purchase shares issued in
excess of the maximum of the offering range in the event of an increase in the
maximum of the initial Estimated Valuation Range and the Offering Range.

     PRIORITY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS.  To the extent that
there are sufficient shares remaining after satisfaction of subscriptions by
Eligible Account Holders and the ESOP, each depositor with a Qualifying Deposit
as of September 30, 1998 (the "Supplemental Eligibility Record Date") who is not
an Eligible Account Holder ("Supplemental Eligible Account Holder") will receive
nontransferable subscription rights to subscribe for the greater of up to 20,000
shares, or 15 times the product (rounded down to the next whole number) obtained
by multiplying the number of shares issued in the Offering 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.  See "--Limitations Upon Purchases of Common Stock." If there are
not sufficient shares available to satisfy all subscriptions, shares first will
be allocated so as to permit each subscribing Supplemental 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 for which he
subscribed.  Thereafter, unallocated shares will be allocated to each
subscribing Supplemental Eligible Account Holder whose subscription remains
unfilled in the proportion that the amount of his or her Qualifying Deposit
bears to the total amount of Qualifying Deposits of all subscribing Supplemental
Eligible Account Holders whose subscriptions remain unfilled.

     To ensure proper allocation of stock, each Supplemental Eligible Account
Holder must list on his Order Form all deposit accounts in which he or she has
an ownership interest on the Supplemental Eligibility Record Date.  Failure to
list an account could result in less shares being allocated than if all accounts
had been disclosed.  For allocation purposes, Qualifying Deposits will be
divided in the case of multiple orders.  Neither the Company nor the Bank nor
any of their agents shall be responsible for orders on which all Qualifying
Deposit Accounts have not been fully and accurately disclosed.

     PRIORITY 4:  OTHER MEMBERS.  To the extent that there are shares remaining
after satisfaction of subscriptions by Eligible Account Holders, the Employee
Plans, and Supplemental Eligible Account Holders, each depositor as of the
Voting Record Date and borrowers as of July 9, 1998 whose borrowings remained
outstanding as of the Voting Record Date ("Other Members") who is not an
Eligible Account Holder or Supplemental Eligible Account Holder will receive
nontransferable subscription rights to subscribe for 20,000 shares subject to
the overall purchase limitation.  See "--Limitations on Stock Purchases." If
there are not sufficient shares available to satisfy all subscriptions,
available shares will be allocated in proportion to the amounts of the
subscriptions.

     PRIORITY 5: DIRECTORS, OFFICERS AND EMPLOYEES.  To the extent that shares
remain available for purchase after satisfaction of all subscriptions of the
Eligible Account Holders, Tax-Qualified Employee Plans, Supplemental Eligible
Account Holders, and Other Members, employees, officers and directors of the
Bank who are not Eligible Account Holders, Supplemental Eligible Account Holders
or Other Members shall have the opportunity to purchase up to 20,000 shares.  In
the event that directors, officers and employees subscribe for a number of
shares, which, when added to the shares subscribed for by Eligible Account
Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account Holders,
and Other Members is in excess of the total shares offered in the Stock
Offering, the subscriptions of such persons will be allocated among directors,
officers and employees on a pro rata basis based on the size of each person's
orders.

                                       38
<PAGE>
 
COMMUNITY OFFERING

     Any shares of Common Stock not subscribed for in the Subscription Offering
may be offered for sale in a Community Offering.  This will involve an offering
of unsubscribed shares directly to the general public for the Subscription Price
of $10.00 per share.  If a Community Offering is conducted, it will be for a
period of not more than 45 days unless extended by the Company and the Bank, and
may begin concurrently with, during or promptly after the Subscription Offering.
The Common Stock will be offered and sold in the Community Offering, in
accordance with OTS regulations, so as to achieve the widest distribution of the
Common Stock.  No person, by himself or herself, or with an associate or group
of persons acting in concert, may subscribe for or purchase more than $400,000
of Common Stock offered in the Community Offering.  Further, the Company may
limit total subscriptions so as to assure that the number of shares available
for a syndicated community offering may be up to a specified percentage of the
number of shares of Common Stock.  The Company may reserve shares offered in the
Community Offering for sales to institutional investors.

     In the event of an oversubscription for shares in the Community Offering,
shares may be allocated in the sole discretion of the Bank (to the extent shares
remain available) first to natural persons residing in the Bank's local
community of Rockland County, New York (the "Community"), then to any other
persons subscribing for shares in the Community Offering so that each such
person may receive the lesser of the number of shares subscribed for or 1,000
shares, and thereafter, on a pro rata basis to such persons based on the amount
of their respective subscriptions.

     The terms "residence," "reside," "resided" or "residing" as used herein
with respect to any person shall mean any person who occupied a dwelling within
the Bank's Community, has an intent to remain within the Community for a period
of time, and manifests the genuineness of that intent by establishing an ongoing
physical presence within the Community together with an indication that such
presence within the Community is something other than merely transitory in
nature.  To the extent the person is a corporation or other business entity, the
principal place of business or headquarters shall be in the Community.  To the
extent a person is a personal benefit plan, the circumstances of the beneficiary
shall apply with respect to this definition.  In the case of all other benefit
plans, the circumstances of the director shall be examined for purposes of this
definition.  The Bank may use deposit or loan records or such other evidence
provided to it to determine whether a person is a resident.  In all cases,
however, such a determination shall be in the sole discretion of the Bank.

     The Bank and the Company, in their sole discretion, may reject
subscriptions, in whole or in part, received from any person in the Community
Offering.

SYNDICATED COMMUNITY OFFERING

     Depending on market conditions, the Common Stock may be offered for sale
(for $10.00 per share) to the general public on a best efforts basis in the
Syndicated Community Offering by a selling group of broker-dealers ("Selected
Dealers") to be managed by Ryan Beck.  Ryan Beck, in its discretion, will
instruct Selected Dealers as to the number of shares to be allocated to each
Selected Dealer.  Only upon allocation of shares to Selected Dealers may
Selected Dealers take orders from their customers.  Investors who desire to
purchase shares in the Community Offering directly through a Selected Dealer,
which may include Ryan Beck, are advised that Selected Dealers are required
either: (a) upon receipt of an executed Order Form or direction to execute an
Order Form on behalf of an investor, to forward the appropriate purchase price
to the Bank for deposit in a segregated account on or before twelve noon,
prevailing time, of the business day next following such receipt or execution;
or (b) upon receipt of confirmation of an investor's interest in purchasing
shares, and following a mailing of an acknowledgment by such member to such
investor on the business day next following receipt of confirmation, to debit
the account of such investor on the third business day next following receipt of
confirmation and to forward the appropriate purchase price to the Bank for
deposit in the segregated account on or before twelve noon, prevailing time, of
the business day next following such debiting.

     It is expected that the Syndicated Community Offering will begin during or
as soon as practicable after termination of the Community Offering, if any.  The
Syndicated Community Offering shall be completed within 45 days after the
termination of the Subscription Offering, unless such period is extended as
provided herein.  If for any 

                                       39
<PAGE>
 
reason a Syndicated Community Offering of unsubscribed shares of Common Stock
cannot be effected or is deemed inadvisable, the Boards of Directors of the
Company and the Bank will seek to make other arrangements for the sale of the
remaining shares. Such other arrangements will be subject to the approval of the
OTS and to compliance with applicable state and federal securities laws.

RESTRICTIONS ON AGREEMENTS OR UNDERSTANDINGS REGARDING TRANSFER OF COMMON STOCK
TO BE PURCHASED IN THE OFFERING

     Prior to the completion of the Offering, no depositor may transfer or enter
into an agreement or understanding to transfer the legal or beneficial ownership
of the shares of Common Stock to be purchased by such person in the Offering.
Each depositor who submits an Order Form will be required to certify that the
purchase of Common Stock by such person is solely for the purchaser's own
account and there is no agreement or understanding regarding the sale or
transfer of such shares.  The Bank intends to pursue any and all legal and
equitable remedies in the event it becomes aware of any such agreement or
understanding, and will not honor orders reasonably believed by the Bank to
involve such an agreement or understanding.

PROCEDURE FOR PURCHASING SHARES

     To ensure that each purchaser receives a Prospectus at least 48 hours
before the Expiration Date, Prospectuses will not be mailed any later than five
days prior to such date or hand delivered any later than two days prior to such
date.  Order forms may only be distributed with a Prospectus.

     EXPIRATION DATE.  The Offering will terminate at 10:00 a.m., New York time
on December __, 1998, unless extended by the Bank for up to an additional 45
days or, if approved by the OTS, for an additional period after such 45-day
extension (as so extended, the "Expiration Date").  The Bank is not required to
give purchasers notice of any extension unless the Expiration Date is later than
__________, 1999, in which event purchasers will be given the right to increase,
decrease, confirm, or rescind their orders.  If the minimum number of shares
offered in the Offering (2,575,500 shares) is not sold by the Expiration Date,
the Bank may terminate the Offering and promptly refund all orders for Common
Stock.  If the number of shares is reduced below the minimum of the Estimated
Valuation Range or increased more than 15% above the Offering Range, purchasers
will be given an opportunity to increase, decrease, or rescind their orders.

     USE OF ORDER FORMS.  In order to purchase the Common Stock, each purchaser
must complete and sign an Order Form, except for certain persons purchasing in
the Syndicated Community Offering as more fully described above.  Any person
receiving an Order Form who desires to purchase Common Stock may do so by
delivering (by mail or in person) to the Bank a properly executed and completed
Order Form, together with full payment for the shares purchased.  The Order Form
must be received prior to 10:00 a.m., New York time on December __, 1998. ONCE
TENDERED, AN ORDER FORM CANNOT BE MODIFIED OR REVOKED WITHOUT THE CONSENT OF THE
BANK.  Each person ordering shares is required to represent that they are
purchasing such shares for their own account.  The interpretation by the Bank of
the terms and conditions of the Plan and of the acceptability of the Order Forms
will be final.  The Bank is not required to accept copies or facsimiles of Order
Forms.  Order Forms cannot and will not be accepted without the execution of the
certification appearing on the  Order Form.  Neither the Bank, the Company, nor
Ryan Beck is obligated to deliver a Prospectus and an Order Form by any means
other than the U.S. Postal Service.

     PAYMENT FOR SHARES.  Payment for all shares will be required to accompany
all completed Order Forms for the purchase to be valid.  Payment for shares may
be made by (i) check or money order, or (ii) authorization of withdrawal from
passbook accounts or certificates of deposit maintained with the Bank.
Appropriate means by which such withdrawals may be authorized are provided in
the Order Forms.  Once such a withdrawal amount has been authorized, a hold will
be placed on such funds, making them unavailable to the depositor until the
Offering has been completed or terminated.  The withdrawal will be made upon
consummation of the Offering.  In the case of payments authorized to be made
through withdrawal from deposit accounts, all funds authorized for withdrawal
will continue to earn interest at the contract rate until the Offering is
completed or terminated.  Interest penalties for early withdrawal applicable to
certificate accounts will not apply to withdrawals authorized for the purchase
of shares; however, if a withdrawal results in a certificate account with a
balance less than the applicable minimum balance 

                                       40
<PAGE>
 
requirement, the certificate shall be canceled at the time of withdrawal without
penalty, and the remaining balance will earn interest at the Bank's passbook
rate subsequent to the withdrawal. In the case of payments made by check or
money order, such checks and money orders shall be made payable to "Provident
Bank." Such funds will be placed in a segregated savings account and interest
will be paid by the Bank at the Bank's passbook rate, from the date payment is
received until the Offering is completed or terminated. Such interest will be
paid by check, on all funds held, promptly upon completion or termination of the
Offering. An executed Order Form, once received by the Bank, may not be
modified, amended or rescinded without the consent of the Bank, unless the
Offering is not completed by ___________, 1998, in which event subscribers may 
be given the opportunity to increase, decrease, confirm or rescind their orders
for a specified period of time.

     Owners of self-directed IRAs may use the assets of such IRAs to purchase
shares of Common Stock in the Offering.  Individuals who are participants in
self-directed tax qualified plans maintained by self-employed individuals
("Keogh Plans") may use the assets in their self-directed Keogh Plan accounts to
purchase shares of Common Stock in the Offering.  In addition, the provisions of
ERISA and Internal Revenue Service ("IRS") regulations require that executive
officers, directors, and 10% stockholders who use self-directed IRA funds and/or
Keogh Plan accounts to purchase shares of Common Stock in the Offering, make
such purchase for the exclusive benefit of the IRA and/or Keogh Plan
participant.

     If the ESOP purchases shares of Common Stock, such plan will not be
required to pay for such shares until consummation of the Offering.  A depositor
interested in using his or her IRA funds to purchase Common Stock must do so
through a self-directed IRA.  Since the Bank does not offer such accounts, it
will allow a depositor to make a trustee-to-trustee transfer of the IRA funds to
a trustee offering a self-directed IRA program without early withdrawal
penalties with the agreement that such funds will be used to purchase the Common
Stock in the Offering.  There will be no early withdrawal or IRS penalties for
such transfers.  The new trustee would hold the Common Stock in a self-directed
account in the same manner as the Bank now holds the depositor's IRA funds.  An
annual administrative fee may be payable to the new trustee.  Depositors
interested in using funds in a Bank IRA to purchase Common Stock should contact
the Stock Information Center at the Bank as soon as possible so that the
necessary forms may be forwarded for execution and returned prior to the
Expiration Date.

     DELIVERY OF STOCK CERTIFICATES.  Certificates representing Common Stock
issued in the Offering will be mailed by the Company to the persons entitled
thereto at the registration address noted on the Order Form, as soon as
practicable following consummation of the Offering.  Any certificates returned
as undeliverable will be held by the Company until claimed by persons legally
entitled thereto or otherwise disposed of in accordance with applicable law.
Until certificates for the Common Stock are available and delivered to
purchasers, purchasers may not be able to sell the shares of stock which they
ordered.  Subscribers are at their own risk if they sell shares before receiving
the certificates or determining whether their subscription has been accepted.

PLAN OF DISTRIBUTION AND SELLING COMMISSIONS

     Offering materials for the Offering initially have been distributed to
certain persons by mail, with additional copies made available at the Bank's
offices and by Ryan Beck.

     To assist in the marketing of the Common Stock, the Bank has retained Ryan
Beck, a broker-dealer registered with the NASD.  Ryan Beck will assist the Bank
in the Offering as follows: (i) in training and educating the Bank's employees
regarding the mechanics and regulatory requirements of the Offering; (ii) in
conducting informational meetings for employees, customers and the general
public; (iii) in coordinating the selling efforts in the Bank's local
communities; and (iv) keeping records of all orders for Common Stock.  For these
services, Ryan Beck will receive an advisory and a management fee of $450,000.

     The Bank also will reimburse Ryan Beck for its reasonable out-of-pocket
expenses, the estimated maximum of which are $60,000 (including legal fees and
expenses up to a maximum of $40,000) associated with its marketing effort.  The
Bank has made an advance payment to Ryan Beck in the amount of $25,000.  The
Bank will indemnify Ryan Beck against liabilities and expenses (including legal
fees) incurred in connection with certain claims or litigation 

                                       41
<PAGE>
 
arising out of or based upon untrue statements or omissions contained in the
offering materials for the Common Stock, including liabilities under the
Securities Act of 1933.

     Directors and executive officers of the Bank may participate in the
solicitation of offers to purchase Common Stock.  Other trained employees of the
Bank may participate in the Offering in ministerial capacities, providing
clerical work in effecting a sales transaction or answering questions of a
ministerial nature.  Other questions of prospective purchasers will be directed
to executive officers or registered representatives.  The Bank will rely on Rule
3a4-1 of the Securities Exchange Act of 1934 (the "Exchange Act"), so as to
permit officers, directors, and employees to participate in the sale of the
Common Stock.  No officer, director, or employee of the Bank will be compensated
for his participation by the payment of commissions or other remuneration based
either directly or indirectly on the transactions in the Common Stock.

     A Stock Information Center will be established at the Bank's administrative
office, in an area separated from the Bank's banking operations.  Employees will
inform prospective purchasers to direct their questions to the Stock Information
Center and will provide such persons with the telephone number of the Center.

     Notwithstanding any other provision of the Plan, no person is entitled to
purchase any Common Stock to the extent such purchase would be illegal under any
federal or state law or regulation (including state "blue-sky" laws and
regulations), or would violate regulations or policies of the NASD, particularly
those regarding free riding and withholding.  The Bank and/or its agents may ask
for an acceptable legal opinion from any purchaser as to the legality of such
purchase and may refuse to honor any such purchase order if such opinion is not
timely furnished.  The Plan prohibits the Bank from lending funds or extending
credit to any persons to purchase Common Stock in the Offering.

LIMITATIONS UPON PURCHASES OF COMMON STOCK

     The following additional limitations have been imposed upon purchases of
shares of Common Stock.  Defined terms used in this section and not otherwise
defined in this Prospectus shall have the meaning set forth in the Plan. In all
cases, the Bank shall have the right, in its sole discretion, to determine
whether prospective purchasers are "Associates," or "Acting in Concert" as
defined by the Plan and in interpreting any and all other provisions of the
Plan.  All such determinations are in the sole discretion of the Bank, and may
be based on whatever evidence the Bank chooses to use in making any such
determination.

     1.   The aggregate amount of outstanding Common Stock owned or controlled
          by persons other than Mutual Holding Company at the close of the
          Offering shall not exceed 50% of the total outstanding Common Stock.

     2.   No Person, Associate thereof, or group of persons Acting in Concert,
          may purchase more than $400,000 of Common Stock issued in the Offering
          to Persons other than the Mutual Holding Company, except that:  (i)
          the Company may, in its sole discretion and without further notice to
          or solicitation of subscribers or other prospective purchasers,
          increase such maximum purchase limitation to up to 5% or decrease it
          to 1% of the number of shares issued in the Offering; (ii) Tax-
          Qualified Employee Plans may purchase up to 10% of the shares issued
          in the Offering; and (iii) for purposes of this paragraph shares to be
          held by any Tax-Qualified Employee Plan and attributable to a person
          shall not be aggregated with other shares purchased directly by or
          otherwise attributable to such person.

     3.   The aggregate amount of Common Stock acquired in the Offering by all
          Management Persons and their Associates, exclusive of any stock
          acquired by such persons in the secondary market, shall not exceed 25%
          of the outstanding shares of Common Stock held by persons other than
          the Mutual Holding Company at the close of the Offering.   In
          calculating the number of shares held by Management Persons and their
          Associates under this paragraph or under the provisions of paragraph 4
          below, shares held by any Tax-Qualified Employee Benefit Plan or any
          Nontax-Qualified Employee Benefit Plan of the Bank that are
          attributable to such persons shall not be counted.

                                       42
<PAGE>
 
     4.   The Boards of Directors of the Bank and the Company may, in their sole
          discretion, increase the maximum purchase limitation to up to 9.9%,
          provided that orders for Common Stock in excess of 5% of the number of
          shares of Common Stock issued in the Offering shall not in the
          aggregate exceed 10% of the total shares of Common Stock issued in the
          Offering (except that this limitation shall not apply to purchases by
          Tax-Qualified Employee Plans).  If such 5% limitation is increased,
          subscribers for the maximum amount will be, and certain other large
          subscribers in the sole discretion of the Company and the Bank may be,
          given the opportunity to increase their subscriptions up to the then
          applicable limit.  Requests to purchase additional shares of Common
          Stock under this provision will be determined by the Board of
          Directors of the Company, in its sole discretion. The minimum number 
          of shares that can be subscribed for is 25 shares.

     5.   Notwithstanding any other provision of the Plan, no person shall be
          entitled to purchase any Common Stock to the extent such purchase
          would be illegal under any federal law or state law or regulation or
          would violate regulations or policies of the National Association of
          Securities Dealers, Inc., particularly those regarding free riding and
          withholding.  The Company and/or its agents may ask for an acceptable
          legal opinion from any purchaser as to the legality of such purchase
          and may refuse to honor any purchase order if such opinion is not
          timely furnished.

     6.   The Board of Directors of the Company has the right in its sole
          discretion to reject any order submitted by a person whose
          representations the Board of Directors believes to be false or who it
          otherwise believes, either alone or acting in concert with others, is
          violating, circumventing, or intends to violate, evade or circumvent
          the terms and conditions of the Plan.

     The Company, in its sole discretion, may make reasonable efforts to comply
with the securities laws of any state in the United States in which its
depositors reside, and will only offer and sell the Common Stock in states in
which the offers and sales comply with such states' securities laws.  However,
no person will be offered or allowed to purchase any Common Stock under the Plan
if they resides in a foreign country or in a state of the United States with
respect to which any of the following apply: (i) a small number of persons
otherwise eligible to purchase shares under the Plan reside in such state or
foreign county; (ii) the offer or sale of shares of Common Stock to such persons
would require the Bank or its employees to register, under the securities laws
of such state or foreign country, as a broker or dealer or to register or
otherwise qualify its securities for sale in such state or foreign country; or
(iii) such registration or qualification would be impracticable for reasons of
cost or otherwise.

     OTS regulations define "acting in concert" as (i) knowing participation in
a joint activity or interdependent conscious parallel action towards a common
goal whether or not pursuant to an express agreement, or (ii) a combination or
pooling of voting or other interests in the securities of an issuer for a common
purpose pursuant to any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise.  THE BANK WILL PRESUME THAT
CERTAIN PERSONS ARE ACTING IN CONCERT BASED UPON VARIOUS FACTS, INCLUDING THE
FACT THAT PERSONS HAVE JOINT ACCOUNT RELATIONSHIPS OR THE FACT THAT SUCH PERSONS
HAVE FILED JOINT SCHEDULES 13D WITH THE SEC WITH RESPECT TO OTHER COMPANIES.

     Directors are not treated as Associates of one another solely because of
their board membership. Compliance with the foregoing limitations does not
necessarily constitute compliance with other regulatory restrictions on
acquisitions of the Common Stock. For a further discussion of limitations on
purchases of the Common Stock during and subsequent to Reorganization, see "--
Restrictions on Sale of Stock by Directors and Officers," "--Restrictions on
Purchase of Stock by Directors and Officers Following the Offering," and
"Restrictions on Acquisition of the Company."

                                       43
<PAGE>
 
RESTRICTIONS ON REPURCHASE OF STOCK BY THE COMPANY

     OTS regulations and policy currently prohibit the Company from repurchasing
any of its shares within three years following the Offering unless the
repurchase is (i) part of a general repurchase made on a pro rata basis pursuant
to an offer approved by the OTS and made to all stockholders (except the Mutual
Holding Company may be excluded from the repurchase with OTS approval), (ii)
limited to the repurchase of qualifying shares of a director, or (iii) in open
market transactions by a tax-qualified or nontax-qualified employee benefit plan
of the Bank (but not the Company) in an amount reasonable and appropriate to
fund such plan.

RESTRICTIONS ON SALE OF STOCK BY DIRECTORS AND OFFICERS

     All shares of the Common Stock purchased by directors and officers and
associates of directors and officers of the Bank or the Stock Company in the
Offering will be subject to the restriction that such shares may not be sold or
otherwise disposed of for value for a period of one year following the date of
purchase, except for any disposition of such shares (i) following the death of
the original purchaser or (ii) by reason of an exchange of securities in
connection with a merger or acquisition approved by the applicable regulatory
authorities. Sales of shares of the Common Stock by the Company's directors and
officers will also be subject to certain insider trading and other transfer
restrictions under the federal securities laws. See "Regulation--Federal
Securities Laws" and "Description of Capital Stock of the Company."

     Each certificate for such restricted shares will bear a legend prominently
stamped on its face giving notice of the restrictions on transfer, and
instructions will be issued to the Company's transfer agent 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 of the restriction. Any
shares of Common Stock issued pursuant to a stock dividend, stock split or
otherwise with respect to restricted shares will be subject to the same
restrictions on sale.

RESTRICTIONS ON PURCHASE OF STOCK BY DIRECTORS AND OFFICERS FOLLOWING THE
OFFERING

     OTS regulations provide that for a period of three years following the
Reorganization, without prior written approval of the OTS, neither directors nor
officers of the Bank or the Company nor their associates may purchase shares of
the Common Stock, except from a dealer registered with the SEC. This restriction
does not, however, apply to negotiated transactions involving more than 1% of
the outstanding Common Stock, to shares purchased pursuant to stock option or
other incentive stock plans approved by the Company's shareholders, or to shares
purchased by employee benefit plans maintained by the Company which may be
attributable to individual officers or directors.

RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND COMMON STOCK

     Prior to the completion of the Reorganization, OTS regulations and the Plan
prohibit any person with subscription rights 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 Common 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 or her account. Each person exercising
such subscription rights will be required to certify that he or she is
purchasing shares solely for his or her own account and that he or she 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 Common Stock prior to the completion of the Reorganization and
Offering.  THE BANK INTENDS TO PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES
IN THE EVENT IT BECOMES AWARE OF THE TRANSFER OF SUBSCRIPTION RIGHTS AND WILL
NOT HONOR ORDERS KNOWN TO INVOLVE THE TRANSFER OF SUCH RIGHTS. IN ADDITION,
PERSONS WHO VIOLATE THE PURCHASE LIMITATIONS MAY BE SUBJECT TO SANCTIONS AND
PENALTIES IMPOSED BY THE OTS.

FEDERAL AND STATE TAX CONSEQUENCES OF THE REORGANIZATION

     The Bank intends to proceed with the Reorganization on the basis of an
opinion from its special counsel, Luse Lehman Gorman Pomerenk & Schick, P.C.,
Washington, D.C., as to certain tax matters that are material to the

                                       44
<PAGE>
 
Reorganization. The opinion is based, among other things, on certain factual
representations made by the Bank, including the representation that the exercise
price of the subscription rights to purchase the Common Stock will be
approximately equal to the fair market value of the stock at the time of the
completion of the Reorganization. With respect to the subscription rights, the
Bank has received an opinion of RP Financial which, based on certain
assumptions, concludes that the subscription rights to be received by Eligible
Account Holders, Supplemental Eligible Account Holders and Other Members do not
have any economic value at the time of distribution or the time the subscription
rights are exercised, whether or not a Community Offering takes place, and Luse
Lehman Gorman Pomerenk & Schick, P.C.'s opinion is given in reliance thereon.
The opinion of Luse Lehman Gorman Pomerenk & Schick, P.C., provides
substantially as follows:

     1.  The change in form from a mutual savings bank ("Mutual Bank") to a
     stock savings bank (the "Stock Bank") will qualify as a reorganization
     under Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended
     (the "Code"), and no gain or loss will be recognized by the Bank in either
     its mutual form or stock form by reason of the Reorganization.

     2.  No gain or loss will be recognized by the Mutual Bank upon the transfer
     of the Mutual Bank's assets to the Stock Bank solely in exchange for shares
     of Stock Bank stock and the assumption by the Stock Bank of the liabilities
     of the Mutual Bank.

     3.  No gain or loss will be recognized by Stock Bank upon the receipt of
     the assets of the Mutual Bank in exchange for shares of Stock Bank common
     stock.

     4.  Stock Bank's holding period in the assets received from the Mutual Bank
     will include the period during which such assets were held by the Mutual
     Bank.

     5.  Stock Bank's basis in the assets of the Mutual Bank will be the same as
     the basis of such assets in the hands of the Mutual Bank immediately prior
     to the Reorganization.

     6.  The Stock Bank will succeed to and take into account the Mutual Bank
     earnings and profits or deficit in earnings and profits, as of the date of
     the Reorganization.

     7.  The Stock Bank depositors will recognize no gain or loss solely by
     reason of the Reorganization.

     8.  The Mutual Holding Company and Minority Stockholders will recognize no
     gain or loss upon the transfer of Stock Bank stock and cash, respectively,
     to the Company in exchange for Common Stock.

     9.  The Company will recognize no gain or loss upon its receipt of Stock
     Bank stock and cash from the Mutual Holding Company and Minority
     Stockholders, respectively, in exchange for Common Stock.

     10. The basis of the Common Stock to Minority Stockholders will be the
     Subscription Price and a shareholder's holding period for Common Stock
     acquired through the exercise of subscription rights will begin on the date
     the rights are exercised.

     The opinion of Luse Lehman Gorman Pomerenk & Schick, P.C., unlike a letter
ruling issued by the Internal Revenue Service (the "IRS"), is not binding on the
IRS and the conclusions expressed therein may be challenged at a future date.
The IRS has issued favorable rulings for transactions substantially similar to
the proposed Reorganization, but any such ruling may not be cited as precedent
by any taxpayer other than the taxpayer to whom the ruling is addressed. The
Bank does not plan to apply for a letter ruling concerning the Reorganization.

          The Bank has also received an opinion from KPMG Peat Marwick LLP that
the New York State Franchise Tax on banking corporations and New York State
personal income tax consequences of the proposed transaction are consistent with
the federal income tax consequences.

                                       45
<PAGE>
 
                                 PROVIDENT BANK
                       CONSOLIDATED STATEMENTS OF INCOME

     The Consolidated Statements of Income for the years ended September 30,
1997 and 1996 have been audited by KPMG Peat Marwick LLP, independent auditors,
whose report appears elsewhere in this Prospectus. The Consolidated Statement of
Income for the year ended September 30, 1995 has been audited by Deloitte &
Touche LLP, independent auditors, whose report appears elsewhere in this
Prospectus. The Consolidated Statements of Income for the nine-month periods
ended June 30, 1998 and 1997 are unaudited but, in the opinion of management,
all adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of such results for such unaudited periods have been made. The
results of operations for the nine months ended June 30, 1998 are not
necessarily indicative of results that may be expected for the year ending
September 30, 1998. The Consolidated Statements of Income should be read in
conjunction with the other Consolidated Financial Statements and the Notes
thereto included in this Prospectus beginning on page F-1.

<TABLE>
<CAPTION>
                                                             NINE MONTHS ENDED             YEARS ENDED
                                                                 JUNE 30,                 SEPTEMBER 30,
                                                           --------------------    ---------------------------
                                                             1998        1997        1997      1996      1995  
                                                           --------    --------    -------   -------   ------- 
                                                               (UNAUDITED)                                     
                                                                           (IN THOUSANDS)                  
<S>                                                        <C>         <C>         <C>       <C>       <C>     
Interest and dividend  income:
Interest and fees on loans..............................   $25,962     $24,249     $32,544   $29,210   $26,740
Interest on  mortgage-backed securities.................     6,748       7,118       9,398     9,008     6,687
Interest and dividends on  investment securities and
  other earning assets..................................     3,029       3,388       4,613     4,348     3,603
                                                           -------     -------     -------   -------   -------
    Total interest and dividend income..................    35,739      34,755      46,555    42,566    37,030
                                                           -------     -------     -------   -------   -------
Interest expense:
Deposits (Note 8).......................................    14,315      13,889      18,692    17,113    14,440
Borrowings..............................................     1,294       1,181       1,487     1,472       624
                                                           -------     -------     -------   -------   -------
 Total interest expense.................................    15,609      15,070      20,179    18,585    15,064
                                                           -------     -------     -------   -------   -------
 Net interest income....................................    20,130      19,685      26,376    23,981    21,966
Provision for loan losses (Note 4)......................     1,347         875       1,058       911       760
                                                           -------     -------     -------   -------   -------
    Net interest income after provision for
     loan losses........................................    18,783      18,810      25,318    23,070    21,206
                                                           -------     -------     -------   -------   -------
Non-interest income:
Loan servicing..........................................       443         445         583       648       676
Banking service fees and other income...................     1,855       1,767       2,128     1,803     1,424
                                                           -------     -------     -------   -------   -------
    Total non-interest income...........................     2,298       2,212       2,711     2,451     2,100
                                                           -------     -------     -------   -------   -------
Non-interest expense:
Compensation and employee benefits (Note 12)............     7,501       7,328       9,915     9,063     7,601
Occupancy and office operations (Notes 6 and 13)........     2,346       2,287       3,167     2,936     2,430
Advertising and promotion...............................       825         748       1,038     1,251       700
Federal deposit insurance costs, including a special
 assessment of $3,298 in 1996 (Note 11).................       246         336         409     4,373       996
Data processing.........................................       612         435         580       573       491
Foreclosed real estate expense (income),
 net (Note 7)...........................................        66        (109)        (40 )     441       100
Amortization of branch purchase premiums (Note 8).......     1,200       1,129       1,506       691        --
Other...................................................     2,846       3,034       4,027     3,406     2,946
                                                           -------     -------     -------   -------   -------
    Total...............................................    15,642      15,188      20,602    22,734    15,264
                                                           -------     -------     -------   -------   -------
    Income before income tax expense....................     5,439       5,834       7,427     2,787     8,042
                                                           -------     -------     -------   -------   -------
Income tax expense (Note 10)............................     1,995       2,370       2,829       690     3,239
                                                           -------     -------     -------   -------   -------
     Net income.........................................   $ 3,444     $ 3,464     $ 4,598   $ 2,097   $ 4,803
                                                           =======     =======     =======   =======   ======= 
</TABLE>
-------------------------
Note references are to the Notes to Consolidated Financial Statements beginning
on page F-8.

                                       46
<PAGE>
 
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

     The Bank's results of operations depend primarily on its net interest
income, which is the difference between the interest income on its earning
assets, such as loans and securities, and the interest expense paid on its
deposits and borrowings.  Results of operations are also affected by non-
interest income and expense, the provision for loan losses and income tax
expense.  Non-interest income consists primarily of banking service fees and
income from loan servicing.  The Bank's non-interest expense consists primarily
of salaries and employee benefits, occupancy and office expenses, amortization
of branch purchase premiums, advertising and promotion expense, data processing
expenses and federal deposit insurance costs.  Results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.

     The Bank's equity position (as well as its regulatory capital) will
significantly increase as a result of the net proceeds that it receives in the
Offering.  Management expects to leverage the new capital by increasing the
Bank's interest-earning assets thereby reducing the Bank's equity as a
percentage of assets.  Until such leverage is achieved, however, the Bank's
return on average equity is expected to be below the Bank's historical levels
and industry averages. The net proceeds of the Offering are expected to be used
for general corporate purposes, including the origination of residential and
commercial real estate loans, commercial business loans, and consumer loans.
The net proceeds also will be invested in investment securities and mortgage-
backed securities.  The Bank may also use such funds for the expansion of its
retail banking franchise through new branch openings or acquisitions.

MANAGEMENT STRATEGY

     Management intends to continue the Bank's growth as a major independent
community bank offering a broad range of customer-focused services as an
alternative to money center banks in its market area.  The majority of the
Bank's senior management have extensive backgrounds with commercial banking
institutions.  In recent years, management determined that the long-term growth
and success of the Bank would be enhanced by operating as a community bank
rather than a traditional thrift institution, and as a result, management
implemented a business strategy that included: (i) creating an infrastructure
for commercial and consumer banking, such as an experienced commercial loan
department and delivery systems to accommodate the needs of business and
individual customers; and (ii) placing a greater emphasis on commercial real
estate and business lending, as well as checking and other transaction accounts.
Highlights of the Bank's business strategy are as follows:

 .    Community banking and customer service.  As an independent community bank,
     a principal objective of the Bank is to anticipate the financial services
     needs of its customers, and to meet those needs in an effective and
     personalized manner.  The Bank continually receives input from customers
     through its branch office network and marketing surveys, and is committed
     to implementing new programs and services designed to attract new customers
     and strengthen existing relationships.  The Bank intends to use new
     technologies to offer customers new financial products and services as
     market and regulatory conditions permit, including PC banking, cash
     management and sweep accounts, although the Bank does not currently offer
     these products or services.  The Bank also expects to offer asset
     management, trust services and personal financial planing in the near
     future. The Bank's branch offices are operated on a full-service basis, and
     branch office personnel are authorized to accept applications for mortgage
     and consumer loans and approve consumer loans.

 .    Growing and diversifying the loan portfolio.  The Bank offers retail
     customers a broad range of residential mortgage and consumer loans, and has
     grown its loan portfolio by $145.3 million, or 49.2%, to $440.4 million at
     June 30, 1998 from $295.1 million at September 30, 1993.  At June 30, 1998,
     the Bank's loan portfolio represented 64.8% of total assets.  The Bank
     continues to target commercial business and commercial real estate lending
     as a means of improving the yield on its loan portfolio and shortening the
     average maturity of its assets.  The Bank also has established experienced
     commercial loan and credit administration departments that management
     believes are critical to the success of its commercial banking 

                                       47
<PAGE>
 
     strategy. The Bank's commercial loans include commercial mortgages, multi-
     family mortgages, construction loans to builders and business loans. Total
     outstanding balances in these commercial loan categories increased by $45.2
     million, or 69.9%, to $109.9 million at June 30, 1998 from $64.7 million at
     September 30, 1993.

 .    Expanding the retail banking franchise. The Bank intends to continue to
     expand its retail banking franchise and to increase the number of
     households served in its market area.  The Bank fosters a sales culture in
     its branch offices that emphasizes transaction accounts.  At June 30, 1998,
     core deposits  (demand, NOW, savings and money market deposits) represented
     58.1% of the Bank's total deposits, and the weighted average rate on the
     Bank's total deposits was 3.31%.  Since 1993, the Bank has opened two full-
     service branch offices, including the first supermarket branch in Rockland
     County, and also has  purchased two existing branches from other banks.
     The Bank intends to pursue opportunities to expand its branch network as
     market conditions permit.  Two of the Bank's branch offices are now open
     seven days a week, and additional branch offices will offer seven-day
     banking to accommodate all customers.  The Bank has 12 automated teller
     machines ("ATMs") and participates in networks that permit customers to
     access their accounts through ATMs worldwide.

 .    Maintaining asset quality. Strong asset quality is a critical component of
     the Bank's long-term growth and financial success.  Accordingly, management
     is committed to maintaining conservative underwriting standards in
     originating loans.  For example, the credit review of each commercial loan
     is performed by a department independent of the department that originates
     the loan.  At the end of the past five fiscal years and at June 30, 1998,
     non-performing assets averaged 1.04% of total assets.  At June 30, 1998,
     the Bank's non-performing loans totaled $5.7 million, representing 1.30% of
     the loan portfolio, and non-performing assets totaled $6.1 million, or
     0.90% of total assets.  The Bank's allowance for loan losses was $4.5
     million at June 30, 1998, representing 1.03% of total loans and 79.27% of
     non-performing loans.

 .    Managing interest rate risk.  The Bank, like most financial institutions,
     is subject to interest rate risk since its liabilities generally have
     shorter terms to repricing or maturity than its assets.  As a result, its
     liabilities are more sensitive to changes in market interest rates.
     Management has reduced the Bank's exposure to interest rate risk by
     originating and retaining adjustable rate mortgage ("ARM") loans,
     commercial real estate and commercial business loans, and consumer loans.
     Management also manages interest rate risk by investing a portion of the
     Bank's assets in shorter duration investment securities and mortgage-backed
     securities.  Depending upon market interest rates and the Bank's capital
     and liquidity positions, the Bank from time to time sells (on a servicing-
     retained basis) fixed-rate long term mortgage loans.  As of June 30, 1998,
     securities available for sale totaled $92.4 million, or 13.6% of total
     assets.  The Bank's securities held to maturity totaled $109.5 million, or
     16.1% of total assets.

MANAGEMENT OF MARKET RISK

     Like other financial institutions, the Bank's most significant form of
market risk is interest rate risk.  The general objective of the Bank's interest
rate risk management is to determine the appropriate level of risk given the
Bank's business strategy, and then manage that risk in a manner that is
consistent with the Bank's policy to reduce the exposure of the Bank's net
interest income to changes in market interest rates.  The Bank's asset/liability
management committee ("ALCO"), which consists of senior management, evaluates
the interest rate risk inherent in certain assets and liabilities, the Bank's
operating environment, and capital and liquidity requirements, and modifies
lending, investing and deposit gathering strategies accordingly.   A committee
of the Board of Directors reviews the ALCO's activities and strategies, the
effect of those strategies on the Bank's net interest margin, and the effect
that changes in market interest rates would have on the value of the Bank's loan
and securities portfolios.  See "Risk Factors--Potential Effects of Changes in
Interest Rates and the Current Interest Rate Environment."

     The Bank actively evaluates interest rate risk concerns in connection with
its lending, investing, and deposit activities.  The Bank emphasizes the
origination of residential monthly and bi-weekly fixed-rate mortgage loans,
residential and commercial ARM loans, and consumer loans.  Depending on market
interest rates and the Bank's capital and liquidity position, the Bank may
retain all of its newly originated fixed-rate, fixed-term residential 

                                       48
<PAGE>
 
mortgage loans or may decide to sell all or a portion of such longer-term loans
on a servicing-retained basis. The Bank also invests in short-term securities,
which generally have lower yields compared to longer-term investments.
Shortening the maturities of the Bank's interest-earning assets by increasing
investments in shorter-term loans and securities helps to better match the
maturities and interest rates of the Bank's assets and liabilities, thereby
reducing the exposure of the Bank's net interest income to changes in market
interest rates. These strategies may adversely impact net interest income due to
lower initial yields on these investments in comparison to longer term, fixed-
rate loans and investments. The Bank has also purchased interest rate caps to
synthetically extend the duration of its portfolio of short-term certificates of
deposit. The counterparty in the transaction has agreed to make interest
payments to the Bank, based on a $20 million notional amount, to the extent that
the three-month LIBOR rate exceeds 6.5% over the term of the cap agreement,
which has a five year term ending in March 2003. By purchasing shorter term
assets and extending the duration of its liabilities, management believes that
the corresponding reduction in interest rate risk will enhance long-term
profitability.

     The Bank monitors interest rate sensitivity primarily through the use of a
model that simulates net interest income under varying interest rate
assumptions.  The Bank also evaluates this sensitivity through a net portfolio
value model that estimates 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.  Both
models assume estimated loan prepayment rates, reinvestment rates and deposit
decay rates which seem most likely based on historical experience during prior
interest rate changes.

     The table below sets forth, as of June 30, 1998, the estimated changes in
the Bank's NPV and its net interest income that would result from the designated
instantaneous changes in the U.S. Treasury yield curve.

<TABLE>
<CAPTION>
                                          NPV                                               NET INTEREST INCOME
                 -------------------------------------------------------   ---------------------------------------------------
                                             ESTIMATED INCREASE                                   INCREASE (DECREASE) IN   
   CHANGE IN                                 (DECREASE) IN NPV                 ESTIMATED       ESTIMATED NET INTEREST INCOME
INTEREST RATES      ESTIMATED      -------------------------------------     NET INTEREST    ---------------------------------
(BASIS POINTS)         NPV               AMOUNT             PERCENT             INCOME            AMOUNT           PERCENT
--------------   ----------------  ------------------  ------------------  ----------------  ----------------  ---------------
<S>              <C>               <C>                 <C>                 <C>               <C>               <C>
                                                            (DOLLARS IN THOUSANDS)
     +300            $59,095           $(15,067)               (20)%           $24,496          $   675                3%
     +200             65,916             (8,246)                (11)            24,526              705                3
     +100             70,039             (4,123)                 (6)            24,173              352                1
        0             74,162                 --                  --             23,821               --               --
     -100             76,736              2,574                   3             23,315             (506)              (2)
     -200             79,310              5,148                   7             22,809           (1,012)              (4)
     -300             80,281              6,119                   8             22,319           (1,502)              (6)
</TABLE>

     The table set forth above indicates that at June 30, 1998, in the event of
an abrupt 200 basis point decrease in interest rates, the Bank would be expected
to experience a 7% increase in NPV.  In the event of an abrupt 200 basis point
increase in interest rates, the Bank would be expected to experience an 11%
decrease in NPV.  Since June 30, 1998, there have been no significant changes in
the Bank's interest rate risk exposures or how those exposures would be managed.
Computations of prospective effects of hypothetical interest rate changes are
based on numerous assumptions including relative levels of market interest
rates, loan prepayments and deposit decay, and should not be relied upon as
indicative of actual results.  Further, the computations do not reflect any
actions management may undertake in response to changes in interest rates.

     Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurements. Modeling changes in NPV requires making certain
assumptions that may or may not reflect the manner in which actual yields and
costs respond to changes in market interest rates. The NPV table presented above
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.  It also assumes that a particular change in interest
rates is reflected uniformly across the yield curve regardless of the duration
to maturity or the repricing characteristics of specific assets and liabilities.
Accordingly, although the NPV table provides an indication of the Bank's
sensitivity to interest rate changes 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.

                                       49
<PAGE>
 
ANALYSIS OF NET INTEREST INCOME

     Net interest income is the difference between interest income on interest-
earning assets and interest expense on interest-bearing liabilities.  Net
interest income depends on the relative amounts of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on them,
respectively.

     The following tables set forth balance sheets, average yields and costs,
and certain other information at June 30, 1998, for the nine-month periods ended
June 30, 1998 and 1997, and for the years ended September 30, 1997, 1996 and
1995.  No tax-equivalent yield adjustments were made, as the effect thereof was
not material.  All average balances are monthly average balances which, in the
opinion of management, are not materially different from daily average balances.
Non-accrual loans were included in the computation of average balances, but have
been reflected in the table as loans carrying a zero yield.  The yields set
forth below include the effect of deferred fees, discounts and premiums which
are included in interest income.

<TABLE>
<CAPTION>
                                                                             NINE MONTHS ENDED JUNE 30,
                                                      ------------------------------------------------------------------------
                                 AT JUNE 30, 1998                    1998                                 1997
                             -----------------------  -----------------------------------  -----------------------------------
                                                        AVERAGE                              AVERAGE
                                ACTUAL      AVERAGE   OUTSTANDING               AVERAGE    OUTSTANDING               AVERAGE
                               BALANCE    YIELD/RATE    BALANCE     INTEREST   YIELD/RATE    BALANCE     INTEREST   YIELD/RATE   
                             -----------  ----------  -----------  ----------  ----------  -----------  ----------  ----------
                                                                     (DOLLARS IN THOUSANDS)
<S>                          <C>          <C>         <C>          <C>         <C>         <C>          <C>         <C>
INTEREST-EARNING ASSETS:
 Loans receivable (1)......    $440,360      8.22%     $420,683      $25,962      8.25%      $381,695      $24,249      8.49%
 Mortgage-backed                                                                                                      
  securities (2)...........     133,109      6.49       138,328        6,748      6.52        146,094        7,118      6.51
 Investment securities (2).      68,826      5.81        63,164        2,806      5.94         70,480        3,223      6.11
 Other.....................       8,690      5.43         4,194          223      7.11          3,457          165      6.38
                               --------                --------      -------                 --------      -------    
  Total interest-earning                                                                                              
   assets..................     650,985      7.57       626,369       35,739      7.63        601,726       34,755      7.72
                                                                     -------                               -------    
Non-interest-earning assets      28,119                  29,733                                32,675                 
                               --------                --------                              --------                 
   Total assets............    $679,104                $656,102                              $634,401                 
                               ========                ========                              ========                 
                                                                                                                      
INTEREST-BEARING                                                                                                      
 LIABILITIES:                                                                                                         
 Savings deposits (3)......    $174,502      2.23      $163,407        2,731      2.23       $162,418        2,713      2.23
 Money market and                                                                                                     
    NOW deposits...........     120,405      2.38       112,301        2,016      2.40        108,646        1,992      2.45
 Certificates of deposit...     243,335      5.22       240,210        9,568      5.33        237,175        9,184      5.18
 Borrowings................      25,048      6.13        29,009        1,294      5.96         25,451        1,181      6.20
                               --------                --------      -------                 --------      -------    
  Total interest-bearing                                                                                              
    liabilities............     563,290      3.73       544,927       15,609      3.83        533,690       15,070      3.77
                                                                     -------                               -------    
Non-interest-bearing                                                                                                  
 liabilities...............      61,935                  58,373                                53,041                 
                               --------                --------                              --------                 
  Total liabilities........     625,225                 603,300                               586,731                 
Equity.....................      53,879                  52,802                                47,670                 
                               --------                --------                              --------                 
  Total liabilities and                                                                                               
   equity..................    $679,104                $656,102                              $634,401                 
                               ========                ========                              ========                 
                                                                                                                      
Net interest income........                                          $20,130                               $19,685    
                                                                     =======                               =======    
Net interest rate 
 spread (4)................                  3.84%                                3.80%                                 3.95%
Net earning assets (5).....      87,695                $ 81,442                              $ 68,036                 
                               ========                ========                              ========                 
Net interest margin (6)....                                                       4.30%                                 4.37%
Ratio of interest-earning                                                                
 assets to interest-bearing                                                                     
  liabilities..............      115.57%                 114.95%                               112.75%
</TABLE>

                                       50
<PAGE>
 
<TABLE>
<CAPTION>
                                                                    YEARS ENDED SEPTEMBER 30,
                             -------------------------------------------------------------------------------------------------------
                                            1997                               1996                               1995
                             ---------------------------------  ---------------------------------  ---------------------------------
                               AVERAGE                            AVERAGE                            AVERAGE
                             OUTSTANDING             AVERAGE    OUTSTANDING             AVERAGE    OUTSTANDING              AVERAGE
                               BALANCE    INTEREST  YIELD/RATE    BALANCE    INTEREST  YIELD/RATE    BALANCE    INTEREST  YIELD/RATE
                             -----------  --------  ----------  -----------  --------  ----------  -----------  --------  ----------
                                                                     (DOLLARS IN THOUSANDS)
<S>                          <C>          <C>       <C>          <C>        <C>       <C>          <C>        <C>       <C>
INTEREST-EARNING ASSETS:
 Loans receivable (1)......    $385,355    $32,544     8.45%     $348,155    $29,210     8.39%      $321,727    $26,740      8.31%
 Mortgage-backed                                                                                                            
  securities (2)...........     144,252      9,398     6.52       137,772      9,008     6.54        102,314      6,687      6.54
 Investment securities (2).      71,826      4,385     6.11        66,554      4,020     6.04         56,821      3,309      5.82
 Other.....................       3,526        228     6.47         5,681        328     5.77          4,101        294      7.17
                               --------    -------               --------    -------                --------    -------     
  Total interest-earning                                                                                                    
   assets..................     604,959     46,555     7.70       558,162     42,566     7.63        484,963     37,030      7.64
                                           -------                           -------                            -------     
Non-interest-earning assets      31,861                            24,009                             14,541                
                               --------                          --------                           --------                
  Total assets.............    $636,820                          $582,171                           $499,504                
                               ========                          ========                           ========                
                                                                                                                            
INTEREST-BEARING                                                                                                            
 LIABILITIES:                                                                                                               
 Savings deposits (3)......    $164,726      3,670     2.23      $161,215      3,592     2.23       $167,910      3,741      2.23
 Money market and                                                                                                           
  NOW deposits.............     109,289      2,675     2.45        99,344      2,480     2.50         83,763      2,136      2.55
 Certificates of deposit...     237,262     12,347     5.20       212,476     11,041     5.20        170,737      8,563      5.02
 Borrowings................      23,730      1,487     6.27        22,686      1,472     6.49          9,139        624      6.83
                               --------    -------               --------    -------                --------    -------     
  Total interest-bearing                                                                                                    
   liabilities.............     535,007     20,179     3.78       495,721     18,585     3.75        431,549     15,064      3.49
                                           -------                           -------                            -------     
Non-interest-bearing                                                                                                        
 liabilities...............      53,489                            40,880                             27,150                
                               --------                          --------                           --------                
  Total liabilities........     588,496                           536,601                            458,699                
Equity.....................      48,324                            45,570                             40,805                
                               --------                          --------                           --------                
  Total liabilities and                                                                                                     
   equity..................    $636,820                          $582,171                           $499,504                
                               ========                          ========                           ========                
                                                                                                                            
Net interest income........                $26,376                           $23,981                            $21,966     
                                           =======                           =======                            =======     
Net interest rate 
 spread (4)................                            3.92%                             3.88%                               4.15%
Net earning assets (5).....    $ 69,952                          $ 62,441                           $ 53,414                
                               ========                          ========                           ========                
Net interest margin (6)....                            4.36%                             4.30%                               4.53%
Ratio of interest-earning                                                                        
 assets to interest-bearing                                                                             
  liabilities..............      113.07%                           112.60%                            112.38%
</TABLE>
---------------
(1)  Balances include the effect of net deferred loan origination fees and
     costs, loans in process and the allowance for loan losses.
(2)  Average outstanding balances are based on amortized cost.
(3)  Includes club accounts and interest-bearing mortgage escrow balances.
(4) Net interest rate spread represents the difference between the yield on
    average interest-earning assets and the cost of average interest-bearing
    liabilities.
(5)  Net earning assets represents total interest-earning assets less total
     interest-bearing liabilities.
(6)  Net interest margin represents net interest income divided by average total
     interest-earning assets.

                                       51
<PAGE>
 
  The following table presents the dollar amount of changes in interest income
and interest expense for the major categories of the Bank's interest-earning
assets and interest-bearing liabilities.  Information is provided for each
category of interest-earning assets and interest-bearing liabilities with
respect to (i) changes attributable to changes in volume (i.e., changes in
average balances multiplied by the prior-period average rate) and (ii) changes
attributable to rate (i.e., changes in average rate multiplied by prior-period
average balances).  For purposes of this table, changes attributable to both
rate and volume, which cannot be segregated, have been allocated proportionately
to the change due to volume and the change due to rate.

<TABLE>
<CAPTION>
                                NINE MONTHS ENDED JUNE 30,                          YEARS ENDED SEPTEMBER 30,
                             --------------------------------  ------------------------------------------------------------------
                                       1998 VS. 1997                    1997 VS. 1996                      1996 VS. 1995
                             --------------------------------  --------------------------------  --------------------------------
                              INCREASE (DECREASE)               INCREASE (DECREASE)               INCREASE (DECREASE)           
                                    DUE TO            TOTAL           DUE TO            TOTAL           DUE TO            TOTAL 
                             --------------------   INCREASE   --------------------   INCREASE   --------------------   INCREASE
                              VOLUME      RATE     (DECREASE)   VOLUME      RATE     (DECREASE)   VOLUME      RATE     (DECREASE)
                             --------  ----------  ----------  --------  ----------  ----------  --------  ----------  ---------- 
                                                                         (IN THOUSANDS)
<S>                          <C>       <C>         <C>         <C>       <C>         <C>         <C>       <C>         <C>
INTEREST-EARNING ASSETS:
 Loans receivable..........   $2,422     $(709)      $1,713     $3,141       $193      $3,334     $2,216      $254       $2,470
 Mortgage-backed securities     (379)        9         (370)       422        (32)        390      2,318         3        2,321
 Investment securities.....     (327)      (90)        (417)       322         43         365        584       127          711
 Other.....................       38        20           58       (135)        35        (100)        98       (64)          34
                              ------     -----       ------     ------       ----      ------     ------      ----       ------
                                                                                                           
  Total interest-earning                                                                                   
   assets..................    1,754      (770)         984      3,750        239       3,989      5,216       320        5,536
                              ------     -----       ------     ------       ----      ------     ------      ----       ------
                                                                                                           
INTEREST-BEARING                                                                                           
 LIABILITIES:                                                                                              
 Savings deposits..........       17         1           18         78         --          78       (149)       --         (149)
 Money market and NOW                                                                                      
   deposits................       66       (42)          24        244        (49)        195        390       (46)         344
 Certificates of deposit...      119       265          384      1,290         16       1,306      2,159       319        2,478
 Borrowings................      160       (47)         113         66        (51)         15        879       (31)         848
                              ------     -----       ------     ------       ----      ------     ------      ----       ------
                                                                                                           
  Total interest-bearing                                                                                   
   liabilities.............      362       177          539      1,678        (84)      1,594      3,279       242        3,521
                              ------     -----       ------     ------       ----      ------     ------      ----       ------
                                                                                                           
Change in net interest                                                                                     
 income....................   $1,392     $(947)      $  445     $2,072       $323      $2,395     $1,937      $ 78       $2,015
                              ======     =====       ======     ======       ====      ======     ======      ====       ======
 
</TABLE>

COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1998 AND SEPTEMBER 30, 1997

     Total assets increased by $30.4 million, or 4.7%, to $679.1 million at 
June 30, 1998 from $648.7 million at September 30, 1997. The growth in assets
was primarily attributable to a $35.9 million increase in loans receivable,
partially offset by a $9.0 million decline in investment and mortgage-backed
securities, as the Bank's asset mix continued to shift from investment and
mortgage-backed securities into loans. Asset growth was funded primarily from
deposit inflows through the Bank's existing branch network. Investment
securities at June 30, 1998 totaled $68.8 million, a decrease of $1.9 million,
from $70.7 million at September 30, 1997. Mortgage-backed securities at June 30,
1998 totaled $133.1 million, a decrease of $7.1 million from September 30, 1997.
One-to four-family residential mortgage loans increased by $29.7 million to
$271.6 million at June 30, 1998 from $241.9 million at September 30, 1997,
reflecting the continuation of the strong market for new mortgage loans and loan
refinancings. Due to the significant increase in loan refinancings, the Bank
reentered the secondary mortgage sales market after an absence of three years by
selling substantially all of its 30 year fixed-rate loans originated between
December 1, 1997 and June 30, 1998. On a combined basis, total outstanding
balances in the Bank's commercial loan categories (commercial mortgages, multi-
family mortgages, construction loans to builders and business loans) increased
by $4.8 million, or 4.6%, to $109.9 million at June 30, 1998 from $105.1 million
at September 30, 1997. Other assets of the Bank decreased to $6.2 million at
June 30, 1998 from $7.2 million at September 30, 1997, primarily due to 
$1.2 million in amortization of core deposit purchase premiums.

     Total deposits at June 30, 1998 were $580.1 million, an increase of 
$33.3 million, or 6.1%, from $546.8 million at September 30, 1997. The increase
was primarily due to growth in the Bank's demand and NOW accounts, which
increased by $13.9 million to $96.1 million at June 30, 1998 from $82.2 million
at September 30, 1997, largely

                                       52
<PAGE>
 
as a result of the Bank's promotion of its "Select" and "Select Plus" checking
account products. The Bank's passbook savings accounts, certificates of deposit
and money market accounts grew to $161.3 million, $243.3 million and 
$79.4 million, respectively, at June 30, 1998, representing increases of 
$8.1 million, $7.2 million and $4.1 million, respectively, over the nine-month
period.

     Total equity increased to $53.9 million at June 30, 1998 from $50.4 million
at September 30, 1997, reflecting net income of $3.4 million and a $36,000
increase in the after-tax net unrealized gain on securities available for sale.

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

     Total assets increased to $648.7 million at September 30, 1997 from 
$634.3 million at September 30, 1996, an increase of $14.4 million, or 2.3%. The
asset growth was primarily attributable to a $35.0 million increase in loans
receivable, partially offset by a $14.1 million decrease in mortgage-backed
securities, as the Bank's demand and now asset mix shifted from mortgage-backed
securities into loans. Other assets of the Bank decreased to $7.2 million at
September 30, 1997 from $8.6 million on September 30, 1996, primarily reflecting
$1.5 million in amortization of core deposit purchase premiums.

     Net loans receivable increased by $35.0 million to $404.5 million at
September 30, 1997 from $369.5 million at September 30, 1996.  One- to four-
family real estate loans increased by $22.0 million to $241.9 million at
September 30, 1997, from $219.9 million at September 30, 1996.  The increase
consisted of a $20.6 million increase in fixed-rate loans and a $1.4 million
increase in ARM loans, as most of the Bank's customers continued to favor fixed-
rate residential loans in the current low interest rate environment.  A
significant part of the Bank's fixed-rate residential loan originations during
this period were bi-weekly loans and loans with 15 and 20 year maturities.

     Multi-family real estate loans decreased to $7.4 million at September 30,
1997 from $7.7 million at September 30, 1996.  Commercial real estate loans
decreased to $55.7 million at September 30, 1997 from $58.6 million  at
September 30, 1996.  Construction and land loans increased to $31.7 million from
$28.0 million during the same period.

     Consumer loans increased $6.0 million to $60.8 million at September 30,
1997 from $54.8 million at September 30, 1996.  This increase was primarily the
result of a $6.1 million increase in the Bank's "homeowner loans," which are
fixed-rate, fixed-term consumer loans secured by a junior lien on the borrower's
primary residence. The Bank's commercial business loans increased by 
$6.4 million to $21.7 million at September 30, 1997 from $15.3 million at
September 30, 1996. The increase in consumer and commercial business lending is
part of a continued emphasis on increasing assets that have higher yields and
are more sensitive to market interest rates, to partially offset the interest
rate risk inherent in the fixed-rate real estate loan portfolio. While
commercial and consumer loans generally entail greater credit risk than one- to
four-family real estate loans, they are also shorter term, higher yielding
assets that help meet the interest rate risk management objectives of the Bank.

     The Bank's total securities portfolio decreased by $12.9 million to 
$210.9 million at September 30, 1997 from $223.8 million at September 30, 1996.
This decrease resulted primarily from a decrease in mortgage-backed securities
to $140.2 million at September 30, 1997 from $154.3 million at September 30,
1996, as the Bank redeployed these funds into loan originations. Investment
securities, consisting primarily of short- and medium-term U.S. Treasury and
agency notes, grew slightly to $70.7 million at September 30, 1997 from $69.5
million at September 30, 1996.

     Asset growth was funded with a $1.6 million increase in deposits and an
$11.0 million increase in FHLB borrowings.  The composition of the Bank's
deposits continued to change during the year ended September 30, 1997, primarily
due to growth in transaction accounts, partially offset by outflows of deposits
acquired in the 1996 branch office purchases, especially in maturing, higher-
rate certificates of deposit which the Bank chose not to retain.  The Bank's
certificates of deposit declined $4.9 million to $236.1 million at September 30,
1997 from $241.0 million at September 30, 1996.  Passbook, club and money market
accounts declined to $228.5 million at September 30, 1997 from $230.7 million at
September 30, 1996.  During the same period, demand and NOW accounts grew by
$8.5 million to $82.2 million at September 30, 1997 from $73.7 million at
September 30, 1996.

                                       53
<PAGE>
 
     Total equity increased to $50.4 million at September 30, 1997 from 
$45.5 million at September 30, 1996, reflecting net income of $4.6 million and a
$265,000 increase in the after-tax net unrealized gain on securities available
for sale.

COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 
JUNE 30, 1997

     GENERAL.  The net income of the Bank depends primarily on its net interest
income, which is the difference between interest earned on the Bank's interest-
earning assets, consisting primarily of loans and securities, and the interest
paid on interest-bearing liabilities, consisting primarily of deposits and
borrowings.  Net interest income is a function of the Bank's interest rate
spread, which is the difference between the average yield earned 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 also are affected by its
level of banking service fees and other non-interest income, as well as its
level of non-interest expenses, including salaries and employee benefits,
occupancy and office expenses, amortization of branch purchase premiums,
advertising and promotion expense, data processing expenses and federal deposit
insurance costs.

     Net income for the nine months ended June 30, 1998 was $3.4 million
compared to $3.5 million for the nine months ended June 30, 1997.  The decrease
was due primarily to increases in the provision for loan losses and non-interest
expenses, largely offset by an increase in net interest income and a decrease in
income tax expense.

     INTEREST INCOME.  Interest income increased by $984,000, or 2.8%, to 
$35.7 million for the nine months ended June 30, 1998 from $34.8 million for the
nine months ended June 30, 1997. The increase was due primarily to an increase
in average interest-earning assets. The impact of declining yields and spreads
was partially offset by a change in asset mix. Loan balances increased while
investment and mortgage-backed securities declined. Income from loans increased
$1.7 million, partially offset by a $370,000 decrease in income from mortgage-
backed securities and a $359,000 decrease in income on investment securities and
other earning assets. The increase in income from loans was attributable to a
$39.0 million increase in the average balance of loans to $420.7 million from
$381.7 million, partially offset by a 24 basis point decrease in the average
yield on loans to 8.25% from 8.49%. The increase in average loans resulted
primarily from the origination of one-to four-family mortgage loans in a
continuing low interest rate environment. The decrease in the average yield on
loans resulted from declining market interest rates, as the Bank originated new
one- to four-family loans with yields lower than the average yield on the
existing loan portfolio. The decrease in income from mortgage-backed securities
was attributable almost entirely to a $7.8 million decrease in the average
balance of mortgage-backed securities to $138.3 million from $146.1 million, as
the average yield on mortgage-backed securities remained essentially unchanged.
The decrease in income from investment securities was attributable to a 
$7.3 million decrease in the average balance of investment securities to 
$63.2 million from $70.5 million combined with a 17 basis point decrease in the
average yield on investment securities to 5.94% from 6.11%.

     INTEREST EXPENSE.  Interest expense increased by $539,000, or 3.6%, to
$15.6 million for the nine months ended June 30, 1998 from $15.1 million for the
nine months ended June 30, 1997.  This increase was the result of an 
$11.2 million increase in the average balance of interest-bearing liabilities in
the 1998 period compared to the 1997 period and a 6 basis point increase in the
average rate paid on such liabilities over the same period. The increase in
overall interest expense resulted primarily from a $384,000 increase in interest
expense on certificates of deposit and a $113,000 increase in interest expense
on borrowings. The increase attributable to certificates of deposit resulted
from a $3.0 million increase in the average balance of certificates of deposit
to $240.2 million in 1998 from $237.2 million in 1997, combined with a 15 basis
point increase in the average cost of certificates of deposit to 5.33% from
5.18%. The increase attributable to borrowings resulted from a $3.6 million
increase in the average balance of borrowings to $29.0 million for the nine
months ended June 30, 1998 from $25.4 million for the nine months ended June 30,
1997, which was partially offset by a 24 basis point decrease in the average
cost of borrowings to 5.96% from 6.20%.

     NET INTEREST INCOME.  For the nine months ended June 30, 1998 and 1997, net
interest income was $20.1 million and $19.7 million, respectively.  The $445,000
increase in net interest income was primarily attributable to a $13.4 million
increase in net earning assets (interest-earning assets less interest-bearing
liabilities), partially offset by a 15 basis point decline in the net interest
rate spread to 3.80% from 3.95%.  The Bank's net interest margin decreased to
4.30% in the nine months ended June 30, 1998 from 4.37% in the nine months ended
June 30, 1997.

                                       54
<PAGE>
 
     PROVISION FOR LOAN LOSSES.  The Bank records provisions for loan losses,
which are charged to earnings, in order to maintain the allowance for loan
losses at a level which is considered appropriate to absorb probable loan losses
inherent in the existing portfolio.  In determining the appropriate level of the
allowance for loan losses, management considers past and anticipated loss
experience, evaluations of real estate collateral, current and anticipated
economic conditions, volume and type of lending, and the levels of non-
performing and other classified loans.  The amount of the allowance is based on
estimates and the ultimate losses may vary from such estimates.  Management of
the Bank assesses the allowance for loan losses on a quarterly basis and makes
provisions for loan losses in order to maintain the adequacy of the allowance.

     The Bank's provision for loan losses increased by $472,000 to $1.3 million
for the nine months ended June 30, 1998 from $875,000 for the nine months ended
June 30, 1997.  The increased provision reflects several factors including 
(i) continued loan portfolio growth, including commercial real estate and
commercial business loans, (ii) an increase in non-performing loans to $5.7
million at June 30, 1998 from $4.7 million at September 30, 1997, and (iii) an
increase in net loan charge-offs to $578,000 in the nine months ended June 30,
1998 from $355,000 in the nine months ended June 30, 1997, primarily due to a
partial charge-off of $350,000 in the current year on $1.3 million in loans to a
borrower who declared bankruptcy.

     NON-INTEREST INCOME.  Non-interest income primarily consists of fee income
for bank services, but also includes gains and losses from the sale of loans and
securities.  Total non-interest income increased by $86,000, or 3.9%, to 
$2.3 million for the nine months ended June 30, 1998 from $2.2 million for the
nine month period ended June 30, 1997. The primary reason for the improvement
was a $179,000 increase in the gain on sale of loans to $185,000 for the nine
months ended June 30, 1998 from $6,000 for the nine months ended June 30, 1997.
The increase in loan sales in 1998 was the result of the Bank's decision to sell
newly originated, longer term fixed-rate mortgage loans as part of its interest
rate risk management. In addition, deposit- related fees and charges increased
$121,000, or 8.2%, to $1.6 million for the nine months ended June 30, 1998 from
$1.5 million for the nine months ended June 30, 1997. Partially offsetting these
increases was the recognition in the current-year period of a $192,000 loss on
an investment in a limited partnership that generates low-income housing tax
credits, which offset a portion of the Bank's income tax expense.

     NON-INTEREST EXPENSE.  Non-interest expense increased by $454,000, or 3.0%,
to $15.6 million for the nine months ended June 30, 1998 from $15.2 million for
the nine months ended June 30, 1997.  The increase was primarily due to a
$177,000 increase in data processing expenses, a $175,000 increase in foreclosed
real estate expenses and a $173,000 increase in compensation and employee
benefits.  These increases were offset, in part, by decreases in other non-
interest expenses of $188,000 and federal deposit insurance costs of $90,000.

     Data processing expenses increased to $612,000 for the nine months ended
June 30, 1998 from $435,000 for the nine months ended June 30, 1997.
Approximately half of the $177,000 increase in data processing expenses related
to costs associated with the Bank's conversion to a new core data processing
system which is anticipated to occur by December 31, 1998.  Foreclosed real
estate expenses were $66,000 for the nine months ended June 30, 1998 compared to
income of $109,000 for the same period in 1997, primarily due to the recognition
of a gain on the sale of a foreclosed property in the 1997 period.  Compensation
and employee benefits increased to $7.5 million from $7.3 million primarily due
to a $108,000, or 4.0%, increase in salaries for Bank officers and a $78,000
increase in medical and disability insurance.  Other non-interest expenses
decreased to $2.8 million from $3.0 million between the two reporting periods
due to a decrease of $136,000 in miscellaneous non-interest expenses, a decrease
of $52,000 in insurance premiums, and a decrease of $42,000 in net correspondent
bank charges.  These decreases were partially offset by higher legal costs of
$149,000 in the nine months ended June 30, 1998.  Notwithstanding an increase in
total deposits, federal deposit insurance costs decreased to $246,000 for the
nine months ended June 30, 1998 from $336,000 for the nine months ended June 30,
1997, due to lower insurance rates imposed by the FDIC.

     INCOME TAXES.  Income tax expense was $2.0 million for the nine months
ended June 30, 1998 compared to $2.4 million for the same period in 1997,
representing effective tax rates of 36.7% and 40.6%, respectively. The lower
effective tax rate reflected, in part, tax benefits from the recognition of low-
income housing tax credits and state tax bad debt deductions.

                                       55
<PAGE>
 
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND
SEPTEMBER 30, 1996

     GENERAL.  Net income for the fiscal year ended September 30, 1997 was 
$4.6 million, an increase of $2.5 million, or 119.3%, from net income of 
$2.1 million for the fiscal year ended September 30, 1996. The increase was due
primarily to a $3.3 million special assessment during fiscal 1996 to
recapitalize the SAIF. The after-tax impact of this one-time assessment was a
$2.0 million reduction of net income in fiscal 1996. The remaining increase in
net income was due to higher net interest income and non-interest income,
partially offset by increases in non-interest expenses and income tax expense.

     INTEREST INCOME.  Interest income increased by $4.0 million, or 9.4%, to
$46.6 million for the year ended September 30, 1997 from $42.6 million for the
year ended September 30, 1996.  The increase was primarily due to a $3.3 million
increase in income from loans, a $390,000 increase in income from mortgage-
backed securities and a $365,000 increase in income from investment securities.
The increase in income from loans was attributable to a $37.2 million increase
in the average balance of loans to $385.4 million from $348.2 million, and a 
6 basis point increase in the average yield on loans from 8.39% to 8.45%. In
fiscal 1997, the Bank continued its focus on increasing the loan portfolio by
reinvesting the proceeds from branch purchases and from repayments on investment
and mortgage-backed securities into loans.   The increase in income from
investment securities was attributable to a $5.2 million increase in the average
balance of investment securities to $71.8 million from $66.6 million, and a 
7 basis point increase in the average yield on investment securities to 6.11%
from 6.04%. The increase in income from mortgage-backed securities was
attributable to a $6.5 million increase in the average balance of mortgage-
backed securities to $144.3 million from $137.8 million, which was partially
offset by a 2 basis point decrease in the average yield on mortgage-backed
securities to 6.52% from 6.54%. Average balances for securities were higher in
fiscal 1997 than fiscal 1996 because securities purchased during fiscal 1996
were held for the entire 1997 fiscal year.

     INTEREST EXPENSE.  Interest expense increased by $1.6 million, or 8.6%, to
$20.2 million for the year ended September 30, 1997 from $18.6 million for the
fiscal year ended September 30, 1996.  Overall, the average balance of interest-
bearing liabilities increased by $39.3 million in fiscal 1997, and the average
rate paid on these liabilities increased 3 basis points to 3.78% in fiscal 1997
from 3.75% in fiscal 1996.  The increase in interest expense resulted primarily
from a $1.3 million increase in interest expense on certificates of deposit and
a $195,000 increase in interest expense on money market and NOW accounts.  The
increase attributable to certificates of deposit resulted from a $24.8 million
increase in the average balance of certificates of deposit to $237.3 million in
fiscal 1997 from $212.5 million in fiscal 1996.   The increase in interest
expense attributable to money market and NOW accounts was due to a $10.0 million
increase in the average balance of these accounts to $109.3 million in fiscal
year 1997 from $99.3 million in fiscal 1996.  This increase was partially offset
by a 5 basis point decrease in the average cost of money market and NOW accounts
to 2.45% from 2.50%.  The average balance in savings deposits increased by 
$3.5 million to $164.7 million in fiscal 1997 from $161.2 million in fiscal
1996, resulting in a $78,000 increase in interest expense for fiscal 1997.

     NET INTEREST INCOME.  Net interest income increased $2.4 million, or 10.0%,
to $26.4 million in fiscal 1997 from $24.0 million in fiscal 1996.  The increase
was attributable to a $7.5 million increase in net earning assets and a 6 basis
point increase in the net interest margin to 4.36% in fiscal 1997 from 4.30% in
fiscal 1996.  The net interest rate spread increased 4 basis points to 3.92% in
fiscal 1997 from 3.88% in fiscal 1996.

     PROVISION FOR LOAN LOSSES.  The Bank's provision for loan losses increased
by $147,000 to $1.1 million for the year ended September 30, 1997 from $911,000
for the year ended September 30, 1996.  The increase in the provision reflects
management's evaluation of changes in the level of losses inherent in the
portfolio as a result of ongoing portfolio growth and changes in the portfolio
mix.  The allowance for loan losses represented 0.93% of net loans receivable at
September 30, 1997, compared to 0.91% at September 30, 1996.

     NON-INTEREST INCOME.  Non-interest income was $2.7 million for the year
ended September 30, 1997, a $260,000, or 10.6%, increase from $2.5 million for
the year ended September 30, 1996.  Income from bank services and fees on
deposit accounts increased by $325,000 to $2.1 million for the fiscal year ended
September 30, 1997, from $1.8 million in fiscal 1996 primarily reflecting higher
transaction volume.  Income from loan servicing decreased $65,000 for the year
ended September 30, 1997 to $583,000 from $648,000 for fiscal 1996, as the
balance of loans 

                                       56
<PAGE>
 
serviced for others declined due to refinancing trends and the Bank's decision
to retain most loans originated during that period.

     NON-INTEREST EXPENSE. Non-interest expense decreased by $2.1 million, or
9.4%, to $20.6 million for the year ended September 30, 1997 from $22.7 million
for the year ended September 30, 1996. The decrease was due primarily to a non-
recurring $3.3 million special assessment to recapitalize the SAIF during the
year ended September 30, 1996.  This was partially offset by an $852,000
increase in compensation and employee benefits, an $815,000 increase in
amortization of branch purchase premiums, a $621,000 increase in other expenses
and a $231,000 increase in occupancy and office expenses.  Decreases in non-
interest expense for the year ended September 30, 1997 compared to the year
ended September 30, 1996 include a $213,000 decrease in advertising and
promotion expense, and a $481,000 decrease in expenses for foreclosed real
estate.  Increases in compensation  and employee benefits, amortization of
branch purchase premiums, occupancy and other expenses in fiscal 1997 reflect
the first full year of operating costs related to two purchased branches which
were operated by the Bank for only four and six months, respectively, in fiscal
1996.

     INCOME TAXES.  Income tax expense was $2.8 million for the year ended
September 30, 1997 compared to $690,000 for the year ended September 30, 1996,
representing effective tax rates of 38.1% in fiscal 1997 and 24.8% in fiscal
1996.  The lower effective tax rate in fiscal 1996 primarily reflects the
recognition of a deferred tax benefit due to an amendment in New York State tax
law concerning tax bad debt reserves.  See Note 10 of the Notes to Consolidated
Financial Statements.

COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1996
AND SEPTEMBER 30, 1995

     GENERAL.  Net income for the year ended September 30, 1996 was 
$2.1 million, a decrease of $2.7 million, or 56.3%, from net income of 
$4.8 million for the year ended September 30, 1995. The decrease was due
primarily to the one-time $3.3 million special assessment in 1996 to
recapitalize the SAIF. The after-tax impact of this one-time assessment was a
$2.0 million reduction in net income for fiscal 1996. In addition, increases in
net interest income and non-interest income in fiscal 1996 were more than offset
by increases in non-interest expenses other than the special assessment.

     INTEREST INCOME.  Interest income increased by $5.6 million, or 15.0%, to
$42.6 million for the year ended September 30, 1996 from $37.0 million for the
year ended September 30, 1995.  The increase was primarily due to a $2.5 million
increase in income from loans, a $2.3 million increase in income from mortgage-
backed securities, and a $711,000 increase in income from investment securities.
The increase in income from loans was attributable to a $26.5 million increase
in the average balance of loans to $348.2 million from $321.7 million, and an 
8 basis point increase in the average yield on loans to 8.39% from 8.31%. The
increase in income from mortgage-backed securities was attributable to a 
$35.5 million increase in the average balance of mortgage-backed securities to
$137.8 million in fiscal 1996 from $102.3 million in fiscal 1995. The increase
in income from investment securities was partly attributable to a 22 basis point
increase in the average yield on investment securities to 6.04% from 5.82%, and
to a $9.8 million increase in the average balance of investment securities to
$66.6 million in fiscal 1996 from $56.8 million in fiscal 1995. Both investment
securities and mortgage-backed securities increased during fiscal 1996 as the
Bank purchased securities to deploy the funds received in the branch purchase
transactions.

     INTEREST EXPENSE.  Interest expense increased by $3.5 million, or 23.4%, to
$18.6 million for the year ended September 30, 1996 from $15.1 million for the
year ended September 30, 1995.  This increase resulted primarily from a 
$2.5 million increase in interest expense on certificates of deposit, and a
$344,000 increase in interest expense on money market and NOW accounts, as well
as an $848,000 increase in interest paid on borrowings. These increases were
partially offset by a $149,000 decrease in interest expense on savings accounts.
The increase in interest expense on certificates of deposit was the result of a
$41.8 million increase in the average balance of certificates of deposit to
$212.5 million from $170.7 million, and an 18 basis point increase in the
average cost of certificates of deposit to 5.20% from 5.02%. The increase in
interest expense on money market and NOW accounts was the result of a $15.5
million increase in the average balance of these accounts to $99.3 million in
fiscal 1996 from $83.8 million in fiscal 1995, which was partially offset by a 
5 basis point decrease in the average cost of these accounts to 2.50% in fiscal
1996 from 2.55% in fiscal 1995. The decrease in interest expense on savings
accounts was due to a $6.7 million 

                                       57
<PAGE>
 
decrease in the average balance of total savings accounts to $161.2 million from
$167.9 million. The increase in the average balance of certificate of deposit
accounts and the decrease in the average balance of savings accounts were due
primarily to customers shifting funds from lower yielding savings accounts to
higher yielding certificates of deposit. The increase in interest expense on
borrowings was due to an increase in the average balance of borrowings to 
$22.7 million in fiscal 1996 from $9.1 million in fiscal 1995.

     PROVISION FOR LOAN LOSSES.  The Bank's provision for loan losses increased
to $911,000 for the year ended September 30, 1996 from $760,000 for the year
ended September 30, 1995. This increase enabled the Bank to maintain an adequate
ratio of the allowance for loan losses to total loans at the end of each period
commensurate with the loan growth and the changing mix of the portfolio.

     NON-INTEREST INCOME.   Non-interest income was $2.5 million for the year
ended September 30, 1996, a $351,000 increase from $2.1 million for the year
ended September 30, 1995.  Fee income from Bank services and fees on deposit
accounts increased $379,000 to $1.8 million for the year ended September 30,
1996 from $1.4 million for the year ended September 30, 1995.  Loan servicing
income decreased $28,000 to $648,000 for 1996 from $676,000 for 1995.  This
decrease reflected a decline in service fee income collected for servicing loans
sold in the secondary market.  The decrease was related to the decline in the
balance of the loan servicing portfolio, as the Bank retained the loans that it
originated for its own portfolio.

     NON-INTEREST EXPENSE.  Non-interest expense increased by $7.4 million, or
48.9%, to $22.7 million for the year ended September 30, 1996 from $15.3 million
for the year ended September 30, 1995. The increase was primarily due to the
one-time $3.3 million special assessment in 1996 to recapitalize the SAIF.
Other non-interest expense increases related primarily to the initial inclusion
of expenses associated with two branches purchased during fiscal 1996.  These
expenses included a $1.5 million increase in compensation and employee benefits,
a $506,000 increase in occupancy and office operations, a  $551,000 increase in
advertising and promotion, a $341,000 increase in foreclosed real estate
expense, and a $691,000 increase in amortization of branch purchase premiums.

     INCOME TAXES.  Income tax expense was $690,000 for the year ended 
September 30, 1996 compared to $3.2 million for the year ended September 30,
1995. The increase was due to a decrease in the effective tax rate to 24.8% for
fiscal 1996 from 40.3% for fiscal 1995. The lower effective tax rate in fiscal
1996 primarily reflected the recognition of a deferred tax benefit due to an
amendment in New York State tax law concerning tax bad debt reserves. See 
Note 10 of the Notes to Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

     The objective of the Bank's liquidity management is to ensure the
availability of sufficient cash flows to meet all financial commitments and to
capitalize on opportunities for expansion.  Liquidity management addresses the
Bank's ability to meet deposit withdrawals on demand or at contractual maturity,
to repay borrowings as they mature, and to fund new loans and investments as
opportunities arise.

     The Bank's primary sources of funds are deposits, proceeds from principal
and interest payments on loans and securities, and to a lesser extent,
borrowings and proceeds from the sale of fixed-rate mortgage loans in the
secondary mortgage market.  While maturities and scheduled amortization of loans
and securities, and proceeds from borrowings are predictable sources of funds,
other funding sources such as deposit inflows, mortgage prepayments and mortgage
loan sales are greatly influenced by market interest rates, economic conditions
and competition.

     The Bank's primary investing activities are the origination of both
residential one- to four-family and commercial real estate loans, and the
purchase of investment securities and mortgage-backed securities.  During the
nine months ended June 30, 1998 and the years ended September 30, 1997, 1996,
and 1995, the Bank's loan originations totaled $143.6 million, $112.8 million,
$108.8 million and $66.2 million, respectively.  Purchases of mortgage-backed
securities totaled $25.5 million, $12.1 million, $72.3 million and $29.0 million
for the nine months ended June 30, 1998 and the years ended September 30, 1997,
1996 and 1995, respectively.  Purchases of investment securities totaled 
$22.1 million, $13.2 million, $42.4 million and $29.1 million for the nine
months ended June 30, 1998 and the years ended September 30, 1997, 1996 and
1995, respectively. These activities were funded primarily

                                       58
<PAGE>
 
by deposit growth and by principal repayments on loans and securities. Loan
sales totaling $16.9 million provided an additional source of liquidity during
the nine months ended June 30, 1998. Loan origination commitments totaled 
$29.8 million at June 30, 1998, comprised of $20.1 million at adjustable or
variable rates and $9.7 million at fixed rates. The Bank anticipates that it
will have sufficient funds available to meet current loan commitments.

     Deposit flows are generally affected by the level of interest rates, the
interest rates and products offered by local competitors, and other factors.
The net increase in total deposits was $33.2 million, $1.6 million, 
$101.6 million and $23.9 million for the nine months ended June 30, 1998 and the
years ended September 30, 1997, 1996 and 1995, respectively. The deposit
increase in fiscal 1996 was primarily associated with two branch purchase
transactions in which the Bank assumed deposit liabilities totaling 
$104.5 million. Certificates of deposit that are scheduled to mature in one year
or less from June 30, 1998 totaled $180.5 million. Based upon its prior
experience and current pricing strategy, the Bank believes that a significant
portion of such deposits will remain with the Bank.

     The Bank monitors its liquidity position on a daily basis.  Excess short-
term liquidity is usually invested in overnight federal funds sold, which
amounted to $5.0 million at June 30, 1998.  The Bank generally remains fully
invested and utilizes additional sources of funds through FHLB advances, which
amounted to $25.0 million at June 30, 1998.

     At June 30, 1998, the Bank exceeded all of its regulatory capital
requirements with a leverage capital level of $49.4 million, or 7.3% of adjusted
assets (which is above the required level of $20.2 million, or 3.0%) and a risk-
based capital level of $53.9 million, or 14.2% of risk-weighted assets (which is
above the required level of $30.3 million, or 8.0%).  See "Regulatory Capital
Compliance," "Regulation--Regulatory Capital Requirements" and Note 11 of the
Notes to Consolidated Financial Statements.

CAPABILITY OF THE BANK'S DATA PROCESSING TO ACCOMMODATE THE YEAR 2000

     The Bank, like all companies that utilize computer technology, is facing
the significant challenge of ensuring that its computer systems will be able to
process time-sensitive data accurately beyond the Year 1999 (referred to as the
"Year 2000 issue").  The Year 2000 issue has arisen since many existing computer
programs use two digits rather than four in date fields that define the year.
Such computer programs may recognize a date field using "00" as the Year 1900
rather than the Year 2000.  Software, hardware and equipment both within and
outside the Bank's direct control (and with which the Bank interfaces either
electronically or operationally), are likely to be affected by the Year 2000
issue.  If the Bank's computer systems are not adequately changed to properly
identify the Year 2000, computer applications could fail or create erroneous
results.  Calculations that rely on date field information (such as interest,
payment or due dates, and other operating functions) would generate results
which could be significantly misstated, and the Bank could experience a
temporary inability to process transactions and engage in other normal business
activities.  In addition, under certain circumstances, failure to adequately
address the Year 2000 issue could adversely affect the viability of the Bank's
suppliers and creditors and the creditworthiness of its borrowers.  Thus, if not
adequately addressed, the Year 2000 issue could have a significant adverse
impact on the Bank's products, services and competitive condition.

     The Bank has conducted a comprehensive review of its computer systems to
identify systems that could be affected by the Year 2000 issue, and has
developed an implementation plan (including establishing priorities for mission-
critical applications) to modify or replace the affected systems and test them
for Year 2000 compliance.  The Bank's plan includes actions to identify Year
2000 issues attributable to its own systems and, where necessary, to remediate
or replace affected systems and applications.  In addition, the Bank is
assessing the Year 2000 readiness of third parties who supply products and
services to the Bank, or who have material business relationships with the Bank
(including customers), since the failure of such third parties to address their
own Year 2000 issues may have an adverse effect on the Bank.  The actions being
taken by the Bank in response to Year 2000 issues are consistent with the
guidelines set forth in policy statements issued by the bank regulatory
agencies.

     The Bank's most significant mission-critical applications are those that
comprise its "core" data processing system for loans, deposits and the general
ledger.  The Bank plans to convert to a new core system by December 31, 1998,
which it believes will enhance the quality of its information technology and
result in improved customer service. 

                                       59
<PAGE>
 
Like the Bank's present core system, the new system is maintained by a third-
party vendor. The Bank plans to begin Year 2000 testing on the new core system
promptly following the conversion, with a targeted testing completion date of
March 31, 1999.

     The Bank presently believes that, with modifications to existing software
and conversions to new software, the Year 2000 issue will be mitigated without
causing a material adverse impact on its operations.  However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 issue could have a material adverse impact on the Bank's operations.
While the Bank expects to complete its Year 2000 plan on a timely basis, there
can be no assurance that the systems of other companies on which the Bank's
systems may rely also will be completed in a timely fashion.  In addition, the
Bank exchanges data with a number of other entities, such as credit bureaus and
governmental entities.  The failure of these entities to adequately address the
Year 2000 issue could adversely affect the Bank's ability to conduct its
business.

     The Bank is preparing a Year 2000 business resumption contingency plan to
document pre-determined actions to help the Bank resume normal operations in the
event of failure of any mission-critical service and product, as specified in
the Bank's Year 2000 inventory list.  The basic priorities for restoring service
will be based on the essential application processing required to ensure that
the Bank can continue to serve its customers.  As part of its contingency
planning process, the Bank will conduct a business impact analysis to identify
potential disruption and the effect such disruption could have on business
operations should a service provider or software vendor be unable to restore
systems and/or business operations.  The Bank will establish a recovery program
that identifies participants, processes and equipment that might be necessary
for the Bank to function adequately.  The Bank will also institute a resumption
tracking system for critical operations to ensure that appropriate pre-
determined actions are identified. The tracking system will also identify any
required resources (equipment, personnel etc.) needed to restore operations. The
Bank expects to complete the contingency plan by March 31, 1999.

     Monitoring and managing the Year 2000 issue will result in additional
direct and indirect costs for the Bank. Direct costs include potential charges
by third-party software vendors for product enhancements, costs involved in
testing software products for Year 2000 compliance, and any resulting costs for
developing and implementing contingency plans for critical software products
which are not enhanced.  Indirect costs will principally consist of the time
devoted by existing employees in monitoring software vendor progress, testing
enhanced software products, and implementing any necessary contingency plans.
The Bank's direct and indirect costs of addressing the Year 2000 issue are
charged to expense as incurred, except for costs incurred in the purchase of new
software or hardware, which are capitalized.  To date, costs incurred and
expensed primarily relate to the dedication of internal resources employed in
the assessment and development of the Bank's Year 2000 plan, as well as the
testing of hardware and software owned or licensed for its personal computers.
Costs incurred to date have not been material, and management does not expect
that additional costs to be incurred in connection with the Year 2000 issue will
have a material impact on the Bank's financial condition or results of
operations.

IMPACT OF NEW ACCOUNTING STANDARDS

     FASB STATEMENT ON EARNINGS PER SHARE.  In February 1997, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 128.  The Statement establishes standards for computing
and presenting earnings per share and applies to entities with publicly held
common stock or potential common stock.  This Statement simplifies the prior
accounting standards for computing earnings per share, as set forth in
Accounting Principles Board ("APB") Opinion No. 15.  SFAS No. 128 replaces the
presentation of primary earnings per share ("EPS") with basic EPS and requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures.  Basic EPS excludes dilution
and is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period.  Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock (such as stock options) were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity.  This Statement will apply to the
Company's earnings per share disclosures which will be made from the date of
completion of the Reorganization and Offering.

                                       60
<PAGE>
 
     FASB STATEMENT ON ACCOUNTING FOR STOCK-BASED COMPENSATION.  In October
1995, the FASB issued SFAS No. 123 which addresses accounting for stock-based
compensation arrangements such as the Stock Option Plan and Recognition Plan
which are expected to be implemented subsequent to the Reorganization.  SFAS 
No. 123 defines a "fair-value-based method" of accounting whereby compensation
cost is measured at the grant date of a stock-based compensation award based on
the fair value of the award; such compensation cost is recognized as expense
over the service (vesting) period. The FASB has encouraged all entities to adopt
the fair-value-based method; however, SFAS No. 123 allows entities to continue
the use of the "intrinsic-value-based method" prescribed by APB Opinion No. 25.
Under the intrinsic-value-based method, compensation cost is measured based on
the award's intrinsic value, or the excess (if any) of the market price of the
stock at the grant date over the exercise price, i.e., the amount (if any) that
the employee must pay to acquire the stock. However, most stock option grants
have no intrinsic value at the grant date and, as such, no compensation cost is
recognized under APB Opinion No. 25. Entities electing to continue to apply APB
Opinion No. 25 must make certain pro forma disclosures of net income and
earnings per share, as if the fair-value-based method had been applied to awards
granted in fiscal years beginning after December 15, 1994. The Company expects
to adopt the "intrinsic-value-based method" as prescribed by APB Opinion No. 25.
Accordingly, no compensation expense will be recognized for the Stock Option
Plan since the exercise price of the options will equal the market price of the
underlying stock at the grant date. The grant date fair value of shares awarded
under the Recognition Plan will be recognized as expense on a straight-line
basis over the vesting period. See "Pro Forma Data."

     FASB STATEMENT ON TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES.  In June 1996, the FASB issued SFAS No. 125
which provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on consistent
application of a financial-components approach that focuses on control.  SFAS
No. 125 applies to transactions such as sales of loans with servicing retained,
loan securitizations, repurchase agreements, securities lending, loan
participations and in-substance deficiencies of debt.  SFAS No. 125
distinguishes transfers of financial assets that are sales from transfers that
are secured borrowings.  Under the financial-components approach, after a
transfer of financial assets, an entity recognizes all financial and servicing
assets it controls and liabilities it has incurred and derecognizes financial
assets it no longer controls and liabilities that have been extinguished.  If a
transfer does not meet the criteria for a sale, the transaction is accounted for
as a secured borrowing with a pledge of collateral.  SFAS No. 125 applies
prospectively to transactions occurring after January 1, 1997, although the
effective date of certain provisions was January 1, 1998. SFAS No. 125 has not
had, and is not expected to have, a material impact on the Bank's financial
statements.

     FASB STATEMENT ON REPORTING COMPREHENSIVE INCOME.  In June 1997, the FASB
issued SFAS No. 130, "Reporting Comprehensive Income," which establishes
standards for the reporting and display of comprehensive income (and its
components) in financial statements.  The standard does not, however, specify
when to recognize or how to measure items that make up comprehensive income.
Comprehensive income represents net income and certain amounts reported directly
in equity, such as the net unrealized gain or loss on available-for-sale
securities.  While SFAS No. 130 does not require a specific reporting format, it
does require that an enterprise display in the financial statements an amount
representing total comprehensive income for the period.  SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997 and, accordingly,
will be adopted by the Company in the fiscal year beginning October 1, 1998.
Management does not anticipate that the adoption of this standard will
significantly affect the Company's financial reporting.

     FASB STATEMENT ON SEGMENT DISCLOSURES AND RELATED INFORMATION.  In June
1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," which changes the way public companies report
information about segments of their business and requires them to report
selected segment information in their quarterly reports issued to shareholders.
Among other things, SFAS No. 131 requires public companies to report (i) certain
financial and descriptive information about its reportable operating segments
(as defined), and (ii) certain enterprise-wide financial information about
products and services, geographic areas and major customers.  The required
segment financial disclosures include a measure of profit or loss, certain
specific revenue and expense items, and total assets.  SFAS No. 131 is effective
for reporting by public companies in fiscal years beginning after December 15,
1997 and, accordingly, would be adopted by the Company upon completion of the
Reorganization and Offering.  SFAS No. 131 is not expected to have a significant
impact on the Company's financial reporting.

                                       61
<PAGE>
 
     FASB STATEMENT ON EMPLOYER DISCLOSURES ABOUT PENSIONS AND OTHER
POSTRETIREMENT BENEFITS.  In February 1998, the FASB issued SFAS No. 132 which
standardizes the disclosure requirements for pensions and other postretirement
benefits; requires additional information on changes in the benefit obligations
and fair values of plan assets; and eliminates certain present disclosure
requirements.  SFAS No. 132 does not change the recognition or measurement
requirements for postretirement benefits.  SFAS No. 132 is effective for fiscal
years beginning after December 15, 1997 and, accordingly, will be adopted by the
Company in the fiscal year beginning October 1, 1998. Management does not
anticipate that this standard will significantly affect the Company's financial
reporting.

     FASB STATEMENT ON DERIVATIVES AND HEDGING ACTIVITIES.  In June 1998, the
FASB issued SFAS No. 133 which establishes accounting and reporting standards
for derivative instruments and for hedging activities.  SFAS No. 133 requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial condition at fair value.  If certain conditions are met,
a derivative may be specifically designated as a fair value hedge, a cash flow
hedge, or a foreign currency hedge.  A specific accounting treatment applies to
each type of hedge.  Entities may reclassify securities from the held-to-
maturity category to the available-for-sale category at the time of adopting
SFAS No. 133.  The Bank has not yet determined whether it will reclassify
securities between categories.  SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999 and, accordingly, will be
adopted by the Company in the fiscal year beginning on October 1, 1999.  The
Bank has engaged in limited derivatives and hedging activities covered by the
new standard, and does not expect to significantly increase such activities in
the near term.  Accordingly, SFAS No. 133 is not expected to have a material
impact on the Company's consolidated financial statements.

                      BUSINESS OF PROVIDENT BANCORP, INC.

     Pursuant to the Plan, the Bank will organize the Company as a majority-
owned subsidiary of the Mutual Holding Company.  The Company will own 100% of
the common stock of the Bank.  The Company is not currently an operating
company. Following the Reorganization, in addition to directing, planning and
coordinating the business activities of the Bank, the Company initially will
invest the net proceeds it retains primarily in short and medium-term
investments. The Company also intends to fund the loan to the ESOP to enable the
ESOP to purchase up to 8% of the Common Stock sold in the Offering.  In the
future, the Company may acquire or organize other operating subsidiaries,
including other financial institutions and financial services companies. See
"Use of Proceeds." Presently, there are no agreements or understandings for an
expansion of the Company's operations. Initially, the Company will neither own
nor lease any property from any third party, 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 certain senior officers of the Bank, who
will not be compensated separately by the Company. The Company may use the
support staff of the Bank from time to time, if needed. Additional employees
will be hired as appropriate to the extent the Company expands its business in
the future.

                           BUSINESS OF PROVIDENT BANK

GENERAL

     The Bank has been serving the financial needs of Rockland County residents
since its establishment in 1888. The Bank's principal business consists of
offering savings and other deposit products to individuals and businesses, and
using those deposits together with funds generated from operations and
borrowings, to make one- to  four-family residential and commercial real estate
loans, consumer loans, construction and land loans, commercial business loans,
and multi-family residential loans.  The Bank also invests in mortgage-backed
securities and investment securities. The Bank's income is derived principally
from the interest on its mortgage, consumer and commercial loans and securities,
loan servicing income, and service charges and fees collected on its deposit
accounts.  The Bank's primary sources of funds are deposits, principal and
interest payments on loans and securities, and borrowings from the FHLB.
 
MARKET AREA

     The Bank is an independent community bank offering a broad range of
customer-focused services as an alternative to money center banks in its market
area.  The Bank currently operates eleven full-service banking offices,

                                       62
<PAGE>
 
including one supermarket branch in Rockland County, New York.  The Bank's
primary market for deposits is currently concentrated around the areas where its
full-service banking offices are located.  The Bank's primary lending area also
has been historically concentrated in Rockland and contiguous counties.

     Rockland County is a suburban market with a broad employment base.  The
population of Rockland County was approximately 265,000 as of 1990, and was
estimated to be approximately 279,000 in 1997, an increase of 5.2%. Rockland
County also serves as a bedroom community for nearby New York City and other
suburban areas including Westchester County and northern New Jersey.  The
Rockland County economy has improved significantly since the early 1990s.  The
unemployment rate in Rockland County was approximately 4.7% in 1996 and 3.8% in
1997.  The favorable economic environment in the New York metropolitan area has
led to an increase in residential and commercial construction activity in recent
years.

     The economy of the Bank's primary market areas is based on a mixture of
service, manufacturing and wholesale/retail trade.  Other employment is provided
by a variety of industries and state and local governments.  The diversity of
the employment base is evidenced by the major employers which include the State
of New York, Rockland County, Wyeth Ayerst, Novartis Pharmaceutical Corporation,
NYNEX Mobile Communications, Orange and Rockland Utilities, Nyack and Good
Samaritan Hospitals, Chromalloy, and Helen Hayes Hospital.  Additionally,
Rockland County has numerous small employers.

FUTURE ACQUISITION AND EXPANSION ACTIVITY

     Both nationally and in New York, the banking industry is undergoing a
period of consolidation marked by numerous mergers and acquisitions.  Although
the Bank does not have a formal program to acquire other banking or thrift
institutions, and although there are no current understandings or agreements
(written or oral) regarding any such transactions, the Bank may be presented
with opportunities to acquire institutions or bank branches that could expand
and strengthen its market position.  Acquisitions typically involve the payment
of a premium over book and market values and, therefore, some dilution of the
Company's book value and net income per share may occur in connection with any
future acquisition.

LENDING ACTIVITIES

     GENERAL.  Historically, the principal lending activity of the Bank has been
the origination of fixed-rate and ARM loans collateralized by one- to four-
family residential real estate located within its primary market area.  The Bank
also originates commercial real estate loans, commercial business loans,
construction and land loans and consumer loans such as home equity lines of
credit and homeowner loans.   The Bank retains most of the loans that it
originates, although from time to time it may sell longer-term one- to four-
family residential real estate loans.  See "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Management of Market Risk."

                                       63
<PAGE>
 
     LOAN PORTFOLIO COMPOSITION.  The following table sets forth the composition
of the Bank's loan portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
 
                                                                              SEPTEMBER 30,           
                                                                 --------------------------------------
                                               JUNE 30, 1998           1997                 1996       
                                            -------------------  ------------------  ------------------
                                             AMOUNT    PERCENT    AMOUNT   PERCENT    AMOUNT   PERCENT 
                                            ---------  --------  --------  --------  --------  --------
                                                               (DOLLARS IN THOUSANDS)                  
<S>                                         <C>        <C>       <C>       <C>       <C>       <C>     
FIRST MORTGAGE LOANS                                                                                   
One- to four-family......................   $271,593      59.4%  $241,895     57.7%  $219,868     57.2%
Multi-family.............................      7,108       1.6      7,358      1.8      7,743      2.0
Commercial real estate...................     63,712      13.9     55,747     13.3     58,640     15.4
Construction and land....................     27,785       6.1     31,740      7.6     28,035      7.3
                                            --------    ------   --------    -----   --------    -----
      Total first mortgage loans.........    370,198      81.0    336,740     80.4    314,286     81.9
                                            --------    ------   --------    -----   --------    -----

OTHER LOANS
 Consumer loans:
 Home equity lines of credit.............     28,362       6.2     31,456      7.4     31,306      8.1
 Homeowner loans.........................     25,418       5.6     18,678      4.5     12,575      3.3
 Other consumer loans....................      8,855       1.9     10,670      2.5     10,916      2.8
                                            --------    ------   --------    -----   --------    -----
       Total consumer loans..............     62,635      13.7     60,804     14.4     54,797     14.2
 Commercial business loans...............     24,036       5.3     21,651      5.2     15,263      3.9
                                            --------    ------   --------    -----   --------    -----
       Total other loans.................     86,671      19.0     82,455     19.6     70,060     18.1
                                            --------    ------   --------    -----   --------    -----

Total loans receivable...................    456,869     100.0%   419,195    100.0%   384,346    100.0%
                                                        ======               =====               =====

 Loans in process........................    (12,732)            (11,424)            (11,775)
 Allowance for loan losses...............     (4,548)             (3,779)             (3,357)
 Deferred loan origination costs, net....        771                 505                 273
                                            --------            --------            --------
 Total loans receivable, net.............   $440,360            $404,497            $369,487
                                            ========            ========            ========           

<CAPTION>
 
                                                                    SEPTEMBER 30,
                                            ------------------------------------------------------------
                                                  1995                 1994                 1993
                                            ------------------  -------------------  -------------------
                                             AMOUNT   PERCENT    AMOUNT    PERCENT    AMOUNT    PERCENT
                                            --------  --------  --------  ---------  --------  ---------
                                                              (DOLLARS IN THOUSANDS)
<S>                                         <C>       <C>       <C>       <C>        <C>       <C>
FIRST MORTGAGE LOANS                        
One- to four-family......................   $199,078     59.0%  $194,425      60.8%  $191,168      63.9%
Multi-family.............................      6,903      2.0      7,408       2.3      7,869       2.6
Commercial real estate...................     60,186     17.9     55,053      17.3     44,194      14.8
Construction and land....................      8,553      2.5      8,455       2.6      5,863       1.9
                                            --------    -----   --------  --------   --------  --------
      Total first mortgage loans.........    274,720     81.4    265,341      83.0    249,094      83.2
                                            --------    -----   --------  --------   --------  --------

OTHER LOANS
 Consumer loans:
 Home equity lines of credit.............     31,550      9.4     27,711       8.6     23,498       8.0
 Homeowner loans.........................      9,937      2.9      7,939       2.5      7,739       2.6
 Other consumer loans....................      9,917      2.9      8,124       2.5     10,527       3.5
                                            --------    -----   --------  --------   --------  --------
       Total consumer loans..............     51,404     15.2     43,774      13.6     41,764      14.1
 Commercial business loans...............     11,144      3.4     10,595       3.4      7,949       2.7
                                            --------    -----   --------  --------   --------  --------
       Total other loans.................     62,548     18.6     54,369      17.0     49,713      16.8
                                            --------    -----   --------  --------   --------  --------

Total loans receivable...................    337,268    100.0%   319,710     100.0%   298,807     100.0%
                                                        =====             ========             ========

 Loans in process........................     (2,240)            (2,083)              (1,173)
 Allowance for loan losses...............     (3,472)            (2,837)              (2,565)
 Deferred loan origination costs, net....        391                364                    8
                                            --------           --------             --------
 Total loans receivable, net.............   $331,947           $315,154             $295,077
                                            ========           ========             ========
 </TABLE>

                                       64
<PAGE>
 
     LOAN MATURITY SCHEDULE.  The following table summarizes the contractual
 maturities of the Bank's loan portfolio at June 30, 1998.  Loans with
 adjustable or renegotiable interest rates are shown as maturing at the end of
 the contractual term of the loan. The table reflects the entire unpaid
 principal balance of a loan maturing in the period that includes the final
 payment date and, accordingly, does not give effect to periodic principal
 payments or possible prepayments.
<TABLE>
<CAPTION>
 
 
                                                            MULTI-FAMILY AND                              
                                ONE- TO FOUR-FAMILY      COMMERCIAL REAL ESTATE      CONSTRUCTION AND LAND 
                             -------------------------  -------------------------  -------------------------  
                                            WEIGHTED                   WEIGHTED                   WEIGHTED    
                                            AVERAGE                    AVERAGE                    AVERAGE     
                                AMOUNT        RATE         AMOUNT        RATE         AMOUNT        RATE      
                             ------------  -----------  ------------  -----------  ------------  -----------  
                                                          (DOLLARS IN THOUSANDS)
<S>                          <C>           <C>          <C>           <C>          <C>           <C>
Due During the Years
 Ending June 30,
---------------------------
1999 (1)...................    $    236        9.10%       $ 4,047      8.52%       $18,429         9.19%  
2000.......................         366        9.08          3,650      8.77          8,144         8.79   
2001.......................         761        9.15          1,547      8.39            750         8.50   
2002 and 2003..............       3,206        8.25          4,214      8.90             --           --   
2004 to 2008...............      21,917        8.00         17,168      8.80            462         8.00   
2009 to 2023...............     148,115        7.70         39,879      8.51             --           --   
2024 and following.........      96,992        7.57            315      8.67             --           --   
                               --------                    -------                  -------                
     Total.................    $271,593        7.69%       $70,820      8.62%       $27,785         9.04%  
                               ========        ====        =======      ====        =======         ====   

<CAPTION>
 
 
                                                            
                                    CONSUMER               COMMERCIAL  BUSINESS            TOTAL
                             -------------------------  -------------------------  -------------------------  
                                            WEIGHTED                   WEIGHTED                   WEIGHTED    
                                            AVERAGE                    AVERAGE                    AVERAGE     
                                AMOUNT        RATE         AMOUNT        RATE         AMOUNT        RATE      
                             ------------  -----------  ------------  -----------  ------------  -----------  
                                                          (DOLLARS IN THOUSANDS)
<S>                          <C>           <C>          <C>           <C>          <C>           <C>
Due During the Years                                                                             
 Ending June 30,                                                                                 
---------------------------                                                                      
1999 (1)...................    $ 1,149       10.18%       $14,494       9.04%        $ 38,355       9.09%
2000.......................      3,188       10.78          1,455       9.05           16,803       9.19
2001.......................      4,391       10.49          2,258       8.73            9,707       9.49
2002 and 2003..............     12,043        9.47          2,731       9.31           22,194       9.16
2004 to 2008...............     32,979        9.04          2,234       8.73           74,760       8.67
2009 to 2023...............      8,885        9.32            864       9.72          197,743       7.95
2024 and following.........         --          --             --         --           97,307       7.58
                               -------                    -------                    --------       
     Total.................    $62,635        9.37%       $24,036       9.04%        $456,869       8.22%
                               =======       =====        =======       ====         ========       ====

</TABLE>
___________________
(1)    Includes demand loans, loans having no stated maturity, and overdraft
loans.

                                       65
<PAGE>
 
     The following table sets forth the dollar amounts of fixed- and adjustable-
rate loans at June 30, 1998 that are contractually due after June 30, 1999.
<TABLE>
<CAPTION>
 
                                                 DUE AFTER JUNE 30, 1999
                                             --------------------------------
                                              FIXED    ADJUSTABLE      TOTAL
                                             --------  ----------    --------
                                                        (IN THOUSANDS)
<S>                                          <C>         <C>         <C>    
First mortgage loans:                                             
  One- to four-family......................  $188,543    $ 82,814    $271,357
  Multi-family and commercial real estate..    15,726      51,047      66,773
  Construction and land....................        --       9,356       9,356
                                             --------    --------     -------
     Total first mortgage loans............   204,269     143,217     347,486
                                                                      
  Consumer loans...........................    32,017      29,469      61,486
  Commercial business loans................       316       9,226       9,542
                                             --------    --------     -------
                                                                      
     Total loans...........................  $236,602    $181,912    $418,514
                                             ========    ========    ========
 
</TABLE>

     ONE- TO FOUR-FAMILY REAL ESTATE LENDING.  The Bank's primary lending
activity is the origination of one-to four-family residential mortgage loans
secured by properties located in the Bank's primary market area.  The Bank
offers conforming and non-conforming, fixed-rate and adjustable-rate,
residential mortgage loans with maturities of up to 30 years and maximum loan
amounts generally of up to $600,000.

     The Bank currently offers both fixed- and adjustable-rate conventional
mortgage loans with terms of 10 to 30 years that are fully amortizing with
monthly or bi-weekly loan payments.  One- to four-family residential mortgage
loans are generally underwritten according to Fannie Mae and Freddie Mac
guidelines, and loans that conform to such guidelines are referred to as
"conforming loans." The Bank generally originates both fixed-rate and ARM loans
in amounts up to the maximum conforming loan limits as established by Fannie Mae
and Freddie Mac secondary mortgage market standards, which are currently
$227,150 for single-family homes.  Private mortgage insurance is generally
required for loans with loan-to-value ratios in excess of 80%.  Loans in excess
of conforming loan limits, in amounts of up to $600,000, are also underwritten
to both Fannie Mae and Freddie Mac secondary mortgage market standards.  These
loans are eligible for sale to various conduit firms that specialize in the
purchase of such non-conforming loans, although most of these loans are retained
in the Bank's loan portfolio.

     The Bank's bi-weekly one- to four-family residential mortgage loans result
in significantly shorter repayment schedules than conventional monthly mortgage
loans.  The accelerated repayment schedule that accompanies a bi-weekly mortgage
loan results in lower total interest payments and a more rapid increase in home
equity.  Bi-weekly mortgage loans are also repaid through an automatic deduction
from the borrower's savings or checking account, which enables the Bank to avoid
the cost of processing payments.  As of June 30, 1998, bi-weekly loans totaled
$56.5 million or 20.8% of the Bank's residential loan portfolio.

     Fixed-rate mortgage loans originated by the Bank include due-on-sale
clauses which provide that the loan is immediately due and payable in the event
the borrower transfers ownership of the property.  Due-on-sale clauses are an
important means of adjusting the yields on the Bank's fixed-rate residential
loan portfolio, and the Bank generally exercises its rights under these clauses.

     The Bank actively monitors its interest rate risk position to determine the
desirable level of investment in fixed-rate mortgages.  Depending on market
interest rates and the Bank's capital and liquidity position, the Bank may
retain all of its newly originated longer term fixed-rate, fixed-term
residential mortgage loans or may decide to sell all or a portion of such loans
in the secondary mortgage market to government sponsored enterprises such as
Fannie Mae and Freddie Mac.  As a matter of policy, the Bank retains the
servicing rights on all loans sold to generate fee income and reinforce its
commitment to customer service.  For the nine months ended June 30, 1998, the
Bank sold mortgage loans totaling $16.9 million compared with $197,000 for the
nine months ended June 30, 1997.  As of June 30, 1998, the Bank's portfolio of
loans serviced for others totaled $128.5 million.

                                       66
<PAGE>
 
     The Bank currently offers several ARM loan products secured by residential
properties with rates that adjust every six months to one year, after an initial
fixed-rate period of from six months to seven years. After the initial term, the
interest rate on these loans is reset based upon a contractual spread or margin
above the average yield on U.S. Treasury securities, adjusted to a constant
maturity of one year (the "U.S. Treasury Constant Maturity Index"), as published
weekly by the Federal Reserve Board.  ARM loans are generally subject to
limitations on interest rate increases of 2% per adjustment period, and an
aggregate adjustment of 6% over the life of the loan.  ARM loans require that
any payment adjustment resulting from a change in the interest rate on the ARM
loan be sufficient to result in full amortization of the loan by the end of the
loan term, and thus, do not permit any of the increased payment to be added to
the principal amount of the loan, commonly referred to as negative amortization.
Although ARM loans are offered with terms of up to 30 years, these loans
generally remain outstanding for substantially shorter periods of time.  At June
30, 1998, the Bank's ARM portfolio included $20.4 million in loans which reprice
every six months, $33.9 million in one-year ARMs and $28.5 million in loans with
an initial fixed-rate period of from three to seven years.

     The retention of ARM loans, as opposed to long term, fixed-rate residential
mortgage loans, in the Bank's portfolio helps reduce its exposure to interest
rate risk.  However, ARM loans generally pose different credit risks than fixed-
rate loans primarily because the underlying debt service payments of the
borrowers rise as interest rates rise, thereby increasing the potential for
default.  In order to minimize this risk, borrowers of one-to four-family one
year ARM loans are qualified at the rate which would be in effect after the
first interest rate adjustment, if that rate is higher than the initial rate.
Management believes that these risks, which have not had a material adverse
effect on the Bank to date, generally are less than the interest rate risks
associated with holding longer-term fixed-rate loans.

     While one- to four-family residential loans typically are originated with
15 to 30 year terms, such loans generally remain outstanding in the Bank's loan
portfolio for substantially shorter periods of time because borrowers must
prepay their loans in full upon sale of the property pledged as security or upon
refinancing the loan.  Thus, average loan maturity is a function of, among other
factors, the level of purchase and sale activity in the Bank's primary lending
market, prevailing market interest rates, and the interest rates payable on
outstanding loans.

     The Bank requires title insurance on all of its one-to four-family mortgage
loans, and also requires that fire and extended coverage casualty insurance
(and, if appropriate, flood insurance) be maintained in an amount at least equal
to the lesser of the loan balance or the replacement cost of the improvements.
Loans with loan-to-value ratios in excess of 80% must have private mortgage
insurance, although occasional exceptions may be made. Nearly all residential
loans must have a mortgage escrow account from which disbursements are made for
real estate taxes and for hazard and flood insurance.

     COMMERCIAL REAL ESTATE AND MULTI-FAMILY REAL ESTATE LENDING.  The Bank
originates real estate loans secured predominantly by first liens on commercial
real estate and apartment buildings.  The commercial real estate properties are
predominantly non-residential properties such as office buildings, shopping
centers, retail strip centers, industrial and warehouse properties and, to a
lesser extent, more specialized properties such as churches, mobile home parks,
restaurants, motel/hotels and auto dealerships.  The Bank may, from time to
time, purchase commercial or multi-family real estate loan participations.
Loans secured by commercial real estate totaled $63.7 million or 13.9% of the
Bank's total loan portfolio as of June 30, 1998, and consisted of 175 loans
outstanding with an average loan balance of approximately $364,000.  Loans
secured by multi-family residential real estate totaled $7.1 million or 1.6% of
the Bank's total loan portfolio as of June 30, 1998, and consisted of 34 loans
outstanding with an average loan balance of approximately $209,000.
Substantially all of the Bank's commercial real estate and multi-family loans
were secured by properties located in its primary market area.

     As part of the Bank's ongoing interest rate risk management, the Bank
offers adjustable-rate commercial and multi-family real estate loans.  The
initial interest rates on these loans adjust after an initial three or five year
period to new market rates that generally range between 200 to 350 basis points
over the then current three or five year U.S. Treasury or FHLB rates.
Commercial real estate loans typically have a term of approximately 10 years,
with an amortization schedule of approximately 20 years, and may be repaid
subject to certain penalties.  Multi-family real estate loans typically have a
term of 10 years, with a 25 year amortization schedule, and also may be prepaid
subject to penalties.

                                       67
<PAGE>
 
     In the underwriting of commercial and multi-family real estate loans, the
Bank generally lends up to 70% of the property's appraised value on apartment
buildings, up to 70% of the property's appraised value on commercial properties
that are not owner-occupied, and up to 75% of the property's appraised value on
commercial properties that are owner-occupied. Appraised values are determined
by independent appraisers designated by the Bank.  The Bank generally obtains an
environmental assessment from an independent engineering firm of any
environmental risks that may be associated with a particular building or the
site.  Decisions to lend are based on the economic viability of the property and
the creditworthiness of the borrower.  Creditworthiness is determined by
considering the character, experience, management and financial strength of the
borrower, and the ability of the property to generate adequate funds to cover
both operating expenses and debt service.  In evaluating a commercial real
estate loan, the Bank emphasizes primarily the ratio of net cash flow to debt
service for the property, generally requiring a ratio of at least 110%, computed
after deduction for a vacancy factor and property expenses deemed appropriate by
the Bank. In addition, a personal guarantee of the loan is generally required
from the principal(s) of the borrower.  On all real estate loans, the Bank
requires title insurance insuring the priority of its lien, fire and extended
coverage casualty insurance, and flood insurance, if appropriate, in order to
protect the Bank's security interest in the underlying property.

     Commercial real estate and multi-family loans generally carry higher
interest rates and have shorter terms than those on one- to four-family
residential mortgage loans.  Commercial real estate and multi-family loans,
however, entail significant additional credit risks compared to one- to four-
family residential mortgage loans, as they typically involve large loan balances
concentrated with single borrowers or groups of related borrowers.  In addition,
the payment experience on loans secured by income producing properties typically
depends on the successful operation of the related real estate project and thus
may be subject to a greater extent to adverse conditions in the real estate
market and in the economy generally.

     CONSTRUCTION AND LAND LOANS.  The Bank originates acquisition, development
and construction loans to builders in its market area.  Acquisition loans are
made to help finance the purchase of land intended for further development,
including single-family houses, multi-family housing, and commercial income
property.  In some cases, the Bank may make an acquisition loan before the
borrower has received approval to develop the land as planned. Loans for the
acquisition of land are generally limited to the Bank's most creditworthy
customers.  In general, the maximum loan-to-value ratio for a land acquisition
loan is 50% of the appraised value of the property.  Acquisition loans are often
made in conjunction with development and construction loans.  Acquisition loans
may also be made to borrowers who already own the property, but who require
additional financing to develop the property.

     The Bank also makes development loans to builders in its market area to
finance improvements to real estate, consisting mostly of single-family
subdivisions,  typically to finance the cost of utilities, roads and sewers.
Builders generally rely on the sale of single family homes to repay development
loans, although in some cases the improved building lots may be sold to another
builder.  The maximum loan-to-value ratio for these loans is generally 60% of
the appraised value of the property.  Advances are made in accordance with a
schedule reflecting the cost of improvements.  The Bank's policy is to confirm
prior to each advance that the improvements have been completed properly as
evidenced by an inspection report issued by an appraiser or engineer hired by
the Bank.  In addition, prior to advancing funds, the Bank confirms that its
lien priority remains in effect.

     The Bank also grants construction loans to area builders, often in
conjunction with  development loans.  These loans finance the cost of completing
homes on the improved property.  The loans are generally limited to the lesser
of 70% of the appraised value of the property or the actual cost of
improvements.  In the case of single-family construction, the Bank limits the
number of houses it will finance that are not under contract for sale.  As part
of its underwriting process for construction loans on income producing
properties, such as apartment buildings and commercial rental properties, the
Bank considers the likelihood of leasing the property at the expected rental
amount, and the time to achieve sufficient occupancy levels.  The Bank generally
requires a percentage of the building to be leased prior to granting a
construction loan on income producing property.

     Advances on construction loans are made in accordance with a schedule
reflecting the cost of construction. The Bank's policy is to confirm prior to
each advance that the construction has been completed properly as evidenced by
an inspection report issued by an appraiser or engineer hired by the Bank.  The
Bank also confirms that its lien 

                                       68
<PAGE>
 
priority remains in force before advancing funds. Repayment of construction
loans on residential subdivisions is normally expected from the sale of units to
individual purchasers. In the case of income producing property, repayment is
usually expected from permanent financing upon completion of construction. The
Bank commits to provide the permanent mortgage financing on most of its
construction loans on income-producing property.

     Acquisition, development and construction lending exposes the Bank to
greater credit risk than permanent mortgage financing.  The repayment of
acquisition, development and construction loans depends upon the sale of the
property to third parties or the availability of permanent financing upon
completion of all improvements.  In the event the Bank makes an acquisition loan
on property that is not yet approved for the planned development, there is the
risk that approvals will not be granted or will be delayed.  These events may
adversely affect the borrower and the collateral value of the property.
Development and construction loans also expose the Bank to the risk that
improvements will not be completed on time in accordance with specifications and
projected costs.  In addition, the ultimate sale or rental of the property may
not occur as anticipated.

     As of June 30, 1998, the Bank had $8.8 million in acquisition and
development loans, and $19.0 million in construction loans.

     CONSUMER AND OTHER LOANS.  The Bank originates a variety of consumer and
other loans, including homeowner loans, home equity lines of credit, new and
used automobile loans, and personal unsecured loans, including both fixed-rate
installment loans and prime rate variable lines-of-credit.  As of June 30, 1998,
consumer loans totaled $62.6 million, or 13.7% of the total loan portfolio.

     At June 30, 1998, the largest group of consumer loans consisted of $53.8
million of loans secured by junior liens on residential properties.  The Bank
offers fixed-rate, fixed-term second mortgage loans, referred to as "homeowner
loans," and adjustable-rate home equity lines of credit.  Homeowner loans are
offered in amounts up to 100% of the appraised value of the property (including
prior liens) with a maximum loan amount of $75,000. Home equity loans are
generally offered in amounts up to 75% of the appraised value of the property
including prior liens, with a maximum loan amount of $200,000. As of June 30,
1998, homeowner loans totaled $25.4 million or 5.6% of the Bank's total loan
portfolio.  The disbursed portion of home equity lines of credit totaled $28.4
million, or 6.2% of the Bank's total loan portfolio, with $24.9 million
remaining undisbursed.

     Other consumer loans include personal loans and loans secured by new or
used automobiles. As of June 30, 1998, these loans totaled $8.9 million, or 1.9%
of the Bank's total loan portfolio.  The Bank originates automobile loans
directly to its customers and has no outstanding agreement with automobile
dealerships to generate indirect loans.  The maximum term for an automobile loan
is generally 60 months for a new car, and 36 to 48 months for a used car.  The
Bank will generally lend up to 100% of the purchase price of a new car, and up
to 90% of the lesser of the purchase price or the National Automobile Dealers'
Association book rate for a used car.  The Bank requires all borrowers to
maintain collision insurance on automobiles securing loans in excess of $5,000,
with the Bank listed as loss payee.  Personal loans also include secured and
unsecured installment loans.  Unsecured installment loans generally have shorter
terms than secured consumer loans, and generally have higher interest rates than
rates charged on secured installment loans with comparable terms.

     The Bank's procedures for underwriting consumer loans include an assessment
of an applicant's credit history and the ability to meet existing obligations
and payments on the proposed loan.  Although an applicant's creditworthiness is
a primary consideration, the underwriting process also includes a comparison of
the value of the collateral security, if any, to the proposed loan amount.

     Consumer loans generally entail greater risk than residential mortgage
loans, particularly in the case of consumer loans that are unsecured or secured
by assets that tend to depreciate, such as automobiles.  In such cases,
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment for the outstanding loan and the remaining deficiency often
does not warrant further substantial collection efforts against the borrower.
In addition, the repayment of consumer loans depends on the borrower's continued
financial stability, as their repayment is more likely than a single family
mortgage loan to be adversely affected by job loss, divorce, illness 

                                       69
<PAGE>
 
or personal bankruptcy. Furthermore, the application of various federal and
state laws (including bankruptcy and insolvency laws) may limit the amount that
can be recovered on such loans.

     COMMERCIAL BUSINESS LOANS.  The Bank currently offers commercial business
loans to customers in its market area, some of which are secured in part by
additional real estate collateral.  In an effort to expand its customer account
relationships and develop a broader base of more interest rate sensitive assets,
the Bank makes various types of secured and unsecured commercial loans for the
purpose of financing equipment acquisition, expansion, working capital and other
general business purposes.  The terms of these loans generally range from less
than one year to seven years.  The loans are either negotiated on a fixed-rate
basis or carry adjustable interest rates indexed to a lending rate which is
determined internally, or a short-term market rate index.  The Bank may, from
time to time, purchase commercial business loan participations.  At June 30,
1998, the Bank had 251 commercial business loans outstanding with an aggregate
balance of $24.0 million, or 5.3% of the total loan portfolio.  As of June 30,
1998, the average commercial business loan balance was approximately $96,000.

     Commercial credit decisions are based upon a complete credit assessment of
the loan applicant.  A determination is made as to the applicant's ability to
repay in accordance with the proposed terms as well as an overall assessment of
the risks involved.  An investigation is made of the applicant to determine
character and capacity to manage.  Personal guarantees of the principals are
generally required.  In addition to an evaluation of the loan applicant's
financial statements, a determination is made of the probable adequacy of the
primary and secondary sources of repayment to be relied upon in the transaction.
Credit agency reports of the applicant's credit history as well as bank checks
and trade investigations supplement the analysis of the applicant's
creditworthiness.  Collateral supporting a secured transaction is also analyzed
to determine its marketability and liquidity.  Commercial business loans
generally bear higher interest rates than residential loans, but they also
involve a higher risk of default since their repayment is generally dependent on
the successful operation of the borrower's business.

     LOAN ORIGINATIONS, PURCHASES, SALES AND SERVICING.  While the Bank
originates both fixed-rate and adjustable-rate loans, its ability to generate
each type of loan depends upon borrower demand, market interest rates, borrower
preference for fixed- versus adjustable-rate loans, and the interest rates
offered on each type of loan by other lenders in the Bank's market area.  This
includes competing banks, savings banks, credit unions, and mortgage banking
companies, as well as life insurance companies, and Wall Street conduits that
also actively compete for local commercial real estate loans.  Loan originations
are derived from a number of sources, including branch office personnel,
existing customers, borrowers, builders, attorneys, real estate broker referrals
and walk-in customers.

     The Bank's loan origination and sales activity may be adversely affected by
a rising interest rate environment that typically results in decreased loan
demand.  Accordingly, the volume of loan originations and the profitability of
this activity can vary from period to period.  One- to four-family residential
mortgage loans are generally underwritten to current Fannie Mae and Freddie Mac
seller/servicer guidelines.  One- to four-family loans are also closed on
standard Fannie Mae/Freddie Mac documents and sales are conducted using standard
Fannie Mae/Freddie Mac purchase contracts and master commitments as applicable.
One- to four-family mortgage may be loans sold both to Fannie Mae and Freddie
Mac on a non-recourse basis whereby foreclosure losses are generally the
responsibility of either Fannie Mae or Freddie Mac and not the Bank.  See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Management of Market Risk."

     The Bank is a qualified loan servicer for both Fannie Mae and Freddie Mac.
The Bank's policy has been to retain the servicing rights for all loans sold,
and to continue to collect payments on the loans, maintain tax escrows and
applicable fire and flood insurance coverage, and supervise foreclosure
proceedings if necessary.  The Bank retains a portion of the interest paid by
the borrower on the loans as consideration for its servicing activities.

                                       70
<PAGE>
 
     The following table sets forth the loan origination, sale and repayment
activities of the Bank for the periods indicated.  The  Bank has not purchased
any loans in recent years.
<TABLE>
<CAPTION>
                                            NINE MONTHS
                                           ENDED JUNE 30,          YEAR ENDED SEPTEMBER 30,
                                        -------------------   ------------------------------
                                          1998       1997       1997       1996       1995
                                        --------   --------   --------   --------   --------
                                                           (IN THOUSANDS)
<S>                                     <C>        <C>        <C>        <C>        <C>        
Unpaid principal balances at
 beginning of period.................   $419,195   $384,346   $384,346   $337,268   $319,710
                                        --------   --------   --------   --------   --------

Originations by Type
---------------------------
 Adjustable-rate:
  First mortgage loans:
   One- to four-family...............     12,424      7,919     11,299      7,814      9,350
   Multi-family......................        388        325        325        778        225
   Commercial real estate............     11,541      7,825      7,932      5,108      7,528
   Construction and land.............      9,338     12,213     14,240     25,235      7,717
  Other loans:
   Consumer..........................      8,038     10,321     14,166     12,315      4,866
   Commercial business...............     12,329      5,115      8,140      6,595      4,803
                                        --------   --------   --------   --------   --------
     Total adjustable-rate...........     54,058     43,718     56,102     57,845     34,489
                                        --------   --------   --------   --------   --------

 Fixed-rate:
  First mortgage loans:
   One- to four-family...............     65,462     16,122     33,214     41,022     16,974
   Commercial real estate............      3,919        585        710        385        512
   Construction and land.............        563        859      1,002      1,643      1,139
  Other loans:
   Consumer..........................     16,072     12,143     16,954      4,489     10,008
   Commercial business...............      3,512      3,008      4,788      3,397      3,071
                                        --------   --------   --------   --------   --------
     Total fixed-rate................     89,528     32,717     56,668     50,936     31,704
                                        --------   --------   --------   --------   --------

     Total loans originated..........    143,586     76,435    112,770    108,781     66,193
                                        --------   --------   --------   --------   --------

Sales
---------------------------
 First mortgage loans................    (16,932)      (197)      (197)      (433)    (1,605)
                                        --------   --------   --------   --------   --------

Principal Repayments
---------------------------
 First mortgage loans................    (52,067)   (33,833)   (45,021)   (39,146)   (32,034)
 Other loans.........................    (35,738)   (23,561)   (31,352)   (19,736)   (14,616)
                                        --------   --------   --------   --------   --------
  Total principal
   repayments........................    (87,805)   (57,394)   (76,373)   (58,882)   (46,650)
                                        --------   --------   --------   --------   --------

Net charge-offs......................       (578)      (355)      (636)    (1,026)      (125)
Transfers to real estate
 owned...............................       (597)      (694)      (715)    (1,362)      (255)
                                        --------   --------   --------   --------   --------
Unpaid principal balances
 at end of period....................    456,869    402,141    419,195    384,346    337,268

Loans in process.....................    (12,732)    (9,505)   (11,424)   (11,775)    (2,240)
Allowance for loan losses............     (4,548)    (3,877)    (3,779)    (3,357)    (3,472)
Deferred loan origination
 costs, net..........................        771        454        505        273        391
                                        --------   --------   --------   --------   --------
Net loans at end of period...........   $440,360   $389,213   $404,497   $369,487   $331,947
                                        ========   ========   ========   ========   ========
</TABLE>

     LOAN APPROVAL AUTHORITY AND UNDERWRITING.  The Bank has four levels of
lending authority:  the Board of Directors, the Director Loan Committee, the
Management Loan Committee, and individual loan officers.  The Board grants
lending authority to the Director Loan Committee, the majority of the members of
which are Directors.  The Director Loan Committee in turn may grant authority to
the Management Loan Committee and individual loan officers.  In addition,
designated members of management may grant authority to individual loan officers
up to specified limits.  The lending activities of the Bank are subject to
written policies established by the Board.  These policies are reviewed
periodically.

     The Director Loan Committee may approve loans of up to a maximum of $3.2
million in the aggregate to any one borrower and related entities in accordance
with the Bank's loans-to-one borrower policy.  The Management Loan Committee may
approve loans of up to an aggregate of $650,000 to any one borrower and related
borrowers. 

                                       71
<PAGE>
 
Two loan officers with sufficient loan authority acting together may approve
loans up to $350,000. The maximum individual authority to approve an unsecured
loan is $50,000.

     The Bank has established a risk rating system for its commercial business
loans, commercial and multi-family real estate loans, and construction loans to
builders.  The risk rating system assesses a variety of factors to rank the risk
of default and risk of loss associated with the loan.  These ratings are
performed by commercial credit personnel who do not have responsibility for loan
originations.  The Bank determines its maximum loans to one borrower based upon
the rating of the loan.  The large majority of loans fall into three categories.
The maximum for the best rated borrowers is $7.5 million, for the next group of
borrowers is $5.5 million, and for the third group is $3.5 million. Sublimits
apply based on reliance on any single property, and for commercial loans.

     In connection with its mortgage loans, the Bank requires property
appraisals  performed by independent appraisers who are approved by the Board.
Appraisals are then reviewed by  the appropriate loan underwriting areas of the
Bank.  The Bank also requires title insurance, hazard insurance and, if
indicated, flood insurance on property securing its mortgage loans.  For
consumer loans under $50,000, such as equity lines of credit and homeowner
loans, title insurance is not required.

     LOAN ORIGINATION FEES AND COSTS.  In addition to interest earned on loans,
the Bank also receives loan origination fees.  Such fees vary with the volume
and type of loans and commitments made, and competitive conditions in the
mortgage markets, which in turn respond to the demand and availability of money.
The Bank defers loan origination fees and costs, and amortizes such amounts as
an adjustment to yield over the term of the loan by use of the level-yield
method. Deferred loan origination costs (net of deferred fees) were $771,000 at
June 30, 1998.

     To the extent that originated loans are sold on or after January 1, 1997,
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," requires the Bank to capitalize a mortgage
servicing asset at the time of the sale.  In the nine months ended June 30,
1998, the Bank recognized $169,000 in income upon capitalization of originated
mortgage servicing rights for loans sold on a servicing-retained basis.  The
capitalized amount is amortized thereafter (over the period of estimated net
servicing income) as a reduction of servicing fee income.  The unamortized
amount is fully charged to income when loans are prepaid.  Asset recognition of
servicing rights on sales of originated loans was not permitted under accounting
standards in effect prior to SFAS No. 125, when the Bank sold the majority of
the loans it presently services for others.  Originated mortgage servicing
rights with an amortized cost of $163,000 are included in other assets at June
30, 1998.  See also Notes 1 and 4 of the Notes to Consolidated Financial
Statements.

     LOANS-TO-ONE BORROWER.  Savings associations are subject to the same loans-
to-one borrower limits as those applicable to national banks, which under
current regulations restrict loans to one borrower to an amount equal to 15% of
unimpaired net worth on an unsecured basis, and an additional amount equal to
10% of unimpaired net worth if the loan is secured by readily marketable
collateral (generally, financial instruments and bullion, but not real estate).
The Bank monitors its credit limits by relationship and by total credit
exposure, including the unused portion of credit made available by the Bank,
such as unadvanced amounts on construction loans and unused lines of credit.  At
June 30, 1998, the five largest aggregate amounts loaned to individual borrowers
by the Bank (including any unused lines of credit) were as follows:  $7.4
million, consisting of mortgage-secured and unsecured financing; $4.4 million
secured by a mortgage;  $3.6 million secured by a mortgage;  $3.6 million,
consisting of mortgage-secured and unsecured financing; and $3.5 million,
consisting of mortgage-secured financing.  All of the loans discussed above are
performing in accordance with their terms.

DELINQUENCIES AND CLASSIFIED ASSETS

     COLLECTION PROCEDURES.  A computer generated late notice is sent by the
17th day of the month requesting the payment due plus the late charge that was
assessed.  After the late notices have been mailed, accounts are assigned to a
collector for follow-up to determine reasons for delinquency and to review
payment options.  Additional system-generated collection letters are sent to
customers every 10 days.  Notwithstanding ongoing collection efforts, all
consumer loans are fully charged-off after 120 days.

                                       72
<PAGE>
 
     LOANS PAST DUE AND NON-PERFORMING ASSETS.  Loans are reviewed on a regular
basis.  Loans are placed on non-accrual status when either principal or interest
is 90 days or more past due.  In addition, loans are placed on non-accrual
status when, in the opinion of management, there is sufficient reason to
question the borrower's ability to continue to meet contractual principal or
interest payment obligations.  Interest accrued and unpaid at the time a loan is
placed on a non-accrual status is reversed from interest income.  Interest
payments received on non-accrual loans are not recognized as income unless
warranted based on the borrower's financial condition and payment record.  At
June 30, 1998, the Bank had non-accrual loans of $5.7 million, representing
loans of $4.8 million which were 90 days or more delinquent and a current loan
of $962,000 which was on non-accrual status due to concerns about the borrower's
ability to continue making contractual payments.  The ratio of non-performing
loans to total loans was 1.30% at June 30, 1998.

     Real estate acquired as a result of foreclosure or by deed in lieu of
foreclosure is classified as real estate owned ("REO") until such time as it is
sold.  When real estate is acquired through foreclosure or by deed in lieu of
foreclosure, it is recorded at its fair value, less estimated costs of disposal.
If the fair value of the property is less than the loan balance, the difference
is charged against the allowance for loan losses.  At June 30, 1998, the Bank
had REO of $366,000. The Bank had total non-performing assets (non-accrual loans
and REO) of $6.1 million and a ratio of non-performing assets to total assets of
0.90% at June 30, 1998.

                                       73
<PAGE>
 
     The following table sets forth certain information with respect to the
Bank's loan portfolio delinquencies at the dates indicated.
<TABLE>
<CAPTION>
 
                                        LOANS DELINQUENT FOR
                               ------------------------------------
                                  60-89 DAYS       90 DAYS AND OVER           TOTAL
                               ----------------   -----------------     -----------------
                               NUMBER    AMOUNT    NUMBER    AMOUNT     NUMBER     AMOUNT
                               ------    ------    ------    ------     ------     ------
                                                 (DOLLARS IN THOUSANDS)                                        
<S>                            <C>       <C>       <C>       <C>        <C>        <C>
At June 30, 1998                                                               
----------------
First mortgage loans:                                                          
 One- to four-family.........      16      $1,310      34    $3,323        50      $4,633
 Multi-family................       1         143      --        --         1         143
 Commercial real estate......      --          --       2       848         2         848
 Construction and land.......      --          --       1       180         1         180
                                -----      ------   -----    ------     -----      ------
                                   17       1,453      37     4,351        54       5,804
Other loans:                                                                     
 Consumer....................       5          98      15       230        20         328
 Commercial business.........       1          76       9       194        10         270
                                -----      ------   -----    ------     -----      ------
   Total.....................      23      $1,627      61    $4,775        84      $6,402
                                =====      ======   =====    ------     =====      ======
                                                                                 
At September 30, 1997                                                            
---------------------
First mortgage loans:                                                            
 One- to four-family.........      11      $1,245      28    $2,549        39      $3,794
 Multi-family................       1         146      --        --         1         146
 Commercial real estate......       1          58       4     1,375         5       1,433
 Construction and land.......      --          --       2       276         2         276
                                -----      ------   -----    ------     -----      ------
                 13             1,449          34   4,200        47     5,649     
Other loans:                                                                     
 Consumer....................       5          87      23       234        28         321
 Commercial business.........       4          98       7       243        11         341
                                -----      ------   -----    ------     -----      ------
   Total.....................      22      $1,634      64    $4,677        86      $6,311
                                =====      ======   =====    ======     =====      ======
                                                                                 
At September 30, 1996                                                            
---------------------                                                    
First mortgage loans:                                                            
 One- to four-family.........      15      $  936      37    $2,731        52      $3,667
 Commercial real estate......       2         282      11     2,087        13       2,369
 Construction and land.......      --          --       3       920         3         920
                                -----      ------   -----    ------     -----      ------
                                   17       1,218      51     5,738        68       6,956
Other loans:                                                                     
 Consumer....................       4         109      24       503        28         612
 Commercial business.........       1          65       3       109         4         174
                                -----      ------   -----    ------     -----      ------
   Total                           22      $1,392      78    $6,350       100      $7,742
                                =====      ======   =====    ======     =====      ======
</TABLE>

                                       74
<PAGE>
 
     NON-PERFORMING ASSETS.  The table below sets forth the amounts and
categories of the Bank's non-performing assets at the dates indicated.  At each
date presented, the Bank had no troubled debt restructurings (loans for which a
portion of interest or principal has been forgiven and loans modified at
interest rates materially less than current market rates).

<TABLE>
<CAPTION>
                                                                       SEPTEMBER 30,
                                           JUNE 30,  ------------------------------------------------
                                             1998      1997      1996      1995      1994      1993
                                           --------  --------  --------  --------  --------  --------
                                                           (DOLLARS IN THOUSANDS)
<S>                                        <C>       <C>       <C>       <C>       <C>       <C>
Non-accrual loans:
  One- to four-family....................   $3,323    $2,549    $2,731    $1,972    $1,158    $1,416
  Commercial real estate.................      848     1,375     2,087     3,346     1,222     1,465
  Construction and land/(1)/.............    1,142       276       920       209       209        30
  Consumer...............................      230       234       503       421       329       390
  Commercial business....................      194       243       109       654       837     1,011
                                            ------    ------    ------    ------    ------    ------
     Total non-performing loans..........    5,737     4,677     6,350     6,602     3,755     4,312
                                            ------    ------    ------    ------    ------    ------
                                                                                           
Real estate owned:                                                                         
  One- to four-family....................       92       186       347        50       508       773
  Commercial real estate.................      274        --       960       160       242       401
                                            ------    ------    ------    ------    ------    ------
     Total real estate owned.............      366       186     1,307       210       750     1,174
                                            ------    ------    ------    ------    ------    ------
                                                                                           
Total non-performing assets..............   $6,103    $4,863    $7,657    $6,812    $4,505    $5,486
                                            ======    ======    ======    ======    ======    ======
                                                                                           
Ratios:                                                                                    
  Non-performing loans to total loans....     1.30%     1.16%     1.72%     1.99 %    1.19%     1.46%
  Non-performing assets to total assets..     0.90      0.75      1.21      1.29      0.94      1.17
</TABLE>
---------------
/(1)/ Non-accrual construction and land loans at June 30, 1998 include a loan
      with a balance of $962,000 which was current in accordance with its
      contractual terms. Management placed this loan on non-accrual status
      during the nine months ended June 30, 1998 due to concerns about the
      borrower's ability to continue making contractual payments.

     For the year ended September 30, 1997 and for the nine months ended 
June 30, 1998, gross interest income that would have been recorded had the non-
accrual loans at the end of the period remained on accrual status throughout the
period amounted to $411,000 and $523,000, respectively. Interest income actually
recognized on such loans totaled $147,000 for the year ended September 30, 1997
and $241,000 for the nine months ended June 30, 1998.

     CLASSIFICATION OF ASSETS.  The Bank's policies, consistent with regulatory
guidelines, provide for the classification of loans and other assets such as
securities that are considered 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 savings institution 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 is not
warranted.  Assets that do not expose the Bank to risk sufficient to warrant
classification in one of the aforementioned categories, but which possess some
weaknesses, are required to be designated as special mention by management.  As
of June 30, 1998, the Bank had $4.6 million of assets designated as special
mention.

     When the Bank classifies assets as either substandard or doubtful, it
allots for analytical purposes a portion of general valuation allowances or loss
reserves to such assets as deemed prudent by management.  General allowances
represent loss allowances that have been established to recognize the inherent
risk associated with lending activities, but which have not been allocated to
particular problem assets.  When the Bank classifies problem assets as loss, it
is required either to establish a specific allowance for losses equal to 100% of
the amount of the assets so classified, or to charge-off such amount.  The
Bank's determination as to the classification of its assets and the amount of
its valuation allowance is subject to review by its regulatory agencies, which
can order the establishment of additional loss allowances.  Management regularly
reviews the Bank's asset portfolio to determine whether any assets require
classification in accordance with applicable regulations.  On the basis of
management's review of the Bank's assets at June 30, 1998, classified assets
consisted of substandard assets of $4.7 million (loans receivable of 

                                       75
<PAGE>
 
$4.3 million and REO of $366,000) and doubtful assets (loans receivable) of
$101,000. There were no assets classified as loss at June 30, 1998.

     ALLOWANCE FOR LOAN LOSSES. The Bank provides for loan losses based on the
allowance method.  Accordingly, all loan losses are charged to the related
allowance and all recoveries are credited to it.  Additions to the allowance for
loan losses are provided by charges to income based on various factors which, in
management's judgment, deserve current recognition in estimating probable
losses.  Management regularly reviews the loan portfolio and makes provisions
for loan losses in order to maintain the adequacy of the allowance for loan
losses.  The allowance for loan losses consists of amounts specifically
allocated to non-performing loans and potential problem loans (if any) as well
as allowances determined for each major loan category.  Loan categories such as
single-family residential mortgages and consumer loans are generally evaluated
on an aggregate or "pool" basis by applying loss factors to the current balances
of the various loan categories.  The loss factors are determined by management
based on an evaluation of historical loss experience, delinquency trends, volume
and type of lending conducted, and the impact of current economic conditions in
the Bank's market area.  While management uses the best information available to
make evaluations, future adjustments to the allowance may be necessary if
conditions differ substantially from the assumptions used in making the
evaluations.

     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 of information available to them at the time of their
examination.

     At June 30, 1998, the allowance for loan losses was $4.5 million, which
equaled 1.03% of net loans and 79.27% of non-performing loans.  For the nine
months ended June 30, 1998 and the years ended September 30, 1997 and 1996, the
Bank recorded net loan charge-offs of $578,000, $636,000 and $1.0 million,
respectively, as a reduction of the allowance for loan losses.  Provisions for
loan losses added to the allowance were $1.3 million, $1.1 million and $911,000
during the respective periods.  The Bank's provisions for loan losses are
described in "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

                                       76
<PAGE>
 
     The following table sets forth activity in the Bank's allowance for loan
losses for the periods indicated.

<TABLE>
<CAPTION>
                                                      NINE MONTHS
                                                     ENDED JUNE 30,                YEARS ENDED SEPTEMBER 30,
                                                  -------------------  ------------------------------------------------
                                                    1998       1997      1997      1996      1995      1994      1993
                                                  ---------  --------  --------  --------  --------  --------  --------
                                                                           (DOLLARS IN THOUSANDS)
<S>                                               <C>        <C>       <C>       <C>       <C>       <C>       <C>
Balance at beginning of period..................   $3,779     $ 3,357   $3,357    $ 3,472   $2,837    $2,565    $1,963
                                                   ------     -------   ------    -------   ------    ------    ------
                                                                                                             
Charge-offs:                                                                                                 
  One- to four-family...........................       (3)        (83)    (114)       (33)     (85)      (86)      (79)
  Commercial real estate........................      (87)        (84)    (301)      (840)       -       (56)      (47)
  Construction and land.........................     (350)          -        -          -        -         -         -
  Consumer......................................     (161)       (136)    (171)      (203)     (67)      (59)      (52)
  Commercial business...........................      (10)        (93)    (173)         -        -         -         -
                                                   ------     -------   ------    -------   ------    ------    ------
        Total charge-offs.......................     (611)       (396)    (759)    (1,076)    (152)     (201)     (178)
                                                   ------     -------   ------    -------   ------    ------    ------
                                                                                                             
Recoveries:                                                                                                  
  One- to four-family...........................        -           -       42          3        -         -         -
  Commercial real estate........................        -           4       32         14        -         -         -
  Consumer......................................       33          37       49         33       27        21        19
  Commercial business...........................        -           -        -          -        -         -         1
                                                   ------     -------   ------    -------   ------    ------    ------
        Total recoveries........................       33          41      123         50       27        21        20
                                                   ------     -------   ------    -------   ------    ------    ------
                                                                                                             
Net charge-offs.................................     (578)       (355)    (636)    (1,026)    (125)     (180)     (158)
Provision for loan losses.......................    1,347         875    1,058        911      760       452       760
                                                   ------     -------   ------    -------   ------    ------    ------
Balance at end of period........................   $4,548     $ 3,877   $3,779    $ 3,357   $3,472    $2,837    $2,565
                                                   ======     =======   ======    =======   ======    ======    ======
 
Ratios:
  Net charge-offs to average loans outstanding..     0.14%       0.09%    0.17%      0.29%    0.04%     0.06%     0.05%
  Allowance for loan losses to non-performing
     loans......................................    79.27      112.08    80.80      52.87    52.59     75.55     59.49
  Allowance for loan losses to total loans
     receivable, net............................     1.03        1.00     0.93       0.91     1.05      0.90      0.87
</TABLE>


                                      77
<PAGE>
 
     ALLOCATION OF ALLOWANCE FOR LOAN LOSSES.  The following tables set forth
the allowance for loan losses allocated by loan category, the total loan
balances by category, and the percent of loans in each category to total loans
at the dates indicated.  The allowance for loan losses allocated to each
category is not necessarily indicative of future losses in any particular
category and does not restrict the use of the allowance to absorb losses in
other categories.

<TABLE>
<CAPTION>
                                                                                       SEPTEMBER 30,
                                                               ---------------------------------------------------------------
                                       JUNE 30, 1998                        1997                             1996
                              -------------------------------  ------------------------------  -------------------------------
                                                    PERCENT                          PERCENT                          PERCENT
                                                    OF LOANS                         OF LOANS                        OF LOANS
                                           LOAN     IN EACH                 LOAN     IN EACH                 LOAN     IN EACH
                                         BALANCES   CATEGORY              BALANCES   CATEGORY              BALANCES  CATEGORY
                              LOAN LOSS     BY      TO TOTAL   LOAN LOSS     BY      TO TOTAL   LOAN LOSS     BY     TO TOTAL
                              ALLOWANCE  CATEGORY    LOANS     ALLOWANCE  CATEGORY    LOANS     ALLOWANCE  CATEGORY    LOANS
                              ---------  --------  ----------  ---------  --------  ----------  ---------  --------  ---------
                                                                   (DOLLARS IN THOUSANDS)
<S>                           <C>        <C>       <C>         <C>        <C>       <C>         <C>        <C>       <C>
First mortgage loans:
 One- to four-family........    $1,150   $271,593     59.4%      $  734   $241,895      57.7%     $  756   $219,868     57.2%
 Multi-family...............        47      7,108      1.6           47      7,358       1.8          47      7,743      2.0
 Commercial real estate.....     1,810     63,712     13.9        1,384     55,747      13.3       1,200     58,640     15.4
 Construction and land......       306     27,785      6.1          389     31,740       7.6         389     28,035      7.3
Consumer loans..............       862     62,635     13.7          782     60,804      14.4         429     54,797     14.2
Commercial business loans...       373     24,036      5.3          443     21,651       5.2         536     15,263      3.9
                                ------   --------    -----       ------   --------     -----      ------   --------    -----
  Total.....................    $4,548   $456,869    100.0%      $3,779   $419,195     100.0%     $3,357   $384,346    100.0%
                                ======   ========    =====       ======   ========     =====      ======   ========    =====

<CAPTION>  
                                                                       SEPTEMBER 30,
                              ------------------------------------------------------------------------------------------------
                                           1995                             1994                             1993
                              -------------------------------  ------------------------------  -------------------------------
                                                    PERCENT                          PERCENT                          PERCENT
                                                    OF LOANS                         OF LOANS                        OF LOANS
                                           LOAN     IN EACH                 LOAN     IN EACH                 LOAN     IN EACH
                                         BALANCES   CATEGORY              BALANCES   CATEGORY              BALANCES  CATEGORY
                              LOAN LOSS     BY      TO TOTAL   LOAN LOSS     BY      TO TOTAL   LOAN LOSS     BY     TO TOTAL
                              ALLOWANCE  CATEGORY    LOANS     ALLOWANCE  CATEGORY    LOANS     ALLOWANCE  CATEGORY    LOANS
                              ---------  --------  ----------  ---------  --------  ----------  ---------  --------  ---------
                                                                   (DOLLARS IN THOUSANDS)
<S>                           <C>        <C>       <C>         <C>        <C>       <C>         <C>        <C>       <C>
First mortgage loans:
 One- to four-family........   $  696    $199,078     59.0%     $  738    $194,425     60.8%     $  840    $191,168     63.9%
 Multi-family...............       47       6,903      2.0          47       7,408      2.3          41       7,869      2.6
 Commercial real estate.....    1,330      60,186     17.9         673      55,053     17.3         514      44,194     14.8
 Construction and land......      389       8,553      2.5         344       8,455      2.6         284       5,863      1.9
Consumer loans..............      474      51,404     15.2         499      43,774     13.6         625      41,764     14.1
Commercial business loans...      536      11,144      3.4         536      10,595      3.4         261       7,949      2.7
                               ------    --------    -----      ------    --------    -----      ------    --------    -----
  Total.....................   $3,472    $337,268    100.0%     $2,837    $319,710    100.0%     $2,565    $298,807    100.0%
                               ======    ========    =====      ======    ========    =====      ======    ========    =====
</TABLE>

SECURITIES ACTIVITIES

     The Bank's securities investment policy is established by the Board of
Directors. This policy dictates that investment decisions will be made based on
the safety of the investment, liquidity requirements, potential returns, cash
flow targets, and consistency with the Bank's interest rate risk management.
The Board's asset/liability committee oversees the Bank's investment program and
evaluates on an ongoing basis the Bank's investment policy and objectives. The
chief financial officer, or the chief financial officer acting with the chief
executive officer, is responsible for making securities portfolio decisions in
accordance with established policies. The Bank's chief financial officer and
chief executive officer have the authority to purchase and sell securities
within specific guidelines established by the investment policy. However, all
transactions are reviewed by the Board's committee on at least a quarterly
basis.

     The Bank's current policies generally limit securities investments to U.S.
Government and agency securities, municipal bonds, and corporate debt
obligations as well as investments in preferred and common stock of government
agencies, such as Fannie Mae, Freddie Mac and the Federal Home Loan Bank
("federal agency securities"). Securities in these categories are classified as
"investment securities" for financial reporting purposes.  The policy also
permits investments in mortgage-backed securities, including pass-through
securities issued and guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae as
well as collateralized mortgage obligations ("CMOs") issued or backed by

                                       78
<PAGE>
 
securities issued by these government agencies. Also permitted are investments
in securities issued or backed by the Small Business Administration and asset-
backed securities collateralized by auto loans, credit card receivables, and
home equity and home improvement loans.  The Bank's current investment strategy
uses a risk management approach of diversified investing in fixed-rate
securities with short- to intermediate-term maturities, as well as adjustable-
rate securities, which may have a longer term to maturity. The emphasis of this
approach is to increase overall investment securities yields while managing
interest rate risk. To accomplish these objectives, the Bank focuses on
investments in mortgage-backed securities and CMOs. In addition, U.S. Government
and other non-amortizing securities are used for call protection and liquidity.

                                       79
<PAGE>
 
    The composition and maturities of the investment securities portfolio (debt
securities) and the mortgage-backed securities portfolio at June 30, 1998 are
summarized in the following table.  Maturities are based on the final
contractual payment dates, and do not reflect the impact of prepayments or
redemptions that may occur.
<TABLE>
<CAPTION>
                                                          MORE THAN ONE YEAR   MORE THAN THAN FIVE YEARS
                                     ONE YEAR OR LESS     THROUGH FIVE YEARS       THROUGH 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:                                                                                       
  U.S. Government                                                                                            
   securities..............          $18,974      5.50%    $17,231      6.15%     $    --            --%     
  Federal agency                                                                                             
   obligations.............            1,030      5.79      26.507      5.86           --            --      
  Corporate debt securities            1,998      5.35          --        --           --            --      
  Municipal and other                                                                                        
   securities..............              285      5.35          26      8.02           --            --      
                                     -------               -------             ----------                    
     Total.................          $22,287      5.49%    $43,764      5.97%     $    --            --%     
                                     =======      ====     =======      ====   ==========       =======      
                                                                                                             
                                                                                                             
MORTGAGE-BACKED SECURITIES:                                                                                  
  Ginnie Mae...............          $    --        --%    $    13      7.50%     $ 1,390          7.61%     
  Fannie Mae...............               --        --       8,786      6.07       13,586          6.15      
  Freddie Mac..............            3,078      5.60       1,287      7.31        8,846          6.62      
  CMOs and REMICs..........               --        --          --        --       12,148          6.24      
  Other....................               --        --          --        --           --            --      
                                     -------               -------             ----------                    
                                                                                                             
    Total..................          $ 3,078      5.60%    $10,086      6.23%     $35,970          6.35%     
                                     =======      ====     =======      ====   ==========       =======      


<CAPTION>
                                    
                                   MORE THAN TEN YEARS        TOTAL SECURITIES
                                   -------------------  -----------------------------
                                             WEIGHTED                       WEIGHTED
                                   AMORTIZED  AVERAGE   AMORTIZED    FAIR    AVERAGE
                                     COST      YIELD      COST      VALUE     YIELD
                                   ---------  --------  ---------  --------  --------
                                                (DOLLARS IN THOUSANDS)          
<S>                                <C>        <C>       <C>        <C>       <C>
INVESTMENT SECURITIES:              
  U.S. Government                   
   securities..............          $    --       --%   $ 36,205  $ 36,348     5.81%
  Federal agency                    
   obligations.............               --       --      27,537    27,495     5.85
  Corporate debt securities               --       --       1,998     1,996     5.35
  Municipal and other               
   securities..............              400     6.75         711       711     6.25
                                     -------             --------  --------
     Total.................          $   400     6.75%   $ 66,451  $ 66,550     5.81%
                                     =======     ====    ========  ========     ====
                                    
                                    
MORTGAGE-BACKED SECURITIES:         
  Ginnie Mae...............          $ 5,498     7.15%   $  6,901  $  6,983     7.25%
  Fannie Mae...............           17,947     6.65      40,319    40,399     6.35
  Freddie Mac..............           30,562     6.96      43,773    44,269     6.81
  CMOs and REMICs..........           23,344     6.23      35,492    35,757     6.23
  Other....................            6,336     6.82       6,336     6,430     6.82
                                     -------             --------  --------
                                    
    Total..................          $83,687     6.69%   $132,821  $133,838     6.49%
                                     =======     ====    ========  ========     ====

 
</TABLE>

                                       80
<PAGE>
 
     INVESTMENT SECURITIES.  At June 30, 1998, the Bank held $68.8 million, or
10.1% of total assets, in investment securities, consisting primarily of U.S.
Government and agency obligations with short- to medium-term maturities (one to
five years).  While these securities generally provide lower yields than other
investments such as mortgage-backed securities, the Bank's current investment
strategy is to maintain investments in such instruments to the extent
appropriate for liquidity purposes, as collateral for borrowings, and for
prepayment protection.

     SFAS No. 115 requires the Bank to designate its securities as held to
maturity, available for sale, or trading, depending on the Bank's ability and
intent.  The Bank does not have a trading portfolio.  As of June 30, 1998, $48.6
million of the investment securities portfolio, or 7.2% of total assets, was
classified as available for sale.  At such date, $20.2 million of the investment
securities portfolio, or 3.0% of total assets, was classified as held to
maturity.

     The following table sets forth the composition of the Bank's investment
securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
 
                                                                                   SEPTEMBER 30,
                                                             --------------------------------------------------------
                                          JUNE 30, 1998            1997                1996                1995
                                         ----------------    ----------------    ----------------    ----------------
                                        AMORTIZED  FAIR     AMORTIZED  FAIR     AMORTIZED  FAIR     AMORTIZED  FAIR
                                           COST    VALUE      COST     VALUE      COST     VALUE       COST    VALUE
                                         -------  -------    -------  -------    -------  -------    -------  -------
                                                                    (DOLLARS IN THOUSANDS)
<S>                                      <C>      <C>        <C>      <C>        <C>      <C>        <C>      <C>       
 
SECURITIES HELD TO MATURITY:
  U.S. Government securities...........  $ 8,979  $ 8,975    $ 8,952  $ 8,913    $13,888  $13,763    $23,945  $23,774
  Federal agency obligations...........   10,507   10,493     12,521   12,457      7,514    7,307     13,506   13,521
  Municipal and other securities.......      711      711        722      721        736      730        469      469
                                         -------  -------    -------  -------    -------  -------    -------  -------
      Total investment securities held                                                               
           to maturity.................   20,197   20,179     22,195   22,091     22,138   21,800     37,920   37,764
                                         -------  -------    -------  -------    -------  -------    -------  -------
SECURITIES AVAILABLE FOR SALE:                                                                       
  U.S. Government securities...........   27,227   27,372     27,273   27,387     24,185   24,046      7,123    7,144
  Federal agency obligations...........   17,029   17,003     15,993   15,948     16,976   16,814      9,974   10,166
  Corporate debt securities............    1,998    1,996      3,007    3,005      4,037    4,033      4,078    4,045
  Equity securities....................    2,017    2,258      2,017    2,177      2,017    2,420         17      101
                                         -------  -------    -------  -------    -------  -------    -------  -------
      Total investment securities                                                                    
           available for sale..........   48,271   48,629     48,290   48,517     47,215   47,313     21,192   21,456
                                         -------  -------    -------  -------    -------  -------    -------  -------
      Total investment securities......  $68,468  $68,808    $70,485  $70,608    $69,353  $69,113    $59,112  $59,220
                                         -------  -------    -------  -------    -------  -------    -------  -------
                                                                                                     
Weighted average term to maturity......  2 years            2  years            2  years             2 years
 
</TABLE>

     U.S. Government and Agency Obligations.  At June 30, 1998, the Bank's U.S.
Treasury securities portfolio totaled $36.4 million, or 5.4% of total assets, of
which $27.3 million was classified as available for sale and $9.0 million was
classified as held to maturity.  All of the Bank's U.S. Treasury securities at
that date had maturities of less than five years, with a weighted average yield
of 5.81%.  At June 30, 1998, the federal agency securities portfolio totaled
$27.5 million, or 4.1% of total assets, of which $17.0 million was classified as
available for sale and $10.5 million was classified as held to maturity.  All of
the Bank's agency securities had maturities of less than five years, with a
weighted average yield of 5.85%.  The agency securities portfolio includes both
non-callable and callable debentures. The agency debentures are callable on a
quarterly basis following an initial holding period of from twelve to twenty-
four months.

     Corporate Bonds and Other Debt Securities. At June 30, 1998, the Bank held
one corporate debt security, in the amount of $2.0 million, which was classified
as available for sale.  This security had a maturity of less than one year and a
yield of 5.35%.  Bank policy limits investments in corporate bonds to securities
with maturities of three years or less and rated "AA" or better by at least one
nationally recognized rating agency, and to a total investment of no more than
$2.0 million per issuer and a total portfolio limit of $10.0 million.  Bank
policy limits investments in floating-rate corporate bonds to securities with
maturities of five years or less and rated "AA" or better, and to a total
investment of no more than $2.0 million per issuer and a total portfolio limit
of $20.0 million.  At June 30, 1998, the Bank held two bonds issued by states
and political subdivisions in the amount of $685,000.  The bonds are not rated
and have an estimated fair value of $685,000.

                                       81
<PAGE>
 
     Equity Securities.  At June 30, 1998, the Bank's equity securities
portfolio totaled $2.2 million, all of which was classified as available for
sale, and consisted of preferred stock issued by Freddie Mac and Fannie Mae.
The Bank also held $3.7 million of common stock in the FHLB of New York as a
condition of membership. The Bank benefits from its investment in common and
preferred stock due to a tax deduction the Bank receives with regard to
dividends paid by domestic corporate issuers on equity securities held by other
corporate entities, such as the Bank. The Bank's policy limit for aggregate
equity investments (other than FHLB stock) is $5.0 million and the amount
invested in any single issuer may not exceed $2.5 million.  The Bank's current
policies permit the purchase of preferred stock of U.S. Government-sponsored or
quasi-government agencies such as those described above.

     MORTGAGE-BACKED SECURITIES.  The Bank purchases mortgage-backed securities
in order to: (i) generate positive interest rate spreads with minimal
administrative expense; (ii) lower credit risk as a result of the guarantees
provided by Freddie Mac, Fannie Mae and Ginnie Mae; and (iii) increase
liquidity.  The Bank invests primarily in mortgage-backed securities issued or
sponsored by Fannie Mae, Freddie Mac, and Ginnie Mae.  The Bank also invests to
a lesser extent in securities backed by the Small Business Administration, or
agencies of the U.S. government.

     Mortgage-backed securities are created by pooling mortgages and issuing a
security collateralized by the pool of mortgages with an interest rate that is
less than the interest rate on the underlying mortgages.  Mortgage-backed
securities typically represent a participation interest in a pool of single-
family or multi-family mortgages, although most of the Bank's mortgage-backed
securities investments are collateralized by single-family mortgages. The
issuers of such securities (generally U.S. Government agencies and government
sponsored enterprises, including Fannie Mae, Freddie Mac and Ginnie Mae) pool
and resell the participation interests in the form of securities to investors,
such as the Bank, and guarantee the payment of principal and interest to these
investors. Mortgage-backed securities generally yield less than the loans that
underlie such securities because of the cost of payment guarantees, credit
enhancements and servicing fees.  However, mortgage-backed securities are
usually more liquid than individual mortgage loans and may be used to
collateralize certain liabilities and obligations of the Bank. Investments in
mortgage-backed securities involve a risk that actual prepayments will be
greater than the estimated life of the security, which may require adjustments
to the amortization of any premium or accretion of any discount relating to such
instruments, thereby reducing the net yield on such securities. There is also
reinvestment risk associated with cash flows from and redemptions of such
securities.  In addition, the market value of such securities may be adversely
affected by changes in interest rates. The Bank reviews prepayment estimates for
its mortgage-backed securities at purchase to ensure that prepayment assumptions
are reasonable considering the underlying collateral for the securities at issue
and current interest rates, and to determine the yield and estimated maturity of
the mortgage-backed securities portfolio.

                                       82
<PAGE>
 
     The following table sets forth the composition of the Bank's mortgage-
backed securities portfolio at the dates indicated.

<TABLE>
<CAPTION>
                                                                                  SEPTEMBER 30,
                                                        ----------------------------------------------------------------
                                     JUNE 30, 1998              1997                  1996                  1995
                                  --------------------  --------------------  --------------------  --------------------
                                  AMORTIZED     FAIR    AMORTIZED     FAIR    AMORTIZED     FAIR    AMORTIZED     FAIR
                                    COST       VALUE      COST       VALUE      COST       VALUE      COST       VALUE
                                  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
                                                                      (IN THOUSANDS)
<S>                               <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
SECURITIES HELD TO MATURITY:
 Pass-through securities:
  Ginnie Mae...................    $  6,901   $  6,983   $  7,971   $  8,114   $  3,284   $  3,362   $  3,669   $  3,634
  Fannie Mae...................      28,810     28,784     29,674     29,565     35,604     34,806     28,588     28,007
  Freddie Mac..................      38,050     38,393     49,158     49,497     58,091     57,518     39,263     39,329
  Other........................       2,173      2,279      2,222      2,282      2,257      2,237      2,274      2,344
 CMOs and REMICs...............      13,400     13,624     15,046     15,166     13,627     13,596      6,941      6,992
                                   --------   --------   --------   --------   --------   --------   --------   --------
                                     89,334     90,063    104,071    104,624    112,863    111,519     80,735     80,306
                                   --------   --------   --------   --------   --------   --------   --------   --------
SECURITIES AVAILABLE FOR SALE:
 Pass-through securities:
  Fannie Mae...................      11,514     11,616     13,172     13,335     14,851     14,822     12,001     12,385
  Freddie Mac..................       5,736      5,876      7,364      7,571     12,355     12,489     14,525     14,685
  Other........................       4,145      4,151      4,584      4,567      4,896      4,882      3,151      3,147
 CMOs and REMICs...............      22,092     22,132     10,665     10,680      9,334      9,289        112        112
                                   --------   --------   --------   --------   --------   --------   --------   --------
                                     43,487     43,775     35,785     36,153     41,436     41,482     29,789     30,329
                                   --------   --------   --------   --------   --------   --------   --------   --------
    Total mortgage-backed
     securities................    $132,821   $133,838   $139,856   $140,777   $154,299   $153,001   $110,524   $110,635
                                   ========   ========   ========   ========   ========   ========   ========   ========
</TABLE>
 
     The following table summarizes the activity in the mortgage-backed
 securities portfolio for the periods indicated.
 
<TABLE> 
<CAPTION> 
                                              NINE MONTHS
                                             ENDED JUNE 30,        YEARS ENDED SEPTEMBER 30,
                                          -------------------   ------------------------------
                                            1998       1997       1997       1996       1995
                                          --------   --------   --------   --------   --------
                                                             (IN THOUSANDS)
<S>                                       <C>        <C>        <C>        <C>        <C>
Amortized cost at beginning of period...  $139,856   $154,299   $154,299   $110,524   $ 97,780
                                          --------   --------   --------   --------   --------
Purchases:
 Pass-through securities:
   Fixed-rate...........................     9,465      2,920      8,085     27,881     13,105
   Adjustable-rate......................        --         --         --     25,673      7,540
 CMOs and REMICs........................    16,033      1,986      3,986     18,716      8,344
                                          --------   --------   --------   --------   --------
      Total purchases...................    25,498      4,906     12,071     72,270     28,989
                                          --------   --------   --------   --------   --------

Principal repayments....................   (32,421)   (19,401)   (26,397)   (28,450)   (16,152)
Premium amortization and
 discount accretion, net................      (112)       (97)      (117)       (45)       (93)
                                          --------   --------   --------   --------   --------

Amortized cost at end of period.........  $132,821   $139,707   $139,856   $154,299   $110,524
                                          ========   ========   ========   ========   ======== 
</TABLE>

     Pass-Through Securities.  At June 30, 1998, $97.6 million of the Bank's
mortgage-backed securities consisted of pass-through securities, which totaled
14.4% of total assets.  In compliance with SFAS No. 115, $21.6 million of these,
or 3.2% of total assets, were classified as available for sale, while $75.9
million, or 11.2% of total assets, were classified as held to maturity.  The
estimated fair value of these held to maturity securities at June 30, 1998 was
$76.4 million, which was $505,000 greater than the amortized cost of $75.9
million.

     On the basis of amortized cost at June 30, 1998, the Bank's mortgage-backed
pass-through securities portfolio totaled $97.3 million, of which $3.1 million
had a weighted average yield of 5.60% and contractual maturities within one
year; $10.1 million had a weighted average yield of 6.23% and contractual
maturities within five years; $23.8 million had a weighted average yield of
6.41% and contractual maturities of five to ten years; and $60.3 million had a
weighted average yield of 6.87% and contractual maturities of over ten years.
However, the actual maturity of a mortgage-backed security may be less than its
stated contractual maturity due to prepayments of the underlying mortgages.
Prepayments that are faster than anticipated may shorten the life of the
security and may result in a loss of any premiums paid and thereby reduce the
net yield on such securities. Although prepayments of underlying mortgages
depend on many factors, the difference between the interest rates on the
underlying mortgages and the
                                       83
<PAGE>
 
prevailing mortgage interest rates generally is the most significant determinant
of the rate of prepayments. During periods of declining mortgage interest rates,
refinancing generally increases and accelerates the prepayment of the underlying
mortgages and the related security. Under such circumstances, the Bank may be
subject to reinvestment risk because, to the extent that the mortgage-backed
securities prepay faster than anticipated, the Bank may not be able to reinvest
the proceeds of such repayments and prepayments at a comparable rate of return.
Conversely, in a rising interest rate environment prepayments may decline,
thereby extending the estimated life of the security and depriving the Bank of
the ability to reinvest cash flows at the increased rates of interest.

     CMOs and REMICs.  In addition to mortgage-backed pass-through securities,
the Bank invests in CMOs or collateralized mortgage obligations, including
REMICs.  This portfolio is limited to CMOs and REMICs backed by Fannie Mae and
Freddie Mac. CMOs are a type of debt security issued by a special-purpose entity
that aggregates pools of mortgages and mortgage-backed securities and creates
different classes of CMO securities with varying maturities and amortization
schedules, as well as a residual interest, with each class possessing different
risk characteristics.  The cash flows from the underlying collateral are
generally divided into "tranches" or classes whereby tranches have descending
priorities with respect to the distribution of principal and interest repayment
of the underlying mortgages and mortgage-backed securities, as opposed to pass-
through mortgage-backed securities where cash flows are distributed pro rata to
all security holders. In contrast to mortgage-backed securities from which cash
flow is received (and hence, prepayment risk is shared) pro rata by all
securities holders, the cash flow from the mortgages or mortgage-backed
securities underlying CMOs is paid in accordance with a predetermined priority
to investors holding various tranches of such securities or obligations.  A
particular tranche of CMOs may, therefore, carry prepayment risk that differs
from that of both the underlying collateral and other tranches.  Investments in
CMOs involve a risk that actual prepayments will differ from those estimated in
pricing the security, which may result in adjustments to the net yield on such
securities.  Additionally, the market value of such securities may be adversely
affected by changes in market interest rates.  Management believes these
securities may represent attractive alternatives relative to other investments
due to the wide variety of maturity, repayment and interest rate options
available.

     At June 30, 1998, the Bank's CMO portfolio totaled $35.5 million, or 5.2%
of total assets, and consisted of CMOs issued by government sponsored agencies
such as Fannie Mae and Freddie Mac.  Overall, the CMO portfolio at June 30, 1998
had a weighted average yield of 6.23%. The Bank owns both fixed-rate and
floating-rate CMOs.  At June 30, 1998, $22.1 million of the CMO portfolio, or
3.3% of total assets, was classified as available for sale and 13.4 million, or
2.0% of total assets, was classified as held-to-maturity.  The estimated fair
value of the Bank's held-to-maturity CMO portfolio at June 30, 1998 was $13.6
million, or $224,000 more than the amortized cost.  The Bank's CMO portfolio at
June 30, 1998 included securities of $23.3 million for which the underlying
mortgage collateral had contractual maturities of over ten years.  However, as
with mortgage-backed pass-through securities, the actual maturity of a CMO may
be less than its stated contractual maturity due to prepayments of the
underlying mortgages.

     The Bank's practice is to limit fixed-rate CMO investments primarily in the
early to intermediate tranches, which have the greatest cash flow stability.
Floating rate CMOs are purchased with emphasis on the relative trade-offs
between life rate caps, prepayment risk, and interest rates.  The Bank's current
policy with respect to CMOs limits investments to non-high risk securities
unless approval is given by the Board of Directors and an analysis is provided
on how a high-risk CMO will improve the overall interest rate risk of the Bank.
High-risk CMOs are defined as those securities exhibiting significantly greater
volatility of estimated average life and price relative to interest rates
compared to 30-year, fixed-rate securities.

SOURCES OF FUNDS

     GENERAL.  Deposits, repayments and prepayments of loans and securities,
proceeds from sales of loans and securities, proceeds from maturing securities
and cash flows from operations, are the primary sources of the Bank's funds for
use in lending, investing and for other general purposes.  To a lesser extent,
the Bank uses borrowed funds (primarily FHLB advances) to fund its operations.

                                       84
<PAGE>
 
     DEPOSITS.  The Bank offers a variety of deposit accounts with a range of
interest rates and terms.  Its deposit accounts consist of savings accounts, NOW
accounts, checking accounts, money market accounts, school savings and club
accounts, and certificates of deposit.  It offers certificates of deposit with
balances in excess of $100,000, as well as Individual Retirement Accounts
("IRAs") and other qualified plan accounts.  The Bank provides commercial
checking accounts for small to moderately-sized businesses, as well as low-cost
checking account services for low-income customers.

     At June 30, 1998, the Bank's deposits totaled $580.1 million.  Interest-
bearing deposits totaled $525.0 million, and non-interest bearing demand
deposits totaled $55.1 million.  NOW, savings and money market deposits totaled
$281.7 million at June 30, 1998.  Also at that date, the Bank had a total of
$243.3 million in certificates of deposit, of which $180.5 million had
maturities of one year or less.  Although the Bank has a significant portion of
its deposits in shorter-term certificates of deposit, management monitors
activity on these accounts and, based on historical experience and the Bank's
current pricing strategy, believes it will retain a large portion of such
accounts upon maturity.

     The flow of deposits is influenced significantly by general economic
conditions, changes in money market rates, prevailing interest rates and
competition.  The Bank's deposits are obtained predominantly from the areas in
which its branch offices are located.  It relies primarily on competitive
pricing of its deposit products, customer service and long-standing
relationships with customers to attract and retain these deposits; however,
market interest rates and rates offered by competing financial institutions
significantly affect the Bank's ability to attract and retain deposits. The Bank
uses traditional means of advertising its deposit products, including radio and
print media, and generally does not solicit deposits from outside its market
area.  While certificates of deposit in excess of $100,000 are accepted by the
Bank, and may be subject to preferential rates, it does not actively solicit
such deposits as they are more difficult to retain than core deposits.
Historically, the Bank has not used brokers to obtain deposits.

     The following table summarizes the deposit activity of the Bank for the
periods indicated.
<TABLE>
<CAPTION>
 
                                                         NINE MONTHS
                                                        ENDED JUNE 30,                YEARS ENDED SEPTEMBER 30,
                                                  --------------------------  ---------------------------------------
                                                      1998          1997          1997          1996          1995
                                                  ------------  ------------  ------------  ------------  -----------
<S>                                               <C>           <C>           <C>           <C>           <C>
                                                                        (DOLLARS IN THOUSANDS)
 
Balance at beginning of period..................  $   546,846   $   545,286   $   545,286   $   443,667   $   419,808
Deposits........................................    1,397,782     1,194,785     1,621,185     1,303,205     1,010,258
Withdrawals.....................................   (1,378,661)   (1,195,933)   (1,638,170)   (1,323,389)   (1,000,617)
Deposit liabilities assumed in connection with                                                            
 purchase of branch offices.....................           --            --            --       104,477            --
Interest credited...............................       14,108        13,796        18,545        17,326        14,218
                                                  -----------   -----------   -----------   -----------   -----------
Balance at end of period........................  $   580,075   $   557,934   $   546,846   $   545,286   $   443,667
                                                  ===========   ===========   ===========   ===========   ===========
                                                                                                          
Net increase during the period:                                                                           
 Amount.........................................  $    33,229   $    12,648   $     1,560   $   101,619   $    23,859
 Percent........................................          6.1%          2.3%          0.3%         22.9%          5.7%
</TABLE>

                                       85
<PAGE>
 
     The following table sets forth the distribution of the Bank's deposit
accounts, by account type, at the dates indicated.
<TABLE>
<CAPTION>
 
                                                                   SEPTEMBER 30,
                                                             --------------------------
                                      JUNE 30, 1998                    1997            
                             ------------------------------  -------------------------- 
                                                   WEIGHTED                    WEIGHTED 
                                                   AVERAGE                      AVERAGE 
                              AMOUNT    PERCENT     RATE      AMOUNT   PERCENT   RATE   
                             --------  ---------  ---------  --------  --------  ------  
                                                (DOLLARS IN THOUSANDS)                
<S>                          <C>       <C>        <C>        <C>       <C>       <C>    
Demand deposits............  $ 55,072       9.5%        --%  $ 49,221      9.0%    --%  
NOW deposits...............    40,969       7.1       1.25     32,985      6.0   1.25   
Savings deposits...........   161,263      27.8       2.25    153,171     28.0   2.25   
Money market deposits......    79,436      13.7       2.96     75,339     13.8   2.96   
                             --------     -----              --------    -----          
                              336,740      58.1       1.93    310,716     56.8   1.96   
Certificates of deposit....   243,335      41.9       5.22    236,130     43.2   5.31   
                             --------     -----              --------    -----          
                                                                                        
Total deposits.............  $580,075     100.0%      3.31%  $546,846    100.0%  3.40%  
                             ========     =====       ====   ========    =====   ====   




<CAPTION>
 
                                               SEPTEMBER 30,
                             -----------------------------------------------------
                                        1996                         1995
                             -------------------------  -------------------------- 
                                               WEIGHTED                   WEIGHTED
                                                AVERAGE                   AVERAGE
                              AMOUNT   PERCENT   RATE    AMOUNT   PERCENT   RATE
                             --------  --------  -----  --------  --------  ------
                                              (DOLLARS IN THOUSANDS)
<S>                          <C>       <C>       <C>    <C>       <C>       <C>
Demand deposits............  $ 42,700      7.8%    --%  $ 28,153      6.3%    --%
NOW deposits...............    30,950      5.7   1.25     25,664      5.9   1.25
Savings deposits...........   153,565     28.2   2.25    143,722     32.4   2.25
Money market deposits......    77,111     14.1   2.97     59,149     13.3   3.20
                             --------    -----          --------    -----
                              304,326     55.8   2.02    256,688     57.9   2.12
Certificates of deposit....   240,960     44.2   5.10    186,979     42.1   5.37
                             --------    -----          --------    -----
                             
Total deposits.............  $545,286    100.0%  3.38%  $443,667    100.0%  3.49%
                             ========    =====   ====   ========    =====   ====
</TABLE>

                                       86
<PAGE>
 
     The following table sets forth, by interest rate ranges, information
concerning the Bank's certificates of deposit at the dates indicated.
<TABLE>
<CAPTION>
                                   AT JUNE 30, 1998                                                        
                      -------------------------------------------------------------------         TOTAL AT      
                                  PERIOD TO MATURITY                                            SEPTEMBER 30,
                      -------------------------------------------------------------------  -----------------------
                      LESS THAN   ONE TO       TWO TO     MORE THAN              PERCENT
 INTEREST RATE RANGE   ONE YEAR  TWO YEARS  THREE YEARS  THREE YEARS   TOTAL    OF TOTAL     1997        1996
--------------------  ---------  ---------  -----------  -----------  --------  ---------  --------  -------------
                                                  (DOLLARS IN THOUSANDS)
<S>                    <C>       <C>        <C>          <C>          <C>       <C>        <C>       <C>
 
4.00% and below......  $    719    $    --       $   --       $   --  $    719       0.3%  $    716       $    925
4.01% to 5.00%.......    79,264      7,728        1,590            7    88,589      36.4     68,707        136,272
5.01% to 6.00%.......    90,720     31,519        5,340        5,116   132,695      54.5    151,729         74,627
6.01% to 7.00%.......     9,715      6,705           12          400    16,832       6.9      9,557         24,819
7.01% and above......        97      4,051          146          206     4,500       1.9      5,421          4,317
                       --------    -------       ------       ------  --------     -----   --------       --------
 
      Total..........  $180,515    $50,003       $7,088       $5,729  $243,335     100.0%  $236,130       $240,960
                       ========    =======       ======       ======  ========     =====   ========       ========
 
</TABLE>
     The following table sets forth the amount of the Bank's certificates of
deposit by time remaining until maturity as of June 30, 1998.
<TABLE>
<CAPTION>
 
                                                                       MATURITY
                                                    --------------------------------------------
                                                    3 MONTHS  OVER 3 TO 6  OVER 6 TO 12  OVER 12
                                                    OR LESS     MONTHS        MONTHS     MONTHS    TOTAL
                                                    --------  -----------  ------------  -------  --------
                                                                        (IN THOUSANDS)
<S>                                                 <C>       <C>          <C>           <C>      <C>
 
Certificates of deposit less than $100,000........   $59,149      $39,836       $64,074  $54,496  $217,555
Certificates of deposit of $100,000 or more/(1)/..     7,692        3,215         6,549    8,324    25,780
                                                     -------      -------       -------  -------  --------
 Total of certificates of deposit.................   $66,841      $43,051       $70,623  $62,820  $243,335
                                                     =======      =======       =======  =======  ========
-----------------------
</TABLE>
/(1)/ The weighted average interest rates for these accounts, by maturity
      period, are 4.90% for 3 months or less; 4.88% for 3 to 6 months; 5.38% for
      6 to 12 months; and 5.76% for over 12 months. The overall weighted average
      interest rate for accounts of $100,000 or more was 5.30%.

     BORROWINGS.  At June 30, 1998, the Bank had $25.0 million of borrowings,
all of which consisted of FHLB advances.  FHLB advances were $24.0 million as of
September 30, 1997 and $13.0 million as of September 30, 1996. At June 30, 1998,
the Bank had access to additional FHLB borrowings of up to $178.7 million.

     The following table sets forth information concerning balances and interest
rates on the Bank's FHLB advances at the dates and for the periods indicated.
<TABLE>
<CAPTION>
                                                     AT OR FOR THE
                                                      NINE MONTHS                AT OR FOR THE
                                                     ENDED JUNE 30,         YEARS ENDED SEPTEMBER 30,
                                                    ----------------      -----------------------------
                                                     1998     1997         1997       1996       1995             
                                                   -------   -------      -------   -------    --------
                                           (DOLLARS IN THOUSANDS)      
<S>                                                <C>       <C>          <C>       <C>        <C>             
                                                                                  
Balance at end of period.......................... $25,048   $13,000      $24,000   $13,000    $ 13,900
Average balance during period.                      29,009    25,451       23,730    22,686       9,139
Maximum outstanding at any  month end.............  33,000    38,000       38,000    56,400      20,300
Weighted average interest rate at end of period...    6.13%     6.88%        6.69%     6.61%       7.15%
Average interest rate during period...............    5.96%     6.20%        6.27%     6.49%       6.83%
</TABLE>

SUBSIDIARY ACTIVITIES

     Provest Services Corp. I is a wholly-owned subsidiary of the Bank holding
an investment in a limited partnership which operates an assisted-living
facility.  A percentage of the units in the facility are for low-income
individuals.  Provest Services Corp. II is a wholly-owned subsidiary of the Bank
which has engaged a third-party 

                                       87
<PAGE>
 
provider to sell annuities and mutual funds to the Bank's customers. Through
June 30, 1998, the activities of these subsidiaries have had an insignificant
effect on the Bank's consolidated financial condition and results of operations.

COMPETITION

     The Bank faces significant competition in both originating loans and
attracting deposits.  The New York metropolitan area has a high concentration of
financial institutions, most of whom are significantly larger institutions that
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, mortgage banking companies,
credit unions and insurance companies and other financial service companies.
Its most direct competition for deposits has historically come from commercial
banks, savings banks and credit unions.  The Bank faces additional competition
for deposits from non-depository competitors such as the mutual fund industry,
securities and brokerage firms and insurance companies.  Further competition may
arise as restrictions on the interstate operations of financial institutions are
removed.

                                       88
<PAGE>
 
PROPERTIES

     The Bank currently conducts its business through eleven full-service
banking offices.  The following table sets forth information concerning each of
the Bank's offices as of June 30, 1998.

<TABLE>
<CAPTION>
                                                                  NET BOOK VALUE
                                          ORIGINAL                OF PROPERTY OR
                                LEASED      YEAR      DATE OF       LEASEHOLD
                                  OR      LEASED OR    LEASE     IMPROVEMENTS AT
          LOCATION               OWNED    ACQUIRED   EXPIRATION   JUNE 30, 1998
-----------------------------  ---------  ---------  ----------  ---------------
                                                                 (IN THOUSANDS)
<S>                            <C>        <C>        <C>         <C>
ADMINISTRATIVE/HOME OFFICE:
 
Corporate Office                Leased      1994        2009           $398
400 Rella Boulevard                                     
Montebello, NY  10901                                   
                                                        
BRANCH OFFICES:                                         
                                                        
Haverstraw Office               Leased      1995        2014             52
38-40 New Main Street                                   
Haverstraw, NY  10927                                   
                                                        
Orangeburg Office                Owned      1972        N/A             173
Route 303 at Kings Highway                              
Orangeburg, NY  10962                                   
                                                        
Stony Point Office               Owned      1973        N/A             179
Route 9W                                                
Stony Point, NY  10980                                  
                                                        
New City Office                  Owned      1966        N/A             915
179 South Main Street                                   
New City, NY  10956                                     
                                                        
Nanuet Office (1)               Leased      1996        2025            966
Route 59                                                
Nanuet, NY  10954                                       
                                                        
Spring Valley Office             Owned      1996        N/A              85
72 West Eckerson Road                                   
Spring Valley, NY  10977                                
                                                        
Congers Office                  Leased      1984        1999            202
1 Lake Road West                                        
Congers, NY  10920                                      
                                                        
Mount Ivy Office                Leased      1988        2009            144
120 Route 202                                           
Mount Ivy, NY  10970                                    
                                                        
Suffern Office                   Owned      1981        N/A             263
71 Lafayette Avenue                                                     
Suffern, NY  10901                                                      
                                                                        
Airmont Office                   Owned      1975        N/A             202
196 Route 59                                            
Airmont, NY  10901                                      
                                                        
Pearl River Office              Leased      1994        1999             66
Shop-Rite Supermarket
26 North Middletown Road
Pearl River, NY  10965
</TABLE> 
______________________________
(1) The Bank owns the building and leases the land.

                                       89
<PAGE>
 
LEGAL PROCEEDINGS

     The Bank is a defendant in a lawsuit, Patrick Gawrysiak a/k/a Patrick Gray
                                           ------------------------------------
v. Provident Bank, brought by a prospective purchaser of REO property, alleging
-----------------                                                              
breach of contract, negligence, consumer fraud and civil conspiracy.  The
plaintiff brought the lawsuit in the Superior Court of New Jersey, Bergen County
Law Division, and is seeking compensatory damages of $500,000, exemplary damages
of $1.0 million, "nominal" damages of $1.0 million and punitive damages of $1.0
million.  Although there can be no certainty as to the outcome of this matter,
management believes the claim is baseless and has retained counsel to vigorously
contest the claim.

     The Bank is not involved in any other pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business which, in
the aggregate, involved amounts which are believed by management to be
immaterial to the financial condition and operations of the Bank.

PERSONNEL

     As of June 30, 1998, the Bank had 167 full-time employees and 46 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.

                                    TAXATION

FEDERAL TAXATION

     GENERAL.  The following is a discussion of material federal income tax
matters and does not purport to be a comprehensive description of the federal
income tax rules applicable to the Bank or the Company.  For federal income tax
purposes, after the Reorganization, the Company and the Bank will file
consolidated income tax returns and report their income on a fiscal 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 tax reserve for bad debts, discussed below.

     Historically, savings associations, such as the Bank, were permitted to
compute bad debt deductions using either the experience method or the percentage
of taxable income method. However, for years beginning after December 31, 1995,
no savings association may use the percentage of taxable income method of
computing its allowable bad debt deduction for tax purposes. Instead, all
savings associations are required to compute their allowable deduction using
either the experience method or the specific charge-off method. As a result of
the repeal of the percentage of taxable income method, reserve additions (tax
bad debt deductions) made after 1987 using the percentage of taxable income
method generally must be included in future taxable income (or "recaptured")
over a six-year period, although a two-year delay may be permitted for
associations meeting a residential mortgage loan origination test.  The Bank has
established a deferred tax liability for the amount of taxes to be paid under
this recapture rule.  In addition, the pre-1988 reserve, for which a deferred
tax liability has not been recorded, need not be recaptured into income unless:
(i) the Bank's retained earnings represented by the pre-1988 reserve are used
for purposes other than to absorb losses from bad debts, including excess
dividend distributions or distributions in liquidation; (ii) the Bank redeems
its stock; (iii) the Bank fails to meet the definition provided by the Code for
a bank; or (iv) there is a change in the federal tax law.  See Note 10 of the
Notes to Consolidated Financial Statements for a discussion of the Bank's tax
bad debt reserves.

     DISTRIBUTIONS.  If the Bank makes "non-dividend distributions" to the
Company, such distribution will be considered to have been made from the Bank's
unrecaptured tax bad debt reserves (including the balance of its reserves as of
December 31, 1987) and then from the Bank's supplemental reserve for losses on
loans, to the extent thereof, and an amount based on the amount distributed (but
not in excess of the amount of such reserves) will be included in the Bank's
income.  Non-dividend distributions include distributions in excess of the
Bank's current and accumulated earnings and profits, as calculated for federal
income tax purposes, distributions in redemption of stock, 

                                       90
<PAGE>
 
and distribution in partial or complete liquidation. Dividends paid out of the
Bank's current or accumulated earnings and profits will not be so included in
the Bank's income.

     The amount of additional taxable income created from a non-dividend
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
Reorganization, the Bank makes a non-dividend distribution to the Company,
approximately one and one-half times the amount of such distribution (but not in
excess of the amount of such reserves) would be includable in income for federal
income tax purposes, assuming a 34% federal corporate income tax rate.  See
"Regulation" and "Dividend Limitations" for limits on the payment of dividends
by the Bank.  The Bank does not intend to pay dividends that would result in a
recapture of any portion of its tax bad debt reserves.

     Depending on the composition of its items of income and expense, a savings
association may be subject to the alternative minimum tax. A savings association
must pay an alternative minimum tax on the amount (if any) by which 20% of
alternative minimum taxable income ("AMTI"), as reduced by an exemption varying
with AMTI, exceeds the regular tax due. AMTI equals regular taxable income
increased or decreased by certain tax preferences and adjustments, including
depreciation deductions in excess of that allowable for alternative minimum tax
purposes, tax-exempt interest on most private activity bonds issued after August
7, 1986 (reduced by any related interest expense disallowed for regular tax
purposes), and 75% of the excess of adjusted current earnings over AMTI (before
this adjustment and before any alternative tax net operating loss). AMTI may be
reduced only up to 90% by net operating loss carryovers, but alternative minimum
tax paid can be credited against regular tax due in later years.  Under pending
legislative proposals, for taxable years beginning after December 31, 1997 and
before January 1, 2009, an environmental tax of 0.12% of the excess of AMTI
(with certain modification) over $2 million would be imposed on corporations,
including the Bank, whether or not an AMT is paid.
 
     For federal income tax purposes, the Bank files fiscal year tax returns and
reports its income and expenses on the accrual method. The Bank's federal income
tax returns have been audited for tax years through fiscal 1995, and all tax
deficiencies have been satisfied.

NEW YORK STATE TAXATION

     The Company and the Bank will report income on a combined fiscal year basis
to New York State.  The New York State Franchise Tax on corporations is imposed
in an amount equal to the greater of (a) 9% of "entire net income" allocable to
New York State, (b) 3% of "alternative entire net income" allocable to New York
State, (c) 0.01% of the average value of assets allocable to New York State or
(d) a nominal minimum tax.  Entire net income is based on federal taxable
income, subject to certain modifications.  Alternative entire net income is
equal to entire net income without certain modifications.

     A temporary Metropolitan Transportation Business Tax Surcharge on banking
corporations doing business in the Metropolitan District has been applied since
1982.  The Bank transacts a significant portion of its business within this
District and is subject to this surcharge.  The current surcharge rate is 17% of
the State franchise tax liability.

     In July 1996, New York State enacted legislation to preserve the use of the
percentage of taxable income bad debt deduction for state tax purposes.  In
general, the legislation provides for a deduction equal to 32% of the Bank's New
York State taxable income, which is comparable to the deductions permitted under
the prior tax law.  The legislation also provides for a floating base year,
which allows the Bank to change from the percentage of taxable income method to
the experience method without recapture of any reserve.  Previously, the Bank
had established a deferred New York State tax liability for the excess of its
New York State tax bad debt reserves over the amount of its base-year New York
State reserves.  Since the new legislation effectively eliminated the reserves
in excess of the base-year balances, the Bank reduced its deferred tax liability
by $500,000 (with a corresponding reduction in income tax expense) during the
year ended September 30, 1996.

     Generally, New York State tax law has requirements similar to federal
requirements regarding the recapture of base-year tax bad debt reserves.  One
notable exception is that, after the 1996 legislation, New York continues to

                                       91
<PAGE>
 
require that at least 60% of the Bank's assets consist of specified assets
(generally, loans secured by residential real estate or deposits, educational
loans, cash and certain government obligations).  The Bank expects to continue
to meet the 60% requirement and does not anticipate engaging in any of the
transactions which would require recapture of its base-year reserves (such as
changing to a commercial bank charter).  Accordingly, under SFAS No. 109, it has
not provided any deferred tax liability on such reserves.  See also Note 10 of
the Notes to Consolidated Financial Statements.

     For further information relating to the tax consequences of the
Reorganization, see "The Reorganization--Principal Effects of Reorganization--
Tax Effects."

                                   REGULATION

GENERAL

     As a federally chartered, SAIF-insured savings bank, the Bank is subject to
examination, supervision and extensive regulation by the OTS and the FDIC.  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 Bank also is subject to regulation by
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board") governing reserves to be maintained against deposits and certain other
matters.  The OTS examines the Bank and prepares reports for the consideration
of the Bank's Board of Directors.  The FDIC also has examination authority over
the Bank in its role as the administrator of the SAIF.  The Bank's relationship
with its depositors and borrowers also is regulated to a great extent by both
federal and state laws, especially in such matters as the ownership of savings
accounts and the form and content of the Bank's mortgage documents.  Any change
in such regulation, whether by the FDIC, OTS, or Congress, could have a material
adverse impact on the Company and the Bank and their operations.

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 (the "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 association may engage.
The description of statutory provisions and regulations applicable to savings
associations set forth herein does not purport to be a complete description of
such statutes and regulations and their effect on the Bank.

     LOANS TO ONE BORROWER.  Under the HOLA, savings institutions are generally
subject to the national bank limits on loans to a single or related group of
borrowers.  Generally, this limit is 15% of the Bank's unimpaired capital and
surplus, and 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.  The OTS by regulation has amended the loans
to one borrower rule to permit savings associations meeting certain requirements
to extend loans to one borrower in additional amounts under circumstances
limited essentially to loans to develop or complete residential housing units.

     QUALIFIED THRIFT LENDER TEST.  In general, savings associations are
required to maintain at least 65% of their portfolio assets in certain qualified
thrift investments (which consist primarily of loans and other investments
related to residential real estate and certain other assets).  A savings
association that fails the qualified thrift lender test is subject to
substantial restrictions on activities and to other significant penalties.

     Recent legislation also expands the QTL test to provide savings
associations with greater authority to lend and diversify their portfolios.  In
particular, credit card and education loans may now be made by savings
associations without regard to any percentage-of-assets limit, and commercial
loans may be made in an amount up to 10% of total assets, plus an additional 10%
for small business loans.  Loans for personal, family and household purposes
(other than credit card, small business and educational loans) are now included
without limit with other assets that, in the 

                                       92
<PAGE>
 
aggregate, may account for up to 20% of total assets. The Bank exceeded the
applicable requirements at June 30, 1998.

     A savings association that fails to meet the QTL test must either convert
to a bank (but its deposit insurance assessments and payments will be those of
and paid to the SAIF) or be subject to the following penalties: (i) it may not
enter into any new activity except for those permissible for a national bank and
for a savings association; (ii) its branching activities will be limited to
those of a national bank; (iii) it will not be eligible for any new FHLB
advances; and (iv) it will be bound by regulations applicable to national banks
regarding the payment of dividends. Three years after failing the QTL test, the
association must (i) dispose of any investment or activity not permissible for a
national bank and a savings association, and (ii) repay all outstanding FHLB
advances. If such a savings association is controlled by a savings and loan
holding company, then such holding company must, within a prescribed time
period, become registered as a bank holding company and become subject to all
rules and regulations applicable to bank holding companies (including
restrictions as to the scope of permissible business activities).

     LIMITATIONS ON CAPITAL DISTRIBUTIONS.  OTS regulations impose limitations
upon all capital distributions by savings institutions, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to stockholders
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.  An institution that exceeds
all fully phased-in 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 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; provided that the institution would not be undercapitalized, as that
term is defined in the OTS Prompt Corrective Action regulations, following the
capital distribution.  Any additional capital distributions would require prior
regulatory approval.  In the event the savings institution's capital fell below
its fully-phased in requirement or the OTS notified it that it was in need of
more than normal supervision, the institution'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
borrowings payable in one year or less.  Monetary penalties may be imposed for
failure to meet these liquidity requirements.  The Bank's average liquidity
ratio at June 30, 1998 exceeded the then applicable requirements.

     COMMUNITY REINVESTMENT ACT AND FAIR LENDING LAWS.  Savings association
share a responsibility under the Community Reinvestment Act ("CRA") and related
regulations of the OTS to help meet the credit needs of their communities,
including low- and moderate-income neighborhoods.  In addition, the Equal Credit
Opportunity Act and the Fair Housing Act (together, the "Fair Lending Laws")
prohibit lenders from discriminating in their lending practices on the basis of
characteristics specified in those statutes.  An institution's failure to comply
with the provisions of CRA could, at a minimum, result in regulatory
restrictions on its activities, and failure to complete with the Fair Lending
Laws could result in enforcement actions by the OTS, as well as other federal
regulatory agencies and the Department of Justice.  The Bank received an
outstanding CRA rating under the current CRA regulations in its most recent
federal examination by the OTS.

     TRANSACTIONS WITH AFFILIATES.  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 nonsavings institution subsidiaries) or to make loans to certain
insiders, is limited by Sections 23A and 23B of the Federal Reserve Act ("FRA").
Section 23A limits the aggregate amount of 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 is generally
prohibited.  Section 23B provides that certain transactions with affiliates,

                                       93
<PAGE>
 
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 nonaffiliated companies.

     ENFORCEMENT.  Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring
enforcement action against all "institution-related parties," including
stockholders, and 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 and/or
directors of the institutions, receivership, conservatorship or the termination
of deposit insurance.  Civil penalties cover a wide range of violations and
actions, and range up to $25,000 per day, unless a finding of reckless disregard
is made, in which case penalties may be as high as $1 million per day.  Under
the FDI Act, the FDIC has the authority to recommend to the Director of 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.

     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, compensation, and such other operational and managerial
standards as the agency deems appropriate.  The federal banking agencies adopted
Interagency Guidelines Prescribing Standards for Safety and Soundness
("Guidelines") to implement the safety and soundness standards required under
the FDI Act.  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 systems; credit
underwriting; loan documentation; interest rate risk exposure; asset growth; 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.  If an institution fails to meet these standards, the appropriate federal
banking agency may require the institution to submit a compliance plan.

     CAPITAL REQUIREMENTS.  The OTS capital regulations require savings
institutions to meet three capital standards: a 1.5% tangible capital standard,
a 3.0% leverage (core capital) standard, and an 8.0% risk-based capital
standard.  Core capital is defined as common stockholders' equity (including
retained earnings), certain noncumulative perpetual preferred stock and related
surplus, minority interests in equity accounts of consolidated subsidiaries less
intangibles other than certain mortgage servicing rights ("MSRs") and purchased
credit card relationships.  The OTS regulations require that, in meeting the
tangible, core 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 provides that a savings institution that has a leverage capital ratio
of less than 4.0% (3.0% for institutions receiving the highest CAMELS
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 8.0%.  In determining the amount of risk-
weighted assets, assets and certain off-balance sheet assets items 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 3.0% 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 losses.  Overall, the
amount of supplementary capital included as part of total capital cannot exceed
100% of core capital.

     The OTS has incorporated an interest rate risk component into its
regulatory capital rule.  The final interest rate risk rule also adjusts the
risk-weighting for certain mortgage derivative securities.  Under the rule,
savings associations with "above normal" interest rate risk exposure would be
subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements.  A savings association's interest rate risk is
measured 

                                       94
<PAGE>
 
by the decline in the net portfolio value of its assets (i.e., the
difference between incoming and outgoing discounted cash flows from assets,
liabilities and off-balance sheet contracts) that would result from a
hypothetical 200-basis point increase or decrease in market interest rates
divided by the estimated economic value of the association's assets, as
calculated in accordance with guidelines set forth by the OTS.  A savings
association whose measured interest rate risk exposure exceeds 2% must deduct an
interest rate component in calculating its total capital under the risk-based
capital rule.  The interest rate risk component is an amount equal to one-half
of the difference between the institution's measured interest rate risk and 2%,
multiplied by the estimated economic value of the association's assets.  That
dollar amount is deducted from an association's total capital in calculating
compliance with its risk-based capital requirement. Under the rule, there is a
two quarter lag between the reporting date of an institution's financial data
and the effective date for the new capital requirement based on that data.  The
rule also provides that the Director of the OTS may waive or defer an
association's interest rate risk component on a case-by-case basis.  The OTS has
postponed the effective date of the capital component in order to provide it
with an opportunity to review the interest rate risk approaches taken by the
other federal banking agencies.

     At June 30, 1998, 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 (i) the OTS tangible,
core and risk-based capital requirements, compared to the Bank's historical
amounts and percentages at June 30, 1998 and (ii) pro forma amounts and
percentages based upon the issuance of the shares within the Offering Range and
assuming that a portion of the net proceeds are retained by the Company.

     THRIFT CHARTER.  Congress has been considering legislation in various forms
that would require federal thrifts, such as the Bank, to convert their charters
to national or state bank charters.  Legislation enacted in 1996 required the
Treasury Department to prepare for Congress a comprehensive study on development
of a common charter for federal savings associations and commercial banks; and
provided for the merger of the BIF and the SAIF into a single deposit insurance
fund on January 1, 1999 provided the thrift charter was eliminated.  The Bank
cannot determine whether, or in what form, such legislation may eventually be
enacted and there can be no assurance that any legislation that is enacted would
not adversely affect the Bank and the Company.

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 total risk-based capital of less than
8.0% or a leverage ratio or a Tier 1 core capital ratio that is less than 4.0%
is considered to be undercapitalized.  A savings institution that has total
risk-based capital of less than 6.0%, a Tier 1 core 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
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
institution receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized."  In addition, numerous
mandatory supervisory actions become immediately applicable to the institution,
including, but not limited to, restrictions on growth, investment activities,
capital distributions, and affiliate transactions.  The OTS may 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.

     At June 30, 1998, the Bank was categorized as "well capitalized," meaning
that the Bank's total risk-based capital ratio exceeded 10.0%, Tier I risk-based
capital ratio exceeded 6.0%,  leverage capital ratio exceeded 5.0%, and the Bank
was not subject to a regulatory order, agreement or directive to meet and
maintain a specific capital level for any capital measure.

INSURANCE OF DEPOSIT ACCOUNTS

     The FDIC has adopted a risk-based deposit 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 

                                       95
<PAGE>
 
seven months before the assessment period, consisting of (1) well capitalized,
(2) adequately capitalized or (3) undercapitalized, and 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 which 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. 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.

FEDERAL HOME LOAN BANK SYSTEM

     The Bank, as a federal association, is required to be 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
of New York, is required to acquire and hold shares of capital stock in that
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.  As of June 30, 1998, the Bank was in compliance with this requirement.
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.

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).  At June 30, 1998, the Bank was
in compliance with these reserve requirements.  The balances maintained to meet
the reserve requirements imposed by the FRB may be used to satisfy liquidity
requirements imposed by the OTS.

HOLDING COMPANY REGULATION

     GENERAL.  The Mutual Holding Company and the Company are nondiversified
mutual savings and loan holding companies within the meaning of the HOLA.  As
such, the Mutual Holding Company and the Company are registered with the OTS and
are subject to OTS regulations, examinations, supervision and reporting
requirements. In addition, the OTS has enforcement authority over the Mutual
Holding Company and the Company and any nonsavings 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.  As federal corporations, the Company and the Mutual Holding
Company are generally not subject to state business organizations law.

     PERMITTED ACTIVITIES.  Pursuant to Section 10(o) of the HOLA and OTS
regulations and policy, a Mutual Holding Company and a federally chartered mid-
tier holding company such as the Company may engage in the following activities:
(i) investing in the stock of a savings association; (ii) acquiring a mutual
association through the merger of such association into a savings association
subsidiary of such holding company or an interim savings association subsidiary
of such holding company; (iii) merging with or acquiring another holding
company, one of whose subsidiaries is a savings association; (iv) investing in a
corporation, the capital stock of which is available for purchase by a savings
association under federal law or under the law of any state where the subsidiary
savings association or associations share their home offices; (v) furnishing or
performing management services for a savings association subsidiary of such
company; (vi) holding, managing or liquidating assets owned or acquired from a
savings subsidiary of such company; (vii) holding or managing properties used or
occupied by a savings association subsidiary of such company properties used or
occupied by a savings association subsidiary of such company; (viii) acting as
trustee under deeds of trust; (ix) any other activity (A) that the Federal
Reserve Board, by regulation, has determined to be permissible for bank holding
companies under Section 4(c) of the Bank Holding Company Act of 1956, unless the
Director, by regulation, prohibits or limits any such activity for savings and
loan holding companies; or (B) in which multiple savings and loan holding
companies were authorized (by regulation) to directly engage on March 5, 1987;

                                       96
<PAGE>
 
and (x) purchasing, holding, or disposing of stock acquired in connection with a
qualified stock issuance if the purchase of such stock by such savings and loan
holding company is approved by the Director.  If a Mutual Holding Company
acquires or merges with another holding company, the holding company acquired or
the holding company resulting from such merger or acquisition may only invest in
assets and engage in activities listed in (i) through (x) above, and has a
period of two years to cease any nonconforming activities and divest of any
nonconforming investments.

     The HOLA prohibits a savings and loan holding company, including the
Company and the Mutual Holding Company, directly or indirectly, or through one
or more subsidiaries, from acquiring another savings institution or holding
company thereof, without prior written approval of the OTS.  It also prohibits
the acquisition or retention of, with certain exceptions, more than 5% of a
nonsubsidiary savings institution, a nonsubsidiary holding company, or a
nonsubsidiary company engaged in activities other than those permitted by the
HOLA; or acquiring or retaining control of an institution that is not federally
insured.  In evaluating applications by holding companies to acquire savings
institutions, the OTS must consider the financial and managerial resources,
future prospects of the company and institution involved, the effect of the
acquisition on the risk to the insurance fund, 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, subject to two exceptions: (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.

     WAIVERS OF DIVIDENDS BY THE MUTUAL HOLDING COMPANY.  OTS regulations
require the Mutual Holding Company to notify the OTS of any proposed waiver of
its right to receive dividends.  The OTS reviews dividend waiver notices on a
case-by-case basis, and, in general, does not object to any such waiver if: (i)
the Mutual Holding Company's board of directors determines that such waiver is
consistent with such directors' fiduciary duties to the Mutual Holding Company's
members; (ii) for as long as the savings association subsidiary is controlled by
the Mutual Holding Company, the dollar amount of dividends waived by the Mutual
Holding Company are considered as a restriction to the retained earnings of the
savings association, which restriction, if material, is disclosed in the public
financial statements of the savings association as a note to the financial
statements; (iii) the amount of any dividend waived by the Mutual Holding
Company is available for declaration as a dividend solely to the Mutual Holding
Company, and, in accordance with SFAS No. 5, where the savings association
determines that the payment of such dividend to the Mutual Holding Company is
probable, an appropriate dollar amount is recorded as a liability; (iv) the
amount of any waived dividend is considered as having been paid by the savings
association in evaluating any proposed dividend under OTS capital distribution
regulations; and (v) in the event the Mutual Holding Company converts to stock
form, the appraisal submitted to the OTS in connection with the conversion
application takes into account the aggregate amount of the dividends waived by
the Mutual Holding Company.

     CONVERSION OF THE MUTUAL HOLDING COMPANY TO STOCK FORM.  OTS regulations
and the Plan permit the Mutual Holding Company to undertake a Conversion
Transaction.  There can be no assurance when, if ever, a Conversion Transaction
will occur, and the Board of Directors has no current intention or plan to
undertake a Conversion Transaction.  In a Conversion Transaction a new holding
company would be formed as the successor to the Company (the "New Holding
Company"), the Mutual Holding Company's corporate existence would end, and
certain depositors of the Bank would receive the right to subscribe for
additional shares of the New Holding Company. In a Conversion Transaction, each
share of Common Stock held by Minority Stockholders would be automatically
converted into a number of shares of common stock of the New Holding Company
determined pursuant an exchange ratio that ensures that after the Conversion
Transaction, subject to the Dividend Waiver Adjustment described below and any
adjustment to reflect the receipt of cash in lieu of fractional shares, the
percentage of the to-be outstanding shares of the New Holding Company issued to
Minority Stockholders in exchange for their Common Stock would be equal to the
percentage of the outstanding shares of Common Stock held by Minority
Stockholders immediately prior to the Conversion Transaction.  The total number
of shares held by Minority Stockholders after the Conversion Transaction would
also be affected by any purchases by such persons in the offering that would be
conducted as part of the Conversion Transaction.

                                       97
<PAGE>
 
     The Dividend Waiver Adjustment would decrease the percentage of the to-be
outstanding shares of common stock of the New Holding Company issued to Minority
Stockholders in exchange for their shares of Common Stock to reflect (i) the
aggregate amount of dividends waived by the Mutual Holding Company and (ii)
assets other than Common Stock held by the Mutual Holding Company.  Pursuant to
the Dividend Waiver Adjustment, the percentage of the to-be outstanding shares
of the New Holding Company issued to Minority Stockholders in exchange for their
shares of Common Stock would be equal to the percentage of the outstanding
shares of Common Stock held by Minority Stockholders multiplied by the Dividend
Waiver Fraction.  The Dividend Waiver Fraction is equal to the product of (a) a
fraction, of which the numerator is equal to the Company's stockholders' equity
at the time of the Conversion Transaction less the aggregate amount of dividends
waived by the Mutual Holding Company and the denominator is equal to the
Company's stockholders' equity at the time of the Conversion Transaction, and
(b) a fraction, of which the numerator is equal to the appraised pro forma
market value of the New Holding Company minus the value of the Mutual Holding
Company's assets other than Common Stock and the denominator is equal to the pro
forma market value of the New Holding Company.

FEDERAL SECURITIES LAW

     The Common Stock to be issued in the Offering will be registered with the
SEC under the Securities Exchange Act of 1934 (the "Exchange Act").  The Company
will be subject to the information, proxy solicitation, insider trading
restrictions and other requirements of the SEC under the Exchange Act.  Common
Stock held by persons who are affiliates (generally officers, directors and
principal stockholders) of the Company may not be resold without registration or
unless sold in accordance with certain resale restrictions.  If the Company
meets specified current public information requirements, each affiliate of the
Company is able to sell in the public market, without registration, a limited
number of shares in any three-month period.

                           MANAGEMENT OF THE COMPANY

DIRECTORS OF THE COMPANY

     The Board of Directors of the Company will initially consist of the nine
persons who are currently directors of the Bank.  Directors of the Company will
serve three-year staggered terms so that approximately one third of the
Directors will be elected at each annual meeting of stockholders.  The class of
directors whose term of office expires at the first annual meeting of
shareholders following completion of the Reorganization consists of Directors
Helmer, Strayton, Coyle and Ward.  The class of directors whose term expires at
the second annual meeting of shareholders following completion of the
Reorganization consists of Directors Korn, McNelis and Nozell.  The class of
directors whose term of office expires at the third annual meeting of
shareholders following the completion of the Reorganization consists of
Directors Sichol and Zeh.

                                       98
<PAGE>
 
EXECUTIVE OFFICERS OF THE COMPANY

     The following individuals will be executive officers of the Company and
hold the offices set forth below opposite their names.  The biographical
information for each executive officer is set forth under "Management of the
Bank--Directors and Executive Officers of the Bank."
<TABLE>
<CAPTION>
 
                      NAME  AGE*                         POSITION
--------------------------  ----  -------------------------------------------------------
<S>                         <C>   <C>
George Strayton               54  President, Chief Executive Officer and Director
 
Daniel G. Rothstein           51  Executive Vice  President, Chief Credit Officer
                                  and Regulatory Counsel
 
Robert J. Sansky              51  Executive Vice President and Director of Human
                                  Resources
 
Katherine A. Dering           50  Senior Vice President and Chief Financial Officer
 
Stephen G. Dormer             47  Senior Vice President and Director of Business Activity
 
John F. Fitzpatrick           46  Senior Vice President and Director of Support Services
 ________________________
*As of June 30, 1998
</TABLE>


     None of the executive officers has received remuneration from the Company.
It is not anticipated that the executive officers of the Company will initially
receive any remuneration in his capacity as an executive officer.  For
information concerning compensation of executive officers of the Bank, see
"Management of the Bank."

BOARD OF DIRECTORS AND COMMITTEES OF THE COMPANY AFTER THE REORGANIZATION

     Following the Reorganization, the Board of Directors of the Company is
expected to meet quarterly, or more often as may be necessary.  The directors of
the Company will not initially receive fees for serving on the Company's Board
of Directors.

     The Board of Directors initially is expected to have, among others, a
standing Executive Committee and Audit Committee.  The Company's full Board of
Directors will act as the Nominating Committee, or may appoint a Nominating
Committee.  The Company does not intend initially to have a compensation
committee, as it is not anticipated that the officers of the Company will
initially be compensated as such.

     The Executive Committee initially will consist of Chairman Helmer (who will
serve as Chairman), President and Chief Executive Officer Strayton, and
Directors Coyle, McNelis and Sichol.  The Executive Committee is expected to
meet as necessary when the Board is not in session to exercise general control
and supervision in all matters pertaining to the interests of the Company,
subject at all times to the direction of the Board of Directors.

     The Audit Committee initially will consist of Directors Korn (who will
serve as Chairman), Ward and Nozell. The Audit Committee is expected to meet at
least quarterly.  Activities of the Audit Committee will include reviewing and
approving audit reports prepared by the internal auditors and independent
auditors; reviewing and recommending the independent auditors to be engaged by
the Company; and reviewing and approving internal audit policies and programs.

                                       99
<PAGE>
 
                             MANAGEMENT OF THE BANK

DIRECTORS AND EXECUTIVE OFFICERS OF THE BANK

     Upon completion of the Reorganization, the directors of the Bank will
consist of those persons who currently serve on the Board of Directors of the
Bank.  The directors of the Bank will have three year terms which will be
staggered to provide for the election of approximately one-third of the board
members each year.  Directors of the Bank will be elected by the Company as sole
stockholder of the Bank.  The directors and executive officers of the Bank as of
June 30, 1998 are as follows:
<TABLE>
<CAPTION>
 
                                                AGE AT                CURRENT
                                       NAME  JUNE 30, 1998            POSITION            DIRECTOR SINCE  TERM EXPIRES
-------------------------------------------  -------------  ----------------------------  --------------  ------------
<S>                                          <C>            <C>                           <C>             <C>
DIRECTORS:
 
William F. Helmer                                  64          Chairman of the Board                1974          1999
George Strayton                                    54        President, Chief Executive             1991          1999
                                                                Officer and Director                                    
Dennis L. Coyle                                    62              Vice Chairman                    1984          1999
Murray L. Korn                                     73                 Director                      1966          2000
Dr. Donald T. McNelis                              65                 Director                      1987          2000
Richard A. Nozell                                  64                 Director                      1990          2000
William R. Sichol, Jr.                             58                 Director                      1990          2001
Wilbur C. Ward                                     72                 Director                      1990          1999
F. Gary Zeh                                        60                 Director                      1979          2001
 
<CAPTION> 
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS:
<S>                                          <C>            <C>                           
Daniel G. Rothstein                                51          Executive Vice President,
                                                                  Chief Credit Officer                                      
                                                                and Regulatory Counsel                                    
Robert J. Sansky                                   51         Executive Vice President and
                                                              Director of Human Resources                               
Katherine A. Dering                                50          Senior Vice President and
                                                                Chief Financial Officer                                   
Stephen G. Dormer                                  47          Senior Vice President and
                                                             Director of Business Activity                             
John F. Fitzpatrick                                46          Senior Vice President and
                                                             Director of Support Services
</TABLE>


     The business experience for the past five years for each of the Bank's
directors and executive officers is as follows:

     WILLIAM F. HELMER has served as the Chairman of the Board of Directors
since 1994, and is the President of Helmer-Cronin Construction, Inc., a
construction company.

     GEORGE STRAYTON has been employed by the Bank since 1982, and was named
President and Chief Executive Officer of the Bank in 1986.

     DENNIS L. COYLE has served as Vice Chairman of the Board of Directors since
1994.  Mr. Coyle is the owner of the Coyle Insurance Agency, the owner and
President of Delco Realty and the owner of Dennis L. Coyle Rental Properties.

     MURRAY L. KORN was the Senior and Managing Partner of Korn, Rosenbaum,
Phillips and Jauntig, an accounting firm, prior to his retirement in 1986.  Mr.
Korn also served as Chairman of the Board of Directors of the Bank from 1984
until his retirement from that position in 1994.

     DR. DONALD T. MCNELIS served as President of St. Thomas Aquinas College in
Sparkill, New York from 1974 until his retirement in 1995.

                                      100
<PAGE>
 
     RICHARD A. NOZELL is the owner of Richard Nozell Building Construction, and
serves as a general building contractor.

     WILLIAM R. SICHOL, JR. is a principal of Sichol & Hicks, P.C., a private
law firm.

     WILBUR C. WARD is currently retired.  Prior to his retirement, Mr. Ward was
the President of Ward Bulldozers.

     F. GARY ZEH is the President of Haverstraw Transit Inc., a bus contracting
company, and President and Owner of Quality Bus Sales and Service.

     DANIEL G. ROTHSTEIN has been employed by the Bank since 1983, and was named
Executive Vice President of the Bank in 1989.  Mr. Rothstein has served as the
Bank's Chief Credit Officer and Regulatory Counsel since 1996.

     ROBERT J. SANSKY has been employed by the Bank since 1985, and was named
Executive Vice President in 1989.  Mr. Sansky has served as the Bank's Director
of Human Resources since 1995.

     KATHERINE A. DERING has served as the Bank's Chief Financial Officer since
1994.  Ms. Dering previously served as the Chief Financial Officer of a
community bank located in Connecticut.

     STEPHEN G. DORMER has served as Senior Vice President and Director of
Business Development of the Bank since 1996, and was previously Senior Vice
President and Manager of the Bank's Commercial Loan Department from 1994 until
1996.  Prior to joining the Bank in 1994, Mr. Dormer was Senior Vice President
of a commercial bank located in Connecticut.

     JOHN F. FITZPATRICK has been employed by the Bank since 1986, and was named
Senior Vice President and Director of Support Services in 1997.

MEETINGS OF THE BOARD OF THE BANK

     The Board of Directors of the Bank meets monthly and may have additional
special meetings as may be called by the Chairman or as otherwise provided by
law.  During the fiscal year ended September 30, 1997, the Board held 16
meetings.  No director attended fewer than 75% in the aggregate of the total
number of meetings of the Board or Board Committees on which such Director
served during fiscal 1997.

COMPENSATION OF DIRECTORS

     FEES.  During the fiscal year ended September 30, 1997, non-employee
Directors of the Bank received a retainer fee of $12,000, plus a fee of $700 per
Board meeting attended, and $400 per month for other committee meetings.  The
Chairman of each committee received an additional $2,000 per year.  The Chairman
of the Board received a retainer fee of $47,600 for the fiscal year ended
September 30, 1997.

     DEFERRED COMPENSATION AGREEMENTS.  The Bank has entered into nonqualified
deferred compensation agreements ("DCA") for the benefit of all of the Bank's
Directors.  The DCAs comprise a non-qualified deferred compensation plan into
which a non-employee director can defer up to 100% of his board fees earned
during the calendar year.  In connection with the Reorganization and Offering,
the DCA has been amended to permit each Director to determine whether to invest
all or a portion of his account in Common Stock, in accordance with the tax law
limitations.  Prior to the amendment, amounts credited to a Director's deferral
account earn interest at a rate equal to the ten-year FHLB of New York advance
rate determined on December 1st of the previous calendar year.  Upon a
Director's attainment of the board's mandatary retirement age, the Director's
account will be paid to him in generally equal quarterly installments beginning
on the first day of the first calendar quarter after the director becomes
entitled to such payments and continuing for 5 years.  If a Director files a
timely election, the Director's distributions from the plan may commence prior
to a director's attainment of mandatory retirement age and may be paid over a

                                      101
<PAGE>
 
longer period of time.  In the event of the Director's death, the balance of the
Director's account will be paid to the Director's designated beneficiary on the
first day of the first calendar quarter after the Director's death.  A Director
may also request a distribution from his account in the event the Director
suffers a hardship, defined as a sudden or unexpected illness, accident or
similar event affecting the Director, his beneficiary or family member.  Whether
to grant a hardship distribution is within the sole discretion of the Board.

     If a Director elects to invest all or a portion of his account in Common
Stock, the amount so invested will be credited with earnings and appreciation
(or depreciation) equivalent to that which would be earned on such investment
and the amount not so invested in Common Stock will continue to earn interest at
the rate set forth above, or at another rate established by the committee which
administers the DCAs.  The DCA is an unfunded plan for tax purposes and for
purposes of ERISA.  All obligations arising under the DCAs are payable from the
general assets of the Bank, however, the Bank has established a trust to ensure
that sufficient assets will be available to pay the benefits under the DCAs and
to hold any stock purchased under the DCAs.

EXECUTIVE COMPENSATION

     SUMMARY COMPENSATION TABLE.  The following table sets forth for the year
ended September 30, 1997, certain information as to the total remuneration paid
by the Bank to the Chief Executive Officer of the Bank, as well as to the four
most highly compensated executive officers of the Bank at September 30, 1997,
other than the Chief Executive Officer, who received total annual compensation
in excess of $100,000 (together, "Named Executive Officers").
<TABLE>
<CAPTION>
 
                                                       ANNUAL COMPENSATION/(1)/                   LONG-TERM COMPENSATION
                                                       ------------------------                   ----------------------
                                                                 AWARDS                           PAYOUTS           
                                                                 ------------------------------  ---------          
                                                                   OTHER
                                   YEAR                            ANNUAL     RESTRICTED                     ALL OTHER   
 NAME AND                         ENDED                         COMPENSATION     STOCK   OPTIONS/   LTIP    COMPENSATION
 PRINCIPAL POSITION             9/30/(1)/  SALARY      BONUS        /(2)/       AWARDS     SARS   PAYOUTS      /(3)/
------------------------------  ---------  ----------  ------------------------  -----  --------  ------  --------------  -------
<S>                             <C>        <C>         <C>      <C>              <C>    <C>       <C>     <C>
George Strayton, President,          1997    $259,665  $83,125            --      --      --       --         $32,655
Chief Executive Officer                                                                                     
and Director                                                                                                
                                                                                                            
Daniel G. Rothstein,                 1997    $157,425  $41,316            --      --      --       --         $18,155
Executive Vice  President,                                                                                  
Chief Credit Officer                                                                                        
and Regulatory Counsel                                                                                      
                                                                                                            
Robert J. Sansky                     1997    $141,473  $41,219            --      --      --       --         $17,387
Executive Vice President and                                                                                
Director of Human Resources                                                                                 
                                                                                                            
Katherine A. Dering                  1997    $120,731  $37,641            --      --      --       --         $10,224
Senior Vice President and                                                                                   
Chief Financial Officer                                                                                     
                                                                                                            
Stephen G. Dormer                    1997    $127,868  $32,259     --             --      --       --         $ 2,887
Senior Vice President and
</TABLE>

Director of Business Activity

-----------------------------------------------
/(1)/ In accordance with the rules on executive officer and director
     compensation disclosure adopted by the SEC, Summary Compensation
     information is excluded for the fiscal years ended September 30, 1996 and
     1995, as the Bank was not a public company during such periods.
/(2)/ The Bank provides certain members of senior management with certain other
     personal benefits, the aggregate value of which did not exceed the lesser
     of $50,000 or 10% of the total annual salary and bonus reported for each
     officer.  The value of such persons/benefits is not included in this table.
/(3)/ Includes employer contributions to the Bank's 401(k) Plan on behalf of
     Named Executive Officers, as well as the payment of premiums for life
     insurance policies.


     EMPLOYMENT AGREEMENTS. In January 1996, the Bank entered into an employment
agreement with George Strayton, the President and Chief Executive Officer of the
Bank which agreement was amended in 1998 (as amended, the "agreement").  

                                      102
<PAGE>
 
On each day during the term of the agreement, the term of the agreement
automatically renews so that the agreement shall continually be for a three-year
term unless notice of non-renewal is provided within ___ days prior to any
anniversary of the date on which the agreement was entered into (the
"Anniversary Date"). In the event that notice of non-renewal is given, the
agreement will expire at the end of its then three-year term. Under the
agreement, Mr. Strayton will be paid $262,000 (the current annual rate of
salary). For each calendar year beginning after a change in control (as defined
in the agreement) of the Bank or Company, Mr. Strayton's annual rate of salary
shall be increased by the greater of (i) 1.06 percent, (ii) the quotient of (A)
the U.S. City Average All Items Consumer Price Index for All Urban Consumers for
October of the immediately preceding calendar year divided by the same economic
indicator, as determined for the second preceding calendar year; and (iii) the
quotient of the average annual rate of salary determined as of the first day of
the calendar quarter of the officers of the Bank (other than Mr. Strayton) who
are assistant vice presidents or above over the average annual rate of salary of
such persons for the immediately preceding calendar year. In addition to his
annual rate of salary, Mr. Strayton shall be entitled to participate in all tax-
qualified plans and other incentive programs of the Bank, and the group life,
health, dental and short and long term disability plans maintained by the Bank
from time to time.

     In the event of Mr. Strayton's termination of employment by the Bank for
any reason other than for cause (as defined in the agreement) or in the event of
his voluntary resignation within one year following (i) his failure to be re-
appointed or re-elected as President or Chief Executive Officer of the Bank,
(ii) the failure to re-elect him as a director of the Bank, (iii) a material
adverse change in his functions, duties or responsibilities which is not cured
within 30 days of notice thereof from Mr. Strayton, (iv) a change in control of
the Bank or the Company, or in the event of termination of his employment due to
total and permanent disability, then Mr. Strayton shall be entitled to certain
benefits payable by the Bank.  First, Mr. Strayton shall be entitled to his
earned but unpaid salary, any benefits to which he would become entitled as a
former employee, and continuation of his group life, health, prescription drug,
dental, short and long term disability insurance benefits for the remaining
unexpired employment period under the agreement.  In addition, Mr. Strayton and
his spouse shall be entitled to continued health coverage for their remaining
lifetimes.  Mr. Strayton shall also be entitled to certain lump sum payments
under the agreement.  For example, Mr. Strayton shall be entitled to a lump sum
payment equal to the present value of any salary that he would have earned for
the remaining unexpired employment period under the agreement and the present
value of any fees that he would have earned as a director during that period.
Within  60 days of his termination of employment, Mr. Strayton shall also be
entitled to payments equal to the present value of (i) the additional amount to
which he would have been entitled as a participant in the Bank's defined benefit
pension plan, (ii) the additional amount to which he would have been entitled
under the Bank's 401(k) Plan and ESOP, and (iii) the additional amount to which
he would have been entitled under the SERP, in each case, assuming he had
continued in the employment of the Bank for the remaining unexpired employment
period under the agreement, and making certain assumptions (regarding salary
increases, etc.) as set forth in the agreement.  The amounts provided to Mr.
Strayton under "(i)" and "(ii)" of the preceding sentence shall be increased by
a factor which takes into consideration the fact that such payments will be
currently taxable to Mr. Strayton.  Mr Strayton will also be entitled to
immediate vesting of any unearned options or shares of restricted stock awarded
to him under any stock benefit plan maintained by the Company. Finally, Mr.
Strayton shall be entitled to the payments that would have been made to him
under all incentive compensation plans and programs adopted by the Bank,
including the Management Incentive Program as if he had continued to work for
the Bank during the remaining unexpired employment period under the agreement
and had earned an incentive award in each such calendar year equal to an amount
determined by formula set forth in the agreement.  In the event that the Bank
gives Mr. Strayton a notice of non-renewal or if the Bank does not extend the
employment period at least 60 days prior to any renewal date set forth under the
agreement, Mr. Strayton may resign from the Bank at any time and shall receive a
lump sum cash benefit within 30 days equal to the amounts set forth above.
Also, in such event the Bank shall provide the continuing group life, health,
prescription drug, dental, short and long term disability insurance benefits set
forth above.  In the event that Mr. Strayton becomes subject to an excise tax on
payments made under the agreement in connection with a change in control, the
agreement provides that Mr. Strayton shall be reimbursed an amount for payment
of such excise taxes by the Bank (determined pursuant to a formula set forth in
the agreement), so long as during the six-month period prior to such change in
control the Bank was in compliance with all applicable minimum capital
requirements imposed under federal or state regulatory authority.  The
employment agreement provides that for a period of one year following the date
of his termination with the Bank for reasons other than for cause, Mr. Strayton
shall not compete with the Bank.

                                      103
<PAGE>
 
     The Bank intends to enter into employment agreements with Messrs.
Rothstein, Sansky, Dormer, and Ms. Dering. The new employment agreements shall
be for terms of up to two years and shall renew on a daily basis so that the
remaining term under said agreements shall be for up to two years unless notice
of non-renewal is given. Each executive covered by an employment agreement will
receive an annual rate of salary, as specified in the employment agreement, and
will be entitled to participate in all tax-qualified plans and other incentive
programs of the Bank, and any group life, health, dental and short and long term
disability plans maintained by the Bank from time to time.  In the event of a
covered executive's termination of employment by the Bank for any reason other
than for cause (as defined) or in the event of  his or her voluntary resignation
within one year following (i)  his or her failure to be re-appointed to  his or
her current position, (ii) a material adverse change in  his or her functions,
duties or responsibilities which is not cured within 30 days of notice thereof
from the executive, (iii) a change in control of the Bank or the Company, (iv) a
liquidation or dissolution of the Bank or the Company other than one that does
not affect the status of the executive, or in the event of termination of  his
or her employment due to total and permanent disability, then the executive
shall be entitled to the certain benefits payable by the Bank.  First, the
executive shall be entitled to  his or her earned but unpaid salary, any
benefits to which he or she would become entitled as a former employee, and
continuation of  his or her group life, health, prescription drug, dental, short
and long term disability insurance benefits for the remaining unexpired
employment period under the agreement at a coverage level that he or she would
have been entitled to during such period.  In addition, the executive shall also
be entitled to certain lump sum payments under the agreement.  For example, the
executive shall be entitled to a lump sum payment equal to the present value of
any salary that he or she would have earned for the remaining unexpired
employment period under the agreement.  Within  60 days of  his or her
termination of employment, the executive shall also be entitled to payments
equal to the present value of (i) the additional amount to which he or she would
have been entitled as a participant in the Bank's defined benefit pension plan,
(ii) the additional amount to which he or she would have been entitled under the
Bank's 401(k) Plan and ESOP, and (iii) the additional amount to which he or she
would have been entitled under the SERP, in each case assuming he or she had
continued in the employment of the Bank for the remaining unexpired employment
period under the agreement and making certain assumptions (regarding salary
increases, etc.) as set forth in the agreement.  The amounts provided to the
executive under "(i)" and "(ii)" of the preceding sentence shall be increased by
a factor which takes into consideration the fact that such payments will be
currently taxable to the executive.  The executive will also be entitled to
immediate vesting of any unearned options on shares of restricted stock awarded
to him or her under any stock benefit plan maintained by the Company which would
have vested in the executive during the remaining unexpired term of the
agreement.  Finally, the executive shall be entitled to the payments that would
have been made to him under all incentive compensation plans and programs
adopted by the Bank as if he or she had continued to work for the Bank during
the remaining unexpired employment period under the agreement and had earned an
incentive award in each such calendar year equal to an amount determined by
formula set forth in the agreement.  Also, in such event the Bank shall provide
the continuing group life, health, prescription drug, dental, short and long
term disability insurance benefits set forth above.  In the event the
executive's termination of employment occurs in connection with a change in
control of the Bank or Company, the payments made to or on behalf of the
executive shall be made as if the remaining unexpired term of the agreement
includes one additional year.  In the event that the Bank gives an executive
covered by an agreement a notice of non-renewal or if the Bank does not extend
the employment period at least 60 days prior to any renewal date set forth under
the agreement, the executive may resign from the Bank at any time and shall
receive a lump sum cash payment within 30 days equal to the amounts set forth
above.  The employment agreement provides that for a period of one year
following the date of  his or her termination with the Bank for reasons other
than for cause, the executive shall not compete with the Bank.

     MANAGEMENT INCENTIVE PROGRAM.  The Bank sponsors a management incentive
program for certain officers at the vice president level and higher.  In 1998,
the management incentive program provides current compensation to participating
officers upon the attainment of certain earnings goals set by the Bank.
Department heads and other managers at the level of vice president will be
entitled to receive incentive compensation of up to 15% of base salary if
earnings goals are attained, increased to up to 22-1/2% of base salary if
earnings goals are exceeded. Persons at the senior vice president and executive
vice president levels will be entitled to incentive compensation of up to 25% of
base salary if earnings goals are attained, increased to up to 37-1/2% of base
salary if earnings goals are exceeded. The Bank's President will be entitled to
receive incentive compensation of up to 30% of base salary if earnings goals are
attained and up to 45% of base salary if earnings goals are exceeded.  Under the
program, incentive awards may also be given to persons below the level of vice
president in the event of extraordinary performance.  Participants normally

                                      104
<PAGE>
 
receive their incentive award within three months of the Bank's fiscal year end.
For the fiscal year ended September 30, 1997, approximately $468,000 was
distributed to persons participating in the management incentive program.

     1996 LONG TERM INCENTIVE PLAN FOR OFFICERS AND DIRECTORS.  In 1996, the
Bank adopted a long-term incentive plan ("Long-Term Plan") for the benefit of
certain senior officers and all non-employee directors of the Bank. Six
officers, including Messrs. Strayton, Rothstein, Sansky and Dormer and Ms.
Dering are participating under the Long-Term Plan. The Long-Term Plan has an
initial cycle of three years commencing October 1996 and running through
September 1999.  The ability to earn incentive compensation under the Long-Term
Plan is based on the Bank's attainment of certain return on equity ("ROE")
ratios.  It is intended that equal payment pools will be available for officers
and directors under the Long-Term Plan, however, the maximum amount that may be
credited to any officer participant is 30% of  his or her average base salary
during the initial cycle and the maximum amount that may be credited to any non-
employee director is 100% of  his or her annual retainer fee (up to a maximum of
$12,000 per year) for each year of the cycle.  Amounts credited shall be
allocated in direct proportion to officers relative compensation levels and in
equal amounts to all non-employee directors. A participant may earn one-third of
his or her incentive compensation in each year of the cycle.  At the end of each
such year, one half of the amount earned during the year will be paid to the
participant, the other half will be deferred until the end of the cycle and
shall be paid upon the successful completion of the three year goal.  In the
event that a participant dies during the earnings cycle, a pro-rata share of the
amount the participant would have earned shall be paid to his or her estate.  In
the event of (i) a sale of shares in an offering registered with the SEC, (ii)
the consolidation or merger of the Bank with another Bank, (iii) the sale of all
or substantially all of the assets of the Bank or any of its significant
subsidiaries, or (iv) the acquisition by more than 50% of the total combined
voting power of all classes of stock of the Bank entitled to vote for directors,
the Long-Term Plan states the current cycle shall be prematurely closed.  In
such event, each participant will receive the maximum benefit to which the
participant would have been entitled if the Bank had attained the ROE goal for
the year in which the cycle closed. [It is expected that the Bank will achieve
its ROE goal for each of the first two years.  Therefore, assuming the cycle is
prematurely closed in 1998 or early 1999 as a result of the Reorganization,
participants will receive the maximum benefit to which  they would be entitled
under the Long-Term Plan (i.e., 30% of base salary for employees and $36,000 for
directors, minus amounts previously paid to such persons under the Long-Term
Plan).]

     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN.  The Bank maintains a non-qualified
supplemental executive retirement plan ("SERP") for certain executives of the
Bank to compensate those executive participants in the Bank's tax-qualified
benefit plans whose benefits are limited by any of Sections 401(a)(17), 401(k),
401(m) 402(g) or 415 of the Code (the "Applicable Limitations").  The SERP
provides executives with retirement benefits generally equal to the difference
between (i) the annual benefit the executive would have received under the
Bank's Retirement Plan if such benefits were computed without giving effect to
the limitations on benefits imposed by application of Section 401(a)(17) and
Section 415 of the Internal Revenue Code and (ii) the amounts actually payable
to the executive under the terms of the Retirement Plan.  In addition, the
executive is entitled to a 401(k) benefit under the SERP equal to the product of
(i) Bank contributions that could not be credited to  his or her account in the
401(k) Plan due to the Applicable Limitations plus earnings deemed to accrue
each year at the one-year Treasury rate for the first auction in January
multiplied by (ii)  his or her vested percentage in the 401(k) Plan. For these
purposes, the executive will be deemed to have made the maximum salary deferrals
possible without regard to sections 401(k), 401(m) or 402(g) of the Code. The
SERP has been amended in connection with the adoption of the ESOP so that an
executive who does not receive the maximum contribution under the ESOP due to
one of the Applicable Limitations will be entitled to an ESOP benefit under the
SERP, credited in units of the Company's Common Stock, equal to the difference
between the fair market value of the number of shares of common stock of the
Company that would have been allocated to the account of the executive under the
ESOP had the limitations of Section 401(a)(17) and 415 of the Internal Revenue
Code not been applicable, and the fair market value of the number of shares of
Common Stock actually allocated to the account of the executive.  The Retirement
Plan and ESOP benefits under the SERP are payable in the same form as benefits
in the Retirement Plan and ESOP, respectively. See the descriptions of
Retirement Plan  and ESOP for timing and form of payment for benefits under the
Retirement Plan and ESOP.  The 401(k) Plan benefits under the SERP are payable
in 10 annual installments commencing on the first business day of the year
following the year in which the executive's employment is terminated.

                                      105
<PAGE>
 
     The SERP is considered an unfunded plan for tax and ERISA purposes.  All
obligations arising under the SERP are payable from the general assets of the
Bank, however, the Bank has set up a trust, to ensure that sufficient assets
will be available to pay the benefits under the SERP.   The trust shall be
entitled to purchase Common Stock in order to fund the ESOP benefit under the
SERP.

     DEFINED BENEFIT PENSION PLAN.  The Bank maintains the Provident Savings
Bank, F.A. Defined Benefit Pension Plan (the "Retirement Plan") which is a
qualified, tax-exempt defined benefit plan.  Employees age 21 or older who have
worked at the Bank for a period of one year and have been credited with 1,000 or
more hours of service with the Bank during the year are eligible to accrue
benefits under the Retirement Plan.  The Bank contributes each year, if
necessary, an amount to the Retirement Plan to satisfy the actuarially
determined minimum funding requirements in accordance with the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").  For the plan year
ended September 30, 1997, a contribution of approximately $651,000 was made to
the Retirement Plan.  At September 30, 1997, the total market value of the
Retirement Plan trust fund assets was approximately $4.9 million.

     In the event of retirement at normal retirement age (i.e., the later of age
65 or the 5th anniversary of participation in the Retirement Plan), the plan is
designed to provide a single life annuity.  For a married participant, the
normal form of benefit is an actuarially reduced joint and survivor annuity
where, upon the participant's death, the participant's spouse is entitled to
receive a benefit equal to 50% of that paid during the participant's lifetime.
Alternatively, a participant may elect (with proper spousal consent, if
necessary) a joint and 100% survivor annuity, a joint and 75% survivor annuity,
a different form of annuity, or installments payable over a period of nor more
than the life of the participant (and spouse, if applicable).  Payment may be
made in a lump sum in cash, provided the participant has completed 20 years of
service and attained age 55 or has attained normal retirement age.  All forms in
which a participant's benefit may be paid will be actuarially equivalent to the
single life annuity.  The retirement benefit provided is an amount equal to the
greater of a participant's frozen accrued benefit (as provided for in the
Retirement Plan) or 1.6% of a participant's average monthly compensation
multiplied by the participant's years of service (up to a maximum of 35 years)
plus 0.5% of the participant's average monthly compensation in excess of one-
twelfth of the participant's Covered Compensation (as defined in the Retirement
Plan) multiplied by the participant's months of service (up to a maximum of 35
years), computed to the nearest dollar.  Retirement benefits are also payable
upon retirement due to early and late retirement or death and disability.  A
reduced benefit is payable upon early retirement at or after age 55 and the
completion of 10 years of vested service with the Bank.  No reduction in benefit
will occur as a result of special early retirement on or after age 62 and the
completion of 20 years of vested service, if payment is made at the time of
retirement.  Upon termination of employment other than as specified above, a
participant who has five years of vested service after age 18 is eligible to
receive  his or her accrued benefit commencing on such participant's retirement
date, death or disability.

     The following table indicates the annual retirement benefit that would be
payable under the Retirement Plan upon retirement at age 65 in calendar year
1998, expressed in the form of a single life annuity for the average monthly
salary and benefit service classifications specified below.
<TABLE>
<CAPTION>
 
     AVERAGE
     MONTHLY        YEARS OF SERVICE AND ANNUAL BENEFIT PAYABLE AT RETIREMENT
                    ---------------------------------------------------------
   COMPENSATION                15             20             25            30
------------------        -------        -------        -------       -------
<S>                 <C>            <C>            <C>            <C>
 
      $4,167              $13,416        $17,892        $22,356       $26,832
      6,250                21,288         28,392         35,484        42,576
      8,333                29,160         38,880         48,612        58,332
      10,417               37,044         49,392         61,740        74,088
 13,333 and above          48,060         64,080         80,112        96,132
</TABLE>

     As of October 1, 1997, Messrs. Strayton, Rothstein, Sansky, and Dormer, and
Ms. Dering had 15, 15, 12, 3 and 3 years of credited service (i.e., benefit
service) under the Retirement Plan, respectively.

                                      106
<PAGE>
 
     401(K) PLAN.  The Bank maintains the Provident Savings Bank 401(k) Plan
(the "401(k) Plan") which is a qualified, tax-exempt profit sharing plan with a
salary deferral feature under Section 401(k) of the Code.  All employees who
have completed six months of employment are eligible to participate.  Eligible
employees are entitled to enter the 401(k) Plan the first day of January or July
coincident with or following completion of the eligibility requirements.

     Under the 401(k) Plan, participants are permitted to make salary reduction
contributions (in whole percentages) of not less than 2% or more than 10% of
compensation, up to $10,000 (as indexed annually).  For these purposes,
"compensation" means a participant's total compensation received from the Bank,
including salary reduction contributions, but does not include compensation in
excess of the Code Section 401(a)(17) limits (i.e., $160,000 in 1998).  The Bank
may match up to the first 6% of salary that a participant contributes to the
401(k) Plan.  All employee salary reduction contributions and earnings are fully
and immediately vested. A participant is vested in all other contributions as
follows: 50% after 2 years of service, 75% after 3 years of service and 100%
after 4 years of service.  A participant may withdraw salary reduction
contributions (and earnings), or may take a loan of up to 50% of the
participant's vested account balance, in the event the participant suffers a
financial hardship.

     The 401(k) Plan permits employees to direct the investment of his or her
own accounts into various investment options.  In connection with the Offering,
the 401(k) Plan intends to offer participants the opportunity to invest in an
employer stock fund which intends to purchase Common Stock in the Offering.
Each participant who directs the trustee to invest all or part of his or her
account in the employer stock fund will have assets in his or her account
applied to the purchase of shares of Common Stock.  Participants will be
entitled to direct the trustee as to how to vote his or her allocated shares of
Common Stock.

     Plan benefits will become 100% vested and will be paid in a lump sum to
each participant or beneficiary upon retirement, death or disability.   Normal
retirement age under the plan is age 65.  If a participant terminates employment
for reasons other than retirement, disability or death, the participant will be
entitled to receive only the vested portion of his or her account balance and
the remainder will be forfeited.

       At December 31, 1997, the total market value of the assets in the 401(k)
Plan was approximately $3.3 million.  The Bank's matching contributions to the
401(k) Plan for the plan year ended December 31, 1997 were approximately
$267,000.

     EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST.  The Bank intends to implement the
ESOP in connection with the Reorganization.  Employees with at least one year of
employment with the Bank and who have attained age 21 are eligible to
participate. As part of the Reorganization, the ESOP intends to borrow funds
from the Company and use those funds to purchase a number of shares equal to up
to 8% of the Common Stock to be sold in the Offering. Collateral for the loan
will be the Common Stock purchased by the ESOP. The loan will be repaid
principally from the Bank's discretionary contributions to the ESOP over a
period of not more than ten years. It is anticipated that the interest rate for
the loan will be a floating rate equal to the Prime Rate.  Shares purchased by
the ESOP will be held in a suspense account for allocation among participants as
the loan is repaid.

     Contributions to the ESOP and shares released from the suspense account in
an amount proportional to the repayment of the ESOP loan will be allocated among
ESOP participants on the basis of compensation in the year of allocation.
Participants in the ESOP will receive credit for service with the Bank prior to
the effective date of the ESOP.  A participant is 100% vested in his benefits
after five years of service or upon normal retirement (as defined in the  ESOP),
early retirement, disability or death.  A participant who terminates employment
for reasons other than death, retirement, or disability prior to five years of
credited service will forfeit his or her benefits under the ESOP. Benefits will
be payable in the form of Common Stock and cash or, at the election of the
participant, in Common Stock only, upon death, retirement, early retirement,
disability or separation from service. The Bank's contributions to the ESOP are
discretionary, subject to the loan terms and tax law limits, and, therefore,
benefits payable under the ESOP cannot be estimated. Pursuant to SOP No. 93-6,
the Bank is required to record compensation expense in an amount equal to the
fair market value of the shares committed to be released to participants from
the suspense account.

                                      107
<PAGE>
 
     In connection with the establishment of the ESOP, the Bank will establish a
committee of non-employee directors to administer the ESOP.  The Bank will
appoint an independent financial institution to serve as trustee of 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 participating employees.
Under the ESOP, nondirected shares, and shares held in the suspense account,
will be voted in a manner calculated to most accurately reflect the instructions
it has received from participants regarding the allocated stock so long as such
vote is in accordance with the provisions of ERISA.

     STOCK OPTION PLAN. At a meeting of the Company's shareholders to be held no
earlier than six months after the completion of the Offering, the Board of
Directors intends to submit for shareholder approval a stock option plan for
directors, officers and employees of the Bank and of the Company (the "Stock
Option Plan"). If approved by the shareholders, Common Stock in an aggregate
amount equal to 10% of the shares sold in the Offering would be reserved for
issuance by the Company upon the exercise of the stock options granted under the
Stock Option Plan. Ten percent of the shares issued in the Offering would amount
to 257,500 shares, 303,000 shares, 348,450 shares or 400,718 shares at the
minimum, midpoint, maximum and adjusted maximum of the Offering Range,
respectively. No options would be granted under the Stock Option Plan until the
date on which shareholder approval is received.

     It is anticipated that options would be granted for terms of 10 years (in
the case of incentive options) or 10 years and one day (in the case of non-
qualified options).  The exercise price of the options granted under the Stock
Option Plan will be equal to the fair market value of the shares on the date of
grant of the stock options. If the Stock Option Plan is adopted within one year
following the Offering, options will become exercisable at a rate of 20% at the
end of each 12 months of service with the Bank after the date of grant, subject
to early vesting in the event of death or disability. Options granted under the
Stock Option Plan would be adjusted for capital changes such as stock splits and
stock dividends. Notwithstanding the foregoing, awards will be 100% vested upon
termination of employment due to death or disability, and if the Stock Option
Plan is adopted more than 12 months after the Offering, awards would be 100%
vested upon normal retirement or a change in control of the Bank or the Company.
Under OTS rules, if the Stock Option Plan is adopted within the first 12 months
after the Offering, no individual officer can receive more than 25% of the
awards under the plan, no outside director can receive more than 5% of the
awards under the plan, and all outside directors as a group can receive no more
than 30% of the awards under the plan in the aggregate.  No determination has
been made as to the specific terms of the Stock Option Plan or as to the awards
thereunder.

     The Stock Option Plan would be administered by a Committee of nonemployee
members of the Company's Board of Directors. Options granted under the Stock
Option Plan to employees could be "incentive" stock options designed to result
in a beneficial tax treatment to the employee but no tax deduction to the
Company.  Nonqualified stock options could also be granted under the Stock
Option Plan, and will be granted to the nonemployee directors who receive grants
of stock options. In the event an option recipient terminated his or her
employment or service as an employee or director, the options would terminate
during certain specified periods.

     RECOGNITION PLAN.  At a meeting of the Company's shareholders to be held no
earlier than six months after the completion of the Offering, the Board of
Directors also intends to submit a restricted stock plan (the "Recognition
Plan") for shareholder approval. The Recognition Plan will provide the
directors, officers and employees of the Company and the Bank with an ownership
interest in the Company in a manner designed to encourage them to continue their
service with the Bank or the Company, as the case may be.  The Bank will
contribute funds to the Recognition Plan from time to time to enable it to
acquire an aggregate amount of Common Stock equal to up to 4% of the shares of
Common Stock sold in the Offering (or 5% if the Recognition Plan is adopted more
than 12 months after the Offering), either directly from the Company or in open
market purchases. Four percent of the shares issued in the Offering would amount
to 103,020 shares, 121,200 shares, 139,380 shares or 160,287 shares at the
minimum, midpoint, maximum and adjusted maximum of the Offering Range,
respectively. In the event that additional authorized but unissued shares would
be acquired by the Recognition Plan after the Offering, the interests of
existing shareholders would be diluted. The executive officers and directors
will be awarded Common Stock under the Recognition Plan without having to pay
cash for the shares.  No awards under the Recognition Plan would be made until
the date the Recognition Plan is approved by the Company's shareholders.

                                      108
<PAGE>
 
     Awards under the Recognition Plan would be nontransferable, nonassignable
and, during the lifetime of the recipient, could only be earned by him or her.
If the Recognition Plan is adopted within one year following the Offering, the
shares which are subject to an award would vest and be earned by the recipient
at a rate of 20% of the shares awarded at the end of each full 12 months of
service with the Bank after the date of grant of the award. Awards would be
adjusted for capital changes such as stock dividends and stock splits.
Notwithstanding the foregoing, awards would be 100% vested upon termination of
employment or service due to death or disability, and if the Recognition Plan is
adopted more than 12 months after the Offering, awards would be 100% vested upon
normal retirement or a change in control of the Bank or the Company. If
employment or service were to terminate for other reasons, the award recipient
would forfeit any nonvested award. If employment or service is terminated for
cause (as would be defined in the Recognition Plan), shares not already
delivered under the Recognition Plan would be forfeited. Under OTS rules, if the
Recognition Plan is adopted within the first 12 months after the Offering, no
individual officer can receive more than 25% of the awards under the plan, no
outside director can receive more than 5% of the awards under the plan, and all
outside directors as a group can receive no more than 30% of the awards under
the plan in the aggregate.  No determination has been made as to the specific
terms of the plan or as to the awards thereunder.  The Recognition Plan would be
administered by a committee of non-employee members of the Company's board of
directors.

     When shares become vested under the Recognition Plan, the participant will
recognize income equal to the fair market value of the Common Stock earned,
determined as of the date of vesting, unless the recipient makes an election
under (S) 83(b) of the Code to be taxed earlier. The amount of income recognized
by the participant would be a deductible expense for tax purposes for the
Company.  If the Recognition Plan is adopted within one year following the
Offering, dividends and other earnings will accrue and be payable to the award
recipient when the shares vest. If the Recognition Plan is adopted within one
year following the Offering, shares not yet vested under the Recognition Plan
will be voted by the trustee of the Recognition Plan, taking into account the
best interests of the recipients of the Recognition Plan awards.  If the
Recognition Plan is adopted more than one year following the Offering, dividends
declared on nonvested shares will be distributed to the participant when paid,
and the participant will be entitled to vote the nonvested shares.

TRANSACTIONS WITH CERTAIN RELATED PERSONS

     The Bank offers to directors, officers, and employees real estate mortgage
loans secured by their principal residence. All loans to the Bank's directors,
officers and employees have been made on substantially the same terms, including
interest rates and collateral as those prevailing at the time for comparable
transactions, and do not involve more than minimal risk of collectibility.

                   RESTRICTIONS ON ACQUISITION OF THE COMPANY

     The following discussion is a general summary of certain regulatory
restrictions on the acquisition of the Common Stock.  In addition, the following
discussion generally summarizes certain provisions of the charter and bylaws of
the Company and the Bank and certain regulatory provisions that may be deemed to
have an "anti-takeover" effect.

THE MUTUAL HOLDING COMPANY STRUCTURE

     Under OTS regulations, the Plan, and the charter of the Company, at least a
majority of the Company's voting shares must be owned by the Mutual Holding
Company.  The Mutual Holding Company will be controlled by its Board of
Directors, which will initially consist of the same persons who are members of
the Board of Directors of the Bank and the Company. The Mutual Holding Company
will be able to elect all members of the Board of Directors of the Company, and
as a general matter, will be able to control the outcome of all matters
presented to the stockholders of the Company for resolution by vote, except for
matters that require a vote greater than a majority. The Mutual Holding Company,
acting through its Board of Directors, will be able to control the business, and
operations of the Company and the Bank, and will be able to prevent any
challenge to the ownership or control of the Company by Minority Stockholders.
Accordingly, a change in control of the Company and the Bank cannot occur unless
the Mutual Holding Company first converts to the stock form of organization.

                                      109
<PAGE>
 
Although OTS regulations and policy and the Plan permit the Mutual Holding
Company to convert from the mutual to the capital stock form of organization,
the Board of Directors has no current plan to do so.

PROVISIONS OF THE COMPANY'S CHARTER AND BYLAWS

     In addition to the anti-takeover aspects of the mutual holding company
structure, the following discussion is a general summary of certain provisions
of the Company's charter and bylaws and certain other regulatory provisions
which will restrict the ability of stockholders to influence management
policies, and which may be deemed to have an "anti-takeover" effect.  The
following description of certain of these provisions is necessarily general and,
with respect to provisions contained in the Company's and the Bank's proposed
charter and bylaws and the Bank's proposed stock charter and bylaws, reference
should be made in each case to the document in question, each of which is part
of the Bank's application to the OTS and the Company's Registration Statement
filed with the SEC.  See "Additional Information."

     CLASSIFIED BOARD OF DIRECTORS AND RELATED PROVISIONS.  The Company's
Charter provides that the Board of Directors is to be divided into three classes
which shall be as nearly equal in number as possible.  The directors in each
class hold office for terms of three years and until their successors are
elected and qualified.  One class is elected annually.  Management of the
Company believes that the staggered election of directors tends to promote
continuity and stability of management but makes it more difficult for
stockholders to change a majority of the directors because it generally takes at
least two annual elections of directors for this to occur.

     ABSENCE OF CUMULATIVE VOTING.  The Company's Charter provides that there
shall be no cumulative voting rights in the election of directors.

     AUTHORIZATION OF PREFERRED STOCK.  The Company's Charter authorizes shares
of serial preferred stock, without par value.  The Company is authorized to
issue preferred stock from time to time in one or more series subject to
applicable provisions of law; and the Board of Directors is authorized to fix
the designations, and relative preferences, limitations, voting rights, if any,
including without limitation, conversion rights of such shares (which could be
multiple or as a separate class).  In the event of a proposed merger, tender
offer or other attempt to gain control of the Company that the Board of
Directors does not approve, it might be possible for the Board of Directors to
authorize the issuance of a series of preferred stock with rights and
preferences that would impede the completion of such a transaction.  An effect
of the possible issuance of preferred stock, therefore, may be to deter a future
takeover attempt.  The Board of Directors has no present plans or understandings
for the issuance of any preferred stock but it may issue any preferred stock on
terms which the Board deems to be in the best interests of the Company and its
stockholders.

     RESTRICTIONS ON ACQUISITIONS OF SECURITIES.  The Company's Charter provides
that for a period of five years from the effective date of the charter, no
person other than the Mutual Holding Company, may directly or indirectly offer
to acquire or acquire the beneficial ownership of more than 10% of any class of
equity security of the Company. In addition, for a period of five years
following the effective date of the Charter each share beneficially owned in
violation of the foregoing percentage limitation shall not be counted as shares
entitled to vote, shall not be voted by any person or counted as voting shares
in connection with any matter submitted to stockholders for a vote, and shall
not be counted as outstanding for purposes of determining a quorum or the
affirmative vote necessary to approve any matter submitted to the stockholders
for a vote.

     SPECIAL MEETING OF STOCKHOLDERS.  The Company's Charter provides that for
five years after the effective date of the Charter, special meetings of
stockholders relating to changes in control of the Company or amendments to the
Charter may be called only by the Board of Directors.

CHANGE IN BANK CONTROL ACT AND SAVINGS AND LOAN HOLDING COMPANY PROVISIONS OF
THE HOLA

     The Change in Bank Control Act provides that no person, acting directly or
indirectly or through or in concert with one or more other persons, may acquire
control of a savings and loan holding company unless the OTS has been given 60
days' prior written notice.  The Home Owners' Loan Act provides that no company

                                      110
<PAGE>
 
may acquire "control" of a savings and loan holding company without the prior
approval of the OTS.  Any company that acquires such control becomes a "savings
and loan holding company" subject to registration, examination, and regulation
by the OTS.  Pursuant to federal regulations, control of a savings and loan
holding company is conclusively deemed to have been acquired by, among other
things, the acquisition of more than 25% of any class of voting stock of the
institution or the ability to control the election of a majority of the
directors of the institution.  Moreover, control is presumed to have been
acquired, subject to rebuttal, upon the acquisition of more than 10% of any
class of voting stock, or of more than 25% of any class of stock, of a savings
and loan holding company, where certain enumerated "control factors" are also
present in the acquisition.  The OTS may prohibit an acquisition of control if
(i) it would result in a  monopoly or substantially lessen competition, (ii) the
financial condition of the acquiring person might jeopardize the financial
stability of the institution, or (iii) the competence, experience, or integrity
of the acquiring person indicates that it would not be in the interest of the
depositors or of the public to permit the acquisition of control by such person.
The foregoing restrictions do not apply to the acquisition of the Company's
capital stock by one or more tax-qualified employee stock benefit plans,
provided that the plan or plans do not have beneficial ownership in the
aggregate of more than 25% of any class of equity security of the Company.

                  DESCRIPTION OF CAPITAL STOCK OF THE COMPANY

     The 30,000,000 shares of capital stock authorized by the Company's Charter
are divided into two classes, consisting of 20,000,000 shares of common stock
($0.10 par value) and 10,000,000 shares of serial preferred stock. The aggregate
stated value of the issued shares will constitute the capital account of the
Company on a consolidated basis.  The balance of the Subscription Price of
Common Stock, less expenses of the Reorganization and Offering, will be
reflected as paid-in capital on a consolidated basis.  See "Capitalization."
Upon payment of the Subscription Price for the Common Stock, in accordance with
the Plan, all such stock will be duly authorized, fully paid, validly issued and
nonassessable.

     COMMON STOCK.  Each share of the Common Stock will have the same relative
rights and will be identical in all respects with each other share of the Common
Stock.  THE COMMON STOCK OF THE COMPANY WILL REPRESENT NON-WITHDRAWABLE CAPITAL,
WILL NOT BE OF AN INSURABLE TYPE AND WILL NOT BE INSURED BY THE FDIC.  The
holders of the Common Stock will possess exclusive voting power in the Company.
Each stockholder will be entitled to one vote for each share held on all matters
voted upon by stockholders, subject to the limitation discussed under
"Restrictions on Acquisition of the Company--Provisions of the Company's Charter
and Bylaws."  If the Company issues preferred stock subsequent to the
Reorganization, holders of the preferred stock may also possess voting powers.

     NO PREEMPTIVE RIGHTS.  Holders of the Common Stock will not be entitled to
preemptive rights with respect to any shares which may be issued.  The Common
Stock will not be subject to call for redemption, and, upon receipt by the
Company of the full purchase price therefor, each share of the Common Stock will
be fully paid and nonassessable.

     PREFERRED STOCK.  After the Reorganization, the Board of Directors of the
Company will be authorized to issue preferred stock in series and to fix and
state the voting powers, designations, preferences and relative, participating,
optional or other special rights of the shares of each such series and the
qualifications, limitations and restrictions thereof.  Preferred stock may rank
prior to the Common Stock as to dividend rights, liquidation preferences, or
both, and may have full or limited voting rights.  The holders of preferred
stock will be entitled to vote as a separate class or series under certain
circumstances, regardless of any other voting rights which such holders may
have.

     Except as discussed herein, the Company has no present plans for the
issuance of the additional authorized shares of Common Stock or for the issuance
of any shares of preferred stock.  In the future, the authorized but unissued
and unreserved shares of Common Stock will be available for general corporate
purposes including but not limited to possible issuance as stock dividends or
stock splits, in future mergers or acquisitions, under a cash dividend
reinvestment and stock purchase plan, in a future underwritten or other public
offering or under an employee stock ownership plan, stock option or restricted
stock plan.  The authorized but unissued shares of preferred stock will
similarly be available for issuance in future mergers or acquisitions, in a

                                      111
<PAGE>
 
future underwritten public offering or private placement or for other general
corporate purposes.  Except as described above or as otherwise required to
approve the transaction in which the additional authorized shares of Common
Stock or authorized shares of preferred stock would be issued, no stockholder
approval will be required for the issuance of these shares.  Accordingly, the
Board of Directors of the Company, without stockholder approval, can issue
preferred stock with voting and conversion rights which could adversely affect
the voting power of the holders of Common Stock.

     DIVIDENDS.  Upon consummation of the formation of the Company, the
Company's only assets will be the Bank's common stock and up to 50% of the net
proceeds of the Offering.  Although it is anticipated that the Company will
retain up to 50% of the net proceeds of the Offering, dividends from the Bank
will be an important source of income for the Company.  Should the Bank elect to
retain its income, the ability of the Company to pay dividends to its own
shareholders may be adversely affected.  Furthermore, if at any time in the
future the Company owns less than 100% of the outstanding stock of the Bank,
certain tax benefits under the Code as to inter-company distributions will not
be fully available to the Company and it will be required to pay federal income
tax on a portion of the dividends received from the Bank, thereby reducing the
amount of income available for distribution to the shareholders of the Company.

                          TRANSFER AGENT AND REGISTRAR

     __________________________ will act as the transfer agent and registrar for
the Common Stock.

                             LEGAL AND TAX MATTERS

     The legality of the Common Stock and the federal income tax consequences of
the Reorganization and Offering will be passed upon for the Bank and the Company
by the firm of Luse Lehman Gorman Pomerenk & Schick, P.C., Washington, D.C.
KPMG Peat Marwick LLP has issued an opinion concerning certain state income tax
aspects of the Reorganization.  Luse Lehman Gorman Pomerenk & Schick, P.C. and
KPMG Peat Marwick LLP have consented to the references herein to their opinions.
Certain legal matters relating to the Offering may be passed upon for Ryan Beck
by Thacher Proffitt & Wood, Washington, D.C.

                                    EXPERTS

     The Bank's consolidated financial statements as of September 30, 1997 and
1996 and for the years then ended, included in this Prospectus, have been
audited by KPMG Peat Marwick LLP, independent auditors, as stated in their
report appearing herein, and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.

     The Bank's consolidated financial statements for the year ended September
30, 1995, included in this Prospectus, have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report appearing herein, and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.

     RP Financial has consented to the publication herein of the summary of its
report to the Bank and the Company setting forth its opinion as to the estimated
pro forma market value of the Common Stock upon Reorganization and its valuation
with respect to Subscription Rights.

                             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 can
be examined without charge at the public reference facilities of the SEC located
at 450 Fifth Street, NW, Washington, D.C.  20549, and copies of such material
can be obtained from the SEC at prescribed rates. The SEC maintains a web site
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC. The address of this web
site is http://www.sec.gov. The statements contained herein as to the contents

                                      112
<PAGE>
 
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 but do contain all material information regarding such documents.  Each
such statement is qualified by reference to such contract or document.

     In connection with the Offering, the Company will register the Common Stock
with the SEC under Section 12(g) of the Exchange Act; and, upon such
registration, the Company and the holders of its Common 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 Reorganization.

     A copy of the charter and bylaws of the Company are available without
charge from the Bank.

                                      113
<PAGE>
 
                                    GLOSSARY
<TABLE> 
<S>                       <C>  
Associate                 "Associate" of a person means: (i) any corporation or
                          organization (other than the Bank or its subsidiaries
                          or the Company) of which such person is a director,
                          officer, partner or 10% shareholder; (ii) any trust or
                          other estate in which such person has a substantial
                          beneficial interest or serves as trustee or in a
                          similar fiduciary capacity; provided, however that such
                          term shall not include any employee stock benefit plan
                          of the Company or the Bank in which such a person has a
                          substantial beneficial interest or as a trustee or in a
                          similar fiduciary capacity; and (iii) any relative or
                          spouse of such person, or relative of such spouse, who
                          either has the same home as such person or who is a
                          director or officer of the Bank or its subsidiaries or
                          the Company

Bank                      Provident Bank prior to completion of the
                          Reorganization, or after the conclusion of the
                          Reorganization, as indicated by the context

BIF                       The Bank Insurance Fund of the FDIC

Code                      The Internal Revenue Code of 1986, as amended

Common Stock              Common Stock, par value of $0.10 per share, of
                          Provident Bancorp, Inc.

Community Offering        The offering for sale to the general public of shares
                          of Common Stock not subscribed for in the Subscription
                          Offering, with preference given to natural persons
                          residing in Rockland County, New York

Company                   Provident Bancorp, Inc., the parent holding company for
                          Provident Bank, and the issuer of the shares of Common
                          Stock in the Offering

Conversion Transaction    A mutual-to-stock conversion of the Mutual Holding Company

Eligible Account Holders  Depositors of the Bank with aggregate account balances
                          of at least $50 as of the close of business on December
                          31, 1996

ERISA                     Employee Retirement Income Security Act of 1974, as
                          amended

ESOP                      The Provident Bancorp, Inc. Employee Stock Ownership
                          Plan and Trust

Estimated Valuation Range The estimated pro forma market value of the Common
                          Stock to be issued in the Reorganization, or
                          $55,250,000 to $74,750,000. The maximum of the
                          Estimated Valuation Range may be increased to
                          $85,962,500 without a resolicitation of subscribers

Exchange Act              Securities Exchange Act of 1934, as amended

Expiration Date           10:00 a.m., New York time, on December __, 1998

FASB                      Financial Accounting Standards Board

FDIC                      Federal Deposit Insurance Corporation

FDICIA                    Federal Deposit Insurance Corporation Improvement Act
                          of 1991, as amended
</TABLE> 

                                      G-1
<PAGE>
 
<TABLE> 
<S>                       <C> 
FHLB                      The Federal Home Loan Bank

FNMA                      Federal National Mortgage Association

Independent Valuation     The appraisal of the pro forma market value of the
                          Common Stock to be issued in the Reorganization, as
                          determined by RP Financial, LC., Arlington, VA.

IRA                       Individual retirement account or arrangement

IRS                       Internal Revenue Service

Minority Stockholders     Stockholders of the Company other than the Mutual
                          Holding Company

MMDA                      Money market demand account

Mutual Holding Company    Provident Bancorp, MHC, a federal mutual holding
                          company

NASD                      National Association of Securities Dealers, Inc.

NOW account               Negotiable order of withdrawal account

NPV                       Net portfolio value

Offering                  The offer and sale of between 2,575,000 and 3,484,500
                          shares of Common Stock, subject to adjustment to
                          4,007,175 shares of Common Stock to depositors and
                          others in the Subscription Offering and the Community
                          Offering pursuant to the Prospectus

Offering Range            The offer and sale by the Company of between 2,575,500
                          and 3,484,500 shares (subject to adjustment to
                          4,007,175 shares) of Common Stock in the Offering
                          pursuant to the Prospectus

Order Form                The form for ordering Common Stock accompanied by a
                          certification concerning certain matters

Other Members             Depositors of the Bank as of _________, 1998, who are
                          not Eligible Account Holders or Supplemental Eligible
                          Account Holders

OTS                       Office of Thrift Supervision

Plan of Reorganization    Provident Bank Plan of Reorganization from a Mutual
                          Savings Bank to a Mutual Holding Company and Stock
                          Issuance Plan

Qualifying Deposits       Deposit accounts with aggregate balances of $50.00 or
                          more as of specified dates

Recognition Plan          The restricted stock plan to be submitted for approval
                          at a meeting of the Company's shareholders to be held
                          no earlier than six months after the completion of the
                          Offering

REO                       Real estate owned
</TABLE> 

                                      G-2
<PAGE>
 
<TABLE> 
<S>                       <C> 
Reorganization            The reorganization of the Bank from the mutual to the
                          stock form of organization, the organization of the
                          Company, the issuance of all of the Bank's common
                          stock to the Company, the issuance of a majority of
                          the Common Stock to the Mutual Holding Company, and
                          the offer and sale of a minority of the Common Stock
                          in the Offering pursuant to the Prospectus

SAIF                      The Savings Association Insurance Fund of the FDIC

SEC                       Securities and Exchange Commission

Special Meeting           The Special Meeting of members of the Bank called for
                          the purpose of approving the Plan

Stock Option Plan         The stock option plan for directors, officers and
                          employees to be submitted for approval at a meeting of
                          the Company's shareholders to be held no earlier than
                          six months after the completion of the Offering

Subscription Offering     The offering of non-transferable rights to subscribe
                          for the Common Stock, in order of priority, to
                          Eligible Account Holders, the ESOP, Supplemental
                          Eligible Account Holders and Other Member s

Subscription Price        The $10.00 price per share at which the Common Stock
                          will be sold in the Offering

Supplemental Eligible     Depositors of the Bank with aggregate account balances
Account Holders           of at least $50 on September 30, 1998, who are not
                          Eligible Account Holders

Voting Record Date        The close of business on _________, 1998, the date for
                          determining depositors entitled to vote at the Special
                          Meeting
</TABLE> 

                                      G-3
<PAGE>
 
                                PROVIDENT BANK
                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                                        
<TABLE>
<CAPTION>
                                                                                 Page
                                                                                 ----
<S>                                                                              <C>        
Independent Auditors' Reports..................................................  F-2

Consolidated Statements of Financial Condition at September 30, 1997 and
  1996 (audited) and at June 30, 1998 (unaudited)..............................  F-4
 
Consolidated Statements of Income for the Years Ended September 30, 1997,
  1996 and 1995 (audited) and for the nine-month periods ended
  June 30, 1998 and 1997 (unaudited)...........................................   46
 
Consolidated Statements of Changes in Equity for the Years Ended
  September 30, 1997, 1996 and 1995 (audited) and for the nine months
  ended June 30, 1998 (unaudited)..............................................  F-5
 
Consolidated Statements of Cash Flows for the Years Ended September 30, 1997,
  1996 and 1995 (audited) and for the nine-month periods ended
  June 30, 1998 and 1997 (unaudited)...........................................  F-6
 
Notes to Consolidated Financial Statements.....................................  F-8
 
</TABLE>

All schedules are omitted because the required information is not applicable or
is included in the Consolidated Financial Statements and related Notes.

                                      F-1
<PAGE>
 
                          INDEPENDENT AUDITORS' REPORT
                                        

The Board of Directors
Provident Bank:


We have audited the accompanying consolidated statements of financial condition
of Provident Bank and subsidiaries as of September 30, 1997 and 1996, and the
related consolidated statements of income (page 46), changes in equity, and cash
flows for the years then ended. 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 Provident Bank and
subsidiaries as of September 30, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.


                                    /s/ KPMG PEAT MARWICK LLP

                                    KPMG PEAT MARWICK LLP


Stamford, Connecticut
October 31, 1997, except
  as to Note 18 which is
  as of April 23, 1998

                                      F-2
<PAGE>
 
                     [LETTERHEAD OF DELOITTE & TOUCHE LLP]


                          INDEPENDENT AUDITORS' REPORT
                                        

The Board of Directors
Provident Bank:


We have audited the accompanying consolidated statement of income (page 46) and
consolidated statements of changes in equity and cash flows of Provident Bank
and subsidiaries for the year ended September 30, 1995. 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 audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and the cash flows
of Provident Bank and subsidiaries for the year ended September 30, 1995 in
conformity with generally accepted accounting principles.

                                    /s/ Deloitte & Touche LLP
                                    -------------------------
                                    DELOITTE & TOUCHE LLP


Parsippany, New Jersey
November 17, 1995

                                      F-3
<PAGE>
 
                                PROVIDENT BANK

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                        
                                 (In thousands)
<TABLE>
<CAPTION>
 
 
                                                                                       AT SEPTEMBER 30,
                                                                     AT JUNE 30,      -------------------
                                                                         1998          1997        1996
                                                                     ------------     -------     -------
                                                                     (UNAUDITED)
<S>                                                               <C>              <C>         <C>
               ASSETS
Cash and cash equivalents:
 Cash and due from banks........................................  $        7,785   $    9,191  $    8,669
 Federal funds sold.............................................           5,000          --        5,000
                                                                         -------      -------     -------
     Total cash and cash equivalents............................          12,785        9,191      13,669
                                                                         -------      -------     -------
Investment securities (Note 2):
 Held to maturity, at amortized cost (fair value of $20,179,
   $22,091 and $21,800 at the respective dates).................          20,197       22,195      22,138
 Available for sale, at fair value (amortized cost of $48,271,
   $48,290 and $47,215 at the respective dates).................          48,629       48,517      47,313
                                                                         -------      -------     -------
     Total investment securities................................          68,826       70,712      69,451
                                                                         -------      -------     -------
Mortgage-backed securities (Note 3):
 Held to maturity, at amortized cost (fair value of $90,063,
   $104,624 and $111,519 at the respective dates)...............          89,334      104,071     112,863
 Available for sale, at fair value (amortized cost of $43,487,
   $35,785 and $41,436 at the respective dates).................          43,775       36,153      41,482
                                                                         -------      -------     -------
     Total mortgage-backed securities...........................         133,109      140,224     154,345
                                                                         -------      -------     -------
Loans receivable, net of allowance for loan losses of $4,548,
 $3,779 and $3,357 at the respective dates (Note 4).............         440,360      404,497     369,487
Accrued interest receivable, net (Note 5).......................           4,625        4,262       4,096
Federal Home Loan Bank stock, at cost (Note 9)..................           3,690        3,641       3,211
Premises and equipment, net (Note 6)............................           6,762        7,047       7,594
Real estate owned, net (Note 7).................................             366          186       1,307
Deferred income taxes (Note 10).................................           2,353        1,783       2,459
Other assets (Note 8)...........................................           6,228        7,199       8,631
                                                                         -------      -------     -------
     Total assets...............................................  $      679,104   $  648,742  $  634,250
                                                                         =======      =======     =======
          LIABILITIES AND EQUITY
Liabilities:
 Deposits (Note 8)..............................................  $      580,075   $  546,846  $  545,286
 Borrowings (Note 9)............................................          25,048       24,000      13,000
 Bank overdraft.................................................             147       17,623      17,157
 Mortgage escrow funds (Note 4).................................          14,471        4,559       4,996
 Other liabilities..............................................           5,484        5,315       8,275
                                                                         -------      -------     -------
     Total liabilities..........................................         625,225      598,343     588,714
                                                                         -------      -------     -------
Commitments and contingencies (Notes 13 and 14)
Equity (Note 11):
 Retained earnings..............................................          53,493       50,049      45,451
 Net unrealized gain on securities available for sale,
   net of income taxes of $260, $245 and $59
   at the respective dates......................................             386          350          85
                                                                         -------      -------     -------
     Total equity...............................................          53,879       50,399      45,536
                                                                         -------      -------     -------
     Total liabilities and equity...............................  $      679,104   $  648,742  $  634,250
                                                                         =======      =======     =======
 
</TABLE>
          See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>
 
                                PROVIDENT BANK

                  CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
                                        
                                 (In thousands)
<TABLE>
<CAPTION>
 
 
                                                                           NET
                                                                       UNREALIZED
                                                             RETAINED    GAIN ON        TOTAL
                                                             EARNINGS  SECURITIES      EQUITY
                                                             --------  -----------     -------
<S>                                                       <C>          <C>          <C>
 
Balance at September 30, 1994...........................   $   38,551     $   --     $ 38,551
 Net income for the year................................        4,803         --        4,803
 Cumulative effect of accounting change
   at October 1, 1994 for net unrealized
   gain on securities available for sale, net
   of income taxes of $27...............................          --           39          39
 Change in net unrealized gain on securities
   available for sale, net of income taxes
   of $303..............................................          --          435         435
                                                               ------       -----      ------
Balance at September 30, 1995...........................       43,354         474      43,828
 Net income for the year................................        2,097         --        2,097
 Change in net unrealized gain on securities available
   for sale, net of income taxes of $271................          --         (389)       (389)
                                                               ------       -----      ------
Balance at September 30, 1996...........................       45,451          85      45,536
 Net income for the year................................        4,598         --        4,598
 Change in net unrealized gain on securities available
   for sale, net of income taxes of $185................          --          265         265
                                                               ------       -----      ------
Balance at September 30, 1997...........................       50,049         350      50,399
 Net income for the period (unaudited)..................        3,444         --        3,444
 Change in net unrealized gain on securities
   available for sale, net of income taxes of
   $15 (unaudited)......................................          --           36          36
                                                               ------       -----      ------
 
Balance at June 30, 1998 (unaudited)....................   $   53,493     $   386    $ 53,879
                                                               ======       =====      ======
 
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-5
<PAGE>
 
                                PROVIDENT BANK

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                        
                                 (In thousands)


<TABLE>
<CAPTION>
 
                                                                     NINE
                                                                  MONTHS ENDED                     YEARS ENDED
                                                                    JUNE 30,                      SEPTEMBER 30,
                                                               -------------------     -----------------------------------
                                                                 1998      1997          1997         1996          1995
                                                               --------  ---------     --------     ---------     --------
                                                                  (UNAUDITED)
<S>                                                         <C>          <C>        <C>          <C>           <C>
 
Cash flows from operating activities:
 Net income...............................................   $   3,444   $  3,464    $   4,598    $    2,097    $   4,803
 Adjustments to reconcile net income to net cash
   provided by operating activities:
     Net amortization of premiums and discounts
       on securities......................................         193        132          177           184          433
     Depreciation and amortization of premises and
      equipment...........................................       1,044      1,084        1,462         1,297          975
     Provision for loan losses............................       1,347        875        1,058           911          760
     Amortization of branch purchase premiums.............       1,200      1,129        1,506           691          --  
     Originations of loans held for sale..................     (14,619)      (197)        (197)         (433)      (1,605)
     Proceeds from sales of loans held for sale...........      17,163        197          197           433        1,605
     Deferred income tax (benefit) expense................        (586)       485          496        (2,551)         163
     Net changes in accrued interest receivable
      and payable.........................................        (241)      (751)        (245)           13         (658)
     Net increase (decrease) in other liabilities.........          47     (2,397)      (2,881)        4,947         (510)
     Other adjustments, net...............................        (459)       280         (175)         (790)          19
                                                               -------   --------      -------      --------      -------
       Net cash provided by operating activities..........       8,533      4,301        5,996         6,799        5,985
                                                               -------   --------      -------      --------      -------
 
Cash flows from investing activities:
 Purchases of securities:
   Investment securities held to maturity.................      (2,977)    (4,999)      (4,999)      (13,277)     (10,939)
   Investment securities available for sale...............     (19,093)    (8,204)      (8,204)      (29,122)     (18,165)
   Mortgage-backed securities held to maturity............     (12,398)    (4,906)     (10,071)      (56,666)     (23,109)
   Mortgage-backed securities available for sale..........     (13,100)       --        (2,000)      (15,604)      (5,880)
 Proceeds from maturities, calls and principal payments:
   Investment securities held to maturity.................       5,010         10        5,012        29,021       15,008
   Investment securities available for sale...............      13,000      6,000        7,000         3,000
   Mortgage-backed securities held to maturity............      26,979     13,426       18,667        17,933        4,066
   Mortgage-backed securities available for sale..........       5,442      5,975        7,730        10,517       12,086
 Proceeds from sales of investment securities
   available for sale.....................................       6,007        --           --            --         2,014
 Loan originations, net of principal repayments...........     (40,165)   (20,936)     (36,829)      (39,814)     (17,799)
 Branch purchase premiums paid............................         --         --           --         (7,532)         --
 (Redemption) purchase of Federal Home Loan
   Bank stock.............................................         (49)      (430)        (430)         (242)          21
 Proceeds from sales of real estate owned.................         451      1,406        2,029           200          754
 Purchases of premises and equipment......................        (761)      (805)      (1,260)       (3,775)      (1,593)
 Proceeds from sales of premises and equipment............           2        292          292           192          842
                                                               -------   --------      -------      --------      -------
      Net cash used in investing activities...............     (31,652)   (13,171)     (23,063)     (105,169)     (42,694)
                                                               -------   --------      -------      --------      -------
 
</TABLE>



                                                                     (Continued)

                                      F-6
<PAGE>
 
                                PROVIDENT BANK

                CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

                                 (In thousands)


<TABLE>
<CAPTION>
 
 
                                                                         NINE
                                                                     MONTHS ENDED                    YEARS ENDED
                                                                       JUNE 30,                     SEPTEMBER 30,
                                                                 ---------------------      ------------------------------
                                                                   1998         1997        1997         1996        1995
                                                                 --------     --------     -------     --------     ------
                                                                     (UNAUDITED)
<S>                                                           <C>          <C>          <C>         <C>          <C>   
 
Cash flows from financing activities:
 Net increase in deposits, including an increase of
   $104,477 in 1996 from branch purchases...................   $  33,229    $  12,648    $  1,560    $ 101,619    $ 23,859
 Net increase (decrease) in borrowings......................       1,048          --       11,000         (900)      3,733
 Net (decrease) increase in bank overdraft..................     (17,476)     (14,653)        466        1,970      13,090
 Net increase (decrease) in mortgage escrow funds...........       9,912        8,166        (437)      (1,497)        254
                                                                 -------      -------      ------      -------      ------
     Net cash provided by financing activities..............      26,713        6,161      12,589      101,192      40,936
                                                                 -------      -------      ------      -------      ------
 
Net increase (decrease) in cash and cash equivalents........       3,594       (2,709)     (4,478)       2,822       4,227
 
Cash and cash equivalents at beginning of period............       9,191       13,669      13,669       10,847       6,620
                                                                 -------      -------      ------      -------      ------
 
Cash and cash equivalents at end of period..................   $  12,785    $  10,960    $  9,191    $  13,669    $ 10,847
                                                                 =======      =======      ======      =======      ======
 
Supplemental information:
 Interest paid..............................................   $  15,487    $  15,106    $ 20,100    $  18,758    $ 15,082
 Income taxes paid..........................................       3,122          389       1,808        3,140       3,277
 Non-cash investing activities:
   Transfers of loans receivable to real estate owned.......         597          694         715        1,362         255
       Transfer of mortgage-backed securities from held to
    maturity to available for sale..........................         --           --          --         6,519         --
                                                                 =======      =======      ======      =======      ======
 
</TABLE>
          See accompanying notes to consolidated financial statements.
                                        

                                      F-7
<PAGE>
 
                                 PROVIDENT BANK
                                        
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                        
         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
               PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
                                        
                             (Dollars in thousands)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    ------------------------------------------

    Provident Bank (the "Bank") is a community bank that offers financial
    services to individuals and businesses primarily in Rockland County, New
    York and its contiguous communities.  The Bank's  principal business is
    accepting deposits and, together with funds generated from operations and
    borrowings, investing in various types of loans and securities.  The Bank's
    deposits are insured up to applicable limits by the Savings Association
    Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation
    ("FDIC") and, as a federally-chartered savings bank, its primary regulator
    is the Office of Thrift Supervision ("OTS").  As discussed in Note 18, the
    Bank's Board of Directors has adopted a Plan of Reorganization and Stock
    Issuance Plan pursuant to which the Bank will convert from mutual to stock
    form of ownership under a two-tier mutual holding company structure and
    shares of common stock will be sold in an initial public offering.

    BASIS OF FINANCIAL STATEMENT PRESENTATION

    The consolidated financial statements include the accounts of the Bank and
    its wholly-owned subsidiaries -- Provest Services Corp. I which became
    active in fiscal 1996 and invests in an affordable housing partnership, and
    Provest Services Corp. II which became active in fiscal 1997 and has engaged
    a third-party provider to sell mutual funds and annuities to the Bank's
    customers.  Financial statement amounts for these subsidiaries have been
    insignificant.  Intercompany transactions and balances are eliminated in
    consolidation.

    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, liabilities, income
    and expense.  A material estimate that is particularly susceptible to near-
    term change is the allowance for loan losses, which is discussed below.

    The consolidated statement of financial condition as of June 30, 1998, and
    the related consolidated statements of income and cash flows for the nine-
    month periods ended June 30, 1998 and 1997 and the consolidated statement of
    changes in equity for the nine-month period ended June 30, 1998 are
    unaudited but, in the opinion of management, reflect all adjustments
    (consisting only of normal recurring accruals) necessary for a fair
    presentation of financial condition and results of operations.

    For purposes of reporting cash flows, cash equivalents consist of overnight
    Federal funds sold.

    SECURITIES

    Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting
    for Certain Investments in Debt and Equity Securities," requires entities to
    classify securities among three categories -- held to maturity, trading, and
    available for sale.  Management determines the appropriate classification of
    the Bank's securities at the time of purchase.

    Held-to-maturity securities are limited to those debt securities for which
    management has the intent and the Bank has the ability to hold to maturity.
    These securities are reported at amortized cost.

                                      F-8
<PAGE>
 
                                 PROVIDENT BANK
                                        
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                                        
         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
               PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
                                        
                             (Dollars in thousands)

    Trading securities are those debt and equity securities bought and held
    principally for the purpose of selling them in the near term.  These
    securities are reported at fair value, with unrealized gains and losses
    included in earnings.  The Bank does not engage in security trading
    activities.

    All other debt and equity securities are classified as available for sale.
    These securities are reported at fair value, with unrealized gains and
    losses (net of the related income tax effect) excluded from earnings and
    reported in a separate component of equity.  Available-for-sale securities
    include securities that management intends to hold for an indefinite period
    of time, such as securities to be used as part of the Bank's asset/liability
    management strategy or securities that may be sold in response to changes in
    interest rates, changes in prepayment risks, the need to increase capital,
    or similar factors.

    Federal Home Loan Bank stock is a non-marketable security held in accordance
    with regulatory requirements and, accordingly, is carried at cost.

    Premiums and discounts on debt securities are recognized in interest income
    on a level-yield basis over the period to maturity. The cost of securities
    sold is determined using the specific identification method. Unrealized
    losses are charged to earnings when the decline in fair value of a security
    is judged to be other than temporary.

    LOANS AND ALLOWANCE FOR LOAN LOSSES

    Loans, other than those classified as held for sale, are carried at
    amortized cost less the allowance for loan losses.  Mortgage loans
    originated and held for sale in the secondary market are carried at the
    lower of aggregate cost or estimated market value.  Net unrealized losses,
    if any, are recognized in a valuation allowance by a charge to earnings.

    Effective October 1, 1995, the Bank prospectively adopted SFAS No. 114,
    "Accounting by Creditors for Impairment of a Loan," as amended by SFAS No.
    118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition
    and Disclosures."  Under SFAS No. 114, a loan is considered impaired when,
    based on current information and events, it is probable that a creditor will
    be unable to collect all principal and interest due according to the
    contractual terms of the loan.  Impaired loans are measured and reported
    based on one of three approaches -- the present value of expected future
    cash flows discounted at the loan's effective interest rate; the loan's
    observable market price; or the fair value of the collateral if the loan is
    collateral dependent.  If the approach used results in a measurement that is
    less than the recorded investment in an impaired loan, an impairment loss is
    recognized as part of the allowance for loan losses.  SFAS No. 118 allows
    creditors to continue to use existing methods for recognizing interest
    income on impaired loans.  The adoption of these statements did not affect
    the Bank's overall allowance for loan losses or income recognition policies.

                                      F-9
<PAGE>
 
                                 PROVIDENT BANK
                                        
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                                        
         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
               PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
                                        
                             (Dollars in thousands)

    The allowance for loan losses is established through provisions for losses
    charged to earnings.  Loan losses are charged against the allowance when
    management believes that the collection of principal is unlikely.
    Recoveries of loans previously charged-off are credited to the allowance
    when realized.

    The allowance for loan losses is an amount that management believes will be
    adequate to absorb probable losses on existing loans that may become
    uncollectible, based on evaluations of the collectibility of the loans.
    Management's evaluations, which are subject to periodic review by the Bank's
    regulators, take into consideration such factors as the Bank's past loan
    loss experience, changes in the nature and volume of the loan portfolio,
    overall portfolio quality, review of specific problem loans and collateral
    values, and current economic conditions that may affect the borrowers'
    ability to pay.  Future adjustments to the allowance for loan losses may be
    necessary based on changes in economic and real estate market conditions,
    further information obtained regarding known problem loans, regulatory
    examinations, the identification of additional problem loans, and other
    factors.

    INTEREST AND FEES ON LOANS

    A loan is placed on non-accrual status when management has determined that
    the borrower may be unable to meet contractual principal or interest
    obligations, or when interest and principal is 90 days or more past due.
    Accrual of interest ceases and, in general, uncollected past due interest
    (including interest applicable to prior years, if any) is reversed and
    charged against current income.  Interest payments received on non-accrual
    loans (including impaired loans under SFAS No. 114) are not recognized as
    income unless warranted based on the borrower's financial condition and
    payment record.  Interest on loans that have been restructured is accrued in
    accordance with the renegotiated terms.

    The Bank defers non-refundable loan origination and commitment fees and
    certain direct loan origination costs, and amortizes the net amount as an
    adjustment of the yield over the contractual term of the loan.  If a loan is
    prepaid or sold, the net deferred amount is recognized in income at that
    time.

    REAL ESTATE OWNED

    Real estate properties acquired through loan foreclosure are recorded
    initially at estimated fair value less expected sales costs, with any
    resulting writedown charged against the allowance for loan losses.
    Subsequent valuations are periodically performed by management, and the
    carrying value of a real estate owned property is adjusted by a charge to
    expense to reflect any subsequent declines in estimated fair value.  Fair
    value estimates are based on recent appraisals and other available
    information.  Routine holding costs are charged to expense as incurred,
    while significant improvements are capitalized.  Gains and losses on sales
    of real estate owned are recognized upon disposition.

                                      F-10
<PAGE>
 
                                PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED

         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
              PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)
                              

PREMISES AND EQUIPMENT

Premises and equipment are carried at cost, less accumulated depreciation
and amortization. Depreciation is computed using the straight-line method
over the estimated useful lives of the related assets ranging from 3 to 40
years.  Leasehold improvements are amortized on a straight-line basis over
the terms of the respective leases or the estimated useful lives of the
improvements, whichever is shorter.  Routine holding costs are charged to
expense as incurred, while significant improvements are capitalized.

BRANCH PURCHASE PREMIUMS

Premiums attributable to the acquisition of core deposits in branch purchase
transactions are amortized using the straight-line method over periods not
exceeding the estimated average remaining life of the acquired customer base
(initial five-year periods for the Bank's 1996 branch purchases).  The
weighted average remaining amortization period for these premiums was
approximately 2.5 years at June 30, 1998.  The unamortized premiums are
reviewed for impairment if events or changes in circumstances indicate that
the carrying amount may not be fully recoverable.

TRANSFERS AND SERVICING OF FINANCIAL ASSETS

SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," establishes financial reporting
standards for a broad range of transactions including sales of loans with
servicing retained, loan securitizations, loan participations, repurchase
agreements, securities lending and in-substance defeasances of debt.  Among
other things, the standard requires recognition of servicing rights as an
asset when loans are sold with servicing retained.  SFAS No. 125 is
generally effective for transactions entered into on or after January 1,
1997 and superseded SFAS No. 122, "Accounting for Mortgage Servicing
Rights," which became effective for the Bank on October 1, 1996.

In accordance with these standards, the Bank recognizes mortgage servicing
rights as an asset when loans are sold with servicing retained, by
allocating the cost of an originated mortgage loan between the loan and the
servicing right based on estimated relative fair values.  The cost allocated
to the servicing right is capitalized as a separate asset which is amortized
thereafter in proportion to, and over the period of, estimated net servicing
income.  Asset recognition of servicing rights on sales of originated loans
was not permitted under previous accounting standards.  Capitalized mortgage
servicing rights are assessed for impairment based on the fair value of
those rights, and any impairment loss is recognized in a valuation allowance
by charges to income. SFAS No. 125 has not had a significant impact on the
Bank's consolidated financial statements through June 30, 1998. 

                                      F-11
<PAGE>
 
                                PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED

         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
              PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)

INCOME TAXES

In accordance with SFAS No. 109, "Accounting for Income Taxes", deferred
taxes are recognized for the estimated future tax effects attributable to
"temporary differences" between the financial statement carrying amounts and
the tax bases of existing assets and liabilities.  A deferred tax liability
is recognized for all temporary differences that will result in future
taxable income.  A deferred tax asset is recognized for all temporary
differences that will result in future tax deductions, subject to reduction
of the asset by a valuation allowance in certain circumstances.  This
valuation allowance is recognized if,  based on an analysis of available
evidence, management determines that it is more likely than not that some
portion or all of the deferred tax asset will not be realized.  The
valuation allowance is subject to ongoing adjustment based on changes in
circumstances that affect management's judgment about the realizability of
the deferred tax asset.  Adjustments to increase or decrease the valuation
allowance are charged or credited, respectively, to income tax expense.

Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which the temporary
differences are expected to be recovered or settled.  The effect on deferred
tax assets and liabilities of a change in tax laws or rates is recognized in
income tax expense in the period that includes the enactment date of the
change.

INTEREST RATE CAP AGREEMENTS

The Bank uses the accrual method of accounting for interest rate cap
agreements entered into for interest rate risk management purposes.
Interest payments (if any) due from the counterparties are recognized in the
consolidated statements of income as an adjustment to interest income or
expense on the assets or liabilities designated in the Bank's interest rate
risk management strategy.  Premiums paid by the Bank at inception of the
agreements are included in other assets and amortized on a straight-line
basis as an adjustment to interest income or expense over the term of the
agreements.

                                      F-12
<PAGE>
 
                                PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED

         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
              PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)

(2) INVESTMENT SECURITIES
    ---------------------

    The following are summaries of investment securities:

<TABLE>
<CAPTION>
                                                                                  JUNE 30, 1998
                                                            --------------------------------------------------------      
                                                                              GROSS          GROSS
                                                             AMORTIZED      UNREALIZED      UNREALIZED        FAIR
                                                                COST          GAINS          LOSSES           VALUE
                                                            ---------       ---------       ---------      ---------
<S>                                                          <C>            <C>            <C>             <C>
SECURITIES HELD TO MATURITY
U.S. Government and Agency securities due:
 Within one year.....................................        $10,009        $      -       $    (4)         $ 10,005
 After one year, but within five years...............          9,477               7           (21)            9,463
Municipal and other securities.......................            711               -             _               711
                                                             -------         -------       -------           -------
                                                              20,197               7           (25)           20,179
                                                             -------         -------       -------           -------
SECURITIES AVAILABLE FOR SALE
U.S. Government and Agency securities due:
 Within one year.....................................          9,995               4             (7)           9,992
 After one year, but within five years...............         34,261             170            (48)          34,383
Corporate debt securities............................          1,998               _             (2)           1,996
Equity securities....................................          2,017             241              _            2,258
                                                             -------         -------        -------          -------
                                                              48,271             415            (57)          48,629
                                                             -------         -------        -------          -------
 
  Total investment securities........................        $68,468         $   422        $   (82)         $68,808
                                                             =======         =======        =======          =======
<CAPTION> 
 
                                                                            SEPTEMBER 30, 1997
                                                             ---------------------------------------------------------
                                                                              GROSS         GROSS
                                                             AMORTIZED     UNREALIZED     UNREALIZED          FAIR
                                                                COST           GAINS        LOSSES           VALUE
                                                             ----------    -----------    ----------       ----------        
<S>                                                         <C>            <C>              <C>             <C> 
SECURITIES HELD TO MATURITY
U.S. Government and Agency securities due:
 Within one year.....................................       $  1,025        $    2          $               $  1,027
 After one year, but within five years...............         20,448             1             (106)          20,343
Municipal and other securities.......................            722             -               (1)             721
                                                             -------       -------          -------          -------
                                                              22,195             3             (107)          22,091
                                                             -------       -------          -------          -------
SECURITIES AVAILABLE FOR SALE
U.S. Government and Agency securities due:
 Within one year.....................................         16,028             49               -           16,077
 After one year, but within five years...............         27,238            128            (108)          27,258
Corporate debt securities............................          3,007              1              (3)           3,005
Equity securities....................................          2,017            182             (22)           2,177
                                                             -------        -------         -------          -------
                                                              48,290            360            (133)          48,517
                                                             -------        -------         -------          -------
 
   Total investment securities.......................        $70,485        $   363         $  (240)         $70,608
                                                             =======        =======         =======          =======
</TABLE> 
                                      F-13
<PAGE>
 
                                PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED

        (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH 
              PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)
<TABLE> 
<CAPTION> 
                                                                            SEPTEMBER 30, 1996
                                                        --------------------------------------------------------------
                                                                           GROSS          GROSS
                                                           AMORTIZED     UNREALIZED     UNREALIZED          FAIR
                                                             COST           GAINS         LOSSES           VALUE
                                                        -------------   -------------   -------------   --------------
<S>                                                        <C>            <C>            <C>                <C> 
SECURITIES HELD TO MATURITY
U.S. Government and Agency securities due
    after one year, but within five years............      $21,402        $     -        $  (332)           $21,070
Municipal and other securities.......................          736              -             (6)               730
                                                           -------        -------        -------            -------
                                                            22,138              -           (338)            21,800
                                                           -------        -------        -------            -------
 
SECURITIES AVAILABLE FOR SALE
U.S. Government and Agency securities due
    after one year, but within five years............      41,161                          (301)            40,860
Corporate debt securities............................       4,037                            (4)             4,033
Equity securities....................................       2,017            403                             2,420
                                                          -------        -------        -------            -------
                                                           47,215            403           (305)            47,313
                                                          -------        -------        -------            -------
                                                        
   Total investment securities.......................     $69,353        $   403          $(643)           $69,113
                                                          =======        =======        =======            =======
</TABLE>

    The following is an analysis, by type of interest rate, of the amortized
    cost and weighted average yields of the debt securities in the Bank's
    investment securities portfolio:

<TABLE>
<CAPTION>
                                                             FIXED         ADJUSTABLE
                                                             RATE             RATE                TOTAL
                                                        ---------------    ---------------     ---------------
<S>                                                         <C>              <C>                 <C> 
JUNE 30, 1998
 Amortized cost.....................................        $63,930          $2,521              $66,451
 Weighted average yield.............................           5.83%           5.29%                5.81%
 
SEPTEMBER 30, 1997
 Amortized cost.....................................        $65,950          $2,518              $68,468
 Weighted average yield.............................           6.08%           5.65%                6.06%
 
SEPTEMBER 30, 1996
 Amortized cost.....................................        $64,822          $2,514              $67,336
 Weighted average yield.............................           5.92%           5.96%                5.92%
</TABLE>

    Proceeds from sales of investment securities available for sale were $6,007
    in the nine months ended June 30, 1998 (resulting in gross realized gains of
    $10) and $2,014 in the year ended September 30, 1995 (resulting in gross
    realized gains of $14).  These gains are included in other non-interest
    income.  There were no sales of investment securities in the years ended
    September 30, 1997 and 1996.

    U.S. Government securities with a carrying value of $1,500 and $1,350 were
    pledged to secure public funds on deposit at June 30, 1998 and September 30,
    1997, respectively.

                                      F-14
<PAGE>
 
                                PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED

        (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH 
              PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)

(3)  MORTGAGE-BACKED SECURITIES
     --------------------------
 
    The Bank's mortgage-backed securities are principally Freddie Mac
    participation certificates, and pass-through certificates guaranteed by
    Fannie Mae or Ginnie Mae.  Certain Freddie Mac and Fannie Mae collateralized
    mortgage obligations are also held in the portfolio.  Mortgage-backed
    securities are collateralized by one- to four-family residential loans which
    contractually may be prepaid.

    The following are summaries of mortgage-backed securities:

<TABLE>
<CAPTION>
                                                                         JUNE 30, 1998
                                                ---------------------------------------------------------------
                                                                    GROSS            GROSS
                                                  AMORTIZED       UNREALIZED      UNREALIZED          FAIR
                                                     COST           GAINS           LOSSES           VALUE
                                                --------------  --------------  ---------------  --------------
<S>                                                 <C>             <C>             <C>             <C> 
SECURITIES HELD TO MATURITY
Freddie Mac...................................      $ 41,915        $    440        $     (3)       $ 42,352
Fannie Mae....................................        38,345             159             (55)         38,449
Ginnie Mae....................................         6,901              82               -           6,983
Other.........................................         2,173             106               -           2,279
                                                    --------        --------        --------        --------
                                                      89,334             787             (58)         90,063
                                                    --------        --------        --------        --------
 
SECURITIES AVAILABLE FOR SALE
Freddie Mac...................................        16,123             168             (15)         16,276
Fannie Mae....................................        23,219             150             (21)         23,348
Other.........................................         4,145               6               -           4,151
                                                    --------        --------        --------        --------
                                                      43,487             324             (36)         43,775
                                                    --------        --------        --------        --------
   Total mortgage-backed securities...........      $132,821        $  1,111        $    (94)       $133,838
                                                    ========        ========        ========        ========
                          
</TABLE>

                                      F-15
<PAGE>
 
                                PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED

        (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH 
              PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                      SEPTEMBER 30, 1997
                                                  ---------------------------------------------------------------
                                                                    GROSS           GROSS
                                                  AMORTIZED       UNREALIZED      UNREALIZED          FAIR
                                                     COST           GAINS           LOSSES           VALUE
                                                  --------------  --------------  ---------------  --------------
<S>                                                   <C>             <C>            <C>               <C> 
SECURITIES HELD TO MATURITY
Freddie Mac...................................        $ 55,950        $   436        $    (59)         $   56,327
Fannie Mae....................................          37,928            121            (148)             37,901
Ginnie Mae....................................           7,971            143               -               8,114
Other.........................................           2,222             60               -               2,282
                                                      --------        -------        --------            --------
                                                       104,071            760            (207)            104,624
                                                      --------        -------        --------            --------

SECURITIES AVAILABLE FOR SALE
Freddie Mac...................................          10,289            224              (5)             10,508
Fannie Mae....................................          20,912            219             (53)             21,078
Other.........................................           4,584              -             (17)              4,567
                                                      --------        -------        --------            --------
                                                        35,785            443             (75)             36,153
                                                      --------        -------        --------            --------
   Total mortgage-backed securities...........        $139,856        $ 1,203        $   (282)           $140,777
                                                      ========        =======        ========            ========
                          
</TABLE>

<TABLE>
<CAPTION>
                                                                           SEPTEMBER 30, 1996
                                                    ---------------------------------------------------------------
                                                                         GROSS           GROSS
                                                       AMORTIZED       UNREALIZED      UNREALIZED          FAIR
                                                         COST            GAINS           LOSSES           VALUE
                                                    --------------  --------------  ---------------  --------------
<S>                                                    <C>             <C>             <C>              <C> 
SECURITIES HELD TO MATURITY
Freddie Mac...................................         $ 62,977        $    194        $   (846)        $ 62,325
Fannie Mae....................................           44,345              48            (798)          43,595
Ginnie Mae....................................            3,284              78               -            3,362
Other.........................................            2,257               -             (20)           2,237
                                                       --------        --------        --------         --------
                                                        112,863             320          (1,664)         111,519
                                                       --------        --------        --------         --------

SECURITIES AVAILABLE FOR SALE
Freddie Mac...................................           13,844             196             (29)          14,011
Fannie Mae....................................           22,696             136            (243)          22,589
Other.........................................            4,896               -             (14)           4,882
                                                       --------        --------        --------         --------
                                                         41,436             332            (286)          41,482
                                                       --------        --------        --------         --------

    Total mortgage-backed securities..........         $154,299        $    652        $ (1,950)        $153,001
                                                       ========        ========        ========         ========

</TABLE>

                                      F-16
<PAGE>
 
                                PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED

         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
              PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)

    The following is an analysis, by type of interest rate, of the amortized
    cost and weighted average yields of the Bank's mortgage-backed securities
    portfolio:

<TABLE>
<CAPTION>
                                                              FIXED         ADJUSTABLE
                                                               RATE            RATE           TOTAL
                                                          --------------  --------------  --------------
<S>                                                         <C>             <C>            <C> 
JUNE 30, 1998
 Amortized cost.....................................        $86,234         $46,587        $132,821
 Weighted average yield.............................           6.49%           6.50%           6.49%

SEPTEMBER 30, 1997
 Amortized cost.....................................        $86,702         $53,154        $139,856
 Weighted average yield.............................           6.65%           6.66%           6.65%

SEPTEMBER 30, 1996
 Amortized cost.....................................        $94,204         $60,095        $154,299
 Weighted average yield.............................           6.44%           6.57%           6.49%
</TABLE>

    In November 1995, the Financial Accounting Standards Board ("FASB") issued a
    special report concerning SFAS No. 115 which provided an opportunity to
    reclassify debt securities from the held-to-maturity category to the
    available-for-sale category prior to December 31, 1995, without calling into
    question the intent to hold other debt securities to maturity.  In November
    1995, the Bank reclassified mortgage-backed securities with an amortized
    cost of $6,519 and a fair value of $6,582 from the held-to-maturity category
    to the available-for-sale category.  An after-tax net unrealized gain of $37
    was recorded as an increase in equity at the time of transfer.

    There were no sales of mortgage-backed securities in the nine months ended
    June 30, 1998 or the years ended September 30, 1997, 1996 and 1995.

                                      F-17
<PAGE>
 
                                PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED

        (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH 
              PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)

(4) LOANS RECEIVABLE
       ----------------
    Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
 
                                                                 SEPTEMBER 30,
                                                JUNE 30,    ------------------------
                                                  1998         1997          1996
                                               ---------    ---------     ----------
<S>                                             <C>          <C>          <C>
    First mortgage loans:
        One- to four-family residential:
          Fixed rate........................    $ 188,779    $ 158,596    $ 137,987
          Adjustable rate...................       82,814       83,299       81,881
    Multi-family residential................        7,108        7,358        7,743
    Commercial real estate..................       63,712       55,747       58,640
    Construction and land...................       27,785       31,740       28,035
                                                ---------    ---------    ---------
                                                  370,198      336,740      314,286
                                                ---------    ---------    ---------
    Other loans:
        Home equity lines of credit.........       28,362       31,456       31,306
        Homeowner loans.....................       25,418       18,678       12,575
        Other consumer loans................        8,855       10,670       10,916
        Commercial business loans...........       24,036       21,651       15,263
                                                ---------    ---------    ---------
                                                   86,671       82,455       70,060
                                                ---------    ---------    ---------
 
          Total loans receivable............      456,869      419,195      384,346
 
    Loans in process......................      (12,732)     (11,424)     (11,775)
    Allowance for loan losses.............       (4,548)      (3,779)      (3,357)
    Deferred loan origination costs, net..          771          505          273
                                                ---------    ---------    ---------
 
          Total loans receivable, net.......    $ 440,360    $ 404,497    $ 369,487
                                                =========    =========    =========
</TABLE>

    The Bank originates mortgage loans secured by existing one- to four-family
    residential properties.  The Bank also originates multi-family and
    commercial real estate loans, construction and land loans, consumer loans
    and commercial business loans.  A substantial portion of the loan portfolio
    is secured by residential and commercial real estate located in Rockland
    County, New York.  The ability of the Bank's borrowers to make principal and
    interest payments is dependent upon, among other things, the level of
    overall economic activity and the real estate market conditions prevailing
    within the Bank's concentrated lending area.

    The Bank originated commercial real estate loans and construction and land
    loans totaling $25,361 in the nine months ended June 30, 1998, and $23,884,
    $32,371 and $16,896 in the years ended September 30, 1997, 1996 and 1995,
    respectively.  These loans are considered by management to be of somewhat
    greater credit risk than loans to fund the

                                      F-18
<PAGE>
 
                                PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED

        (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH 
              PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)

    purchase of a primary residence due to the generally larger loan amounts and
    dependency on income production or sale of the real estate.  Substantially
    all of these loans are collateralized by real estate located in the Bank's
    primary market area.

    The principal balances of non-accrual loans were as follows:
<TABLE>
<CAPTION>
 
                                                   SEPTEMBER 30,
                                    JUNE 30,     -----------------
                                      1998        1997       1996  
                                    --------     -----      ------ 
<S>                                 <C>        <C>       <C>       
    First mortgage loans:                                          
      One- to four-family......     $  3,323   $ 2,549    $  2,731 
      Commercial real estate...          848     1,375       2,087 
      Construction and land....        1,142       276         920 
    Consumer loans.............          230       234         503 
    Commercial business loans..          194       243         109 
                                    --------   -------    -------- 
    Total non-accrual loans....     $  5,737   $ 4,677    $  6,350 
                                    ========   =======    ======== 
</TABLE>

    The allowance for uncollected interest, representing the amount of interest
    on non-accrual loans that has not been recognized in interest income, was
    $505, $433 and $540 at June 30, 1998, September 30, 1997 and September 30,
    1996, respectively.   For the year ended September 30, 1997 and for the
    nine months ended June 30, 1998, gross interest income that would have been
    recorded had the non-accrual loans at the end of the period remained on
    accrual status throughout the period amounted to $411 and $523,
    respectively.  Interest income actually recognized on such loans totaled
    $147 for the year ended September 30, 1997 and $241 for the nine months
    ended June 30, 1998.

    SFAS No. 114 applies to loans that are individually evaluated for
    collectibility in accordance with the Bank's ongoing loan review procedures
    (principally commercial real estate loans, construction and land loans, and
    commercial business loans).  The standard does not generally apply to
    smaller-balance homogeneous loans that are collectively evaluated for
    impairment, such as residential mortgage loans and consumer loans.  The
    Bank's recorded investment in impaired loans, as defined by SFAS No. 114, is
    summarized as follows:
<TABLE>
<CAPTION>
 
                                                                   SEPTEMBER 30,
                                                     JUNE 30,     ---------------
                                                       1998       1997      1996
                                                      -----       -----     -----
<S>                                                 <C>       <C>       <C>
 
     Loans with an allowance for loan impairment
       under SFAS No. 114 (allowance of $168 and
       $25 at September 30, 1997 and 1996,
       respectively)..............................   $     _   $   615   $   675
     Loans for which an allowance for loan
       impairment was not required................     2,184     1,279     2,441
                                                     -------   -------   -------
         Total impaired loans.....................   $ 2,184   $ 1,894   $ 3,116
                                                     =======   =======   =======
</TABLE>

                                      F-19
<PAGE>
 
                                PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED

        (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH 
              PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)


    Substantially of all of these impaired loans were collateral-dependent loans
    measured based on the fair value of the collateral in accordance with SFAS
    No. 114.  The Bank determines the need for an allowance for loan impairment
    under SFAS No. 114 on a loan-by-loan basis.  The Bank's recorded investment
    in impaired loans averaged $3,047 and $2,315 in the nine months ended June
    30, 1998 and 1997, respectively, and $2,210 and $3,663 in the years ended
    September 30, 1997 and 1996, respectively.

    Activity in the allowance for loan losses is summarized as follows:

<TABLE>
<CAPTION>
                                                        NINE MONTHS                        YEARS ENDED
                                                      ENDED JUNE 30,                      SEPTEMBER 30,
                                                ------------------------     ----------------------------------------
                                                   1998           1997          1997          1996          1995
                                                -----------   ----------     ------------  ------------  ------------
 
<S>                                                <C>           <C>           <C>          <C>           <C>
Balance at beginning of period................     $3,779        $3,357        $3,357       $ 3,472        $2,837
Provision for losses..........................      1,347           875         1,058           911           760
Charge-offs...................................       (611)         (396)         (759)       (1,076)         (152)
Recoveries....................................         33            41           123            50            27
                                                   ------        ------        ------       -------        ------
Balance at end of period......................     $4,548        $3,877        $3,779       $ 3,357        $3,472
                                                   ======        ======        ======       =======        ======
</TABLE>


    Certain residential mortgage loans originated by the Bank are sold in the
    secondary market.  Other non-interest income for the nine months ended June
    30, 1998 includes a net gain of $185 on sales of residential mortgage loans
    held for sale (net gains in fiscal 1997, 1996 and 1995 were insignificant).
    Fixed-rate residential mortgage loans include loans held for sale with a
    carrying value of $486 at September 30, 1997 and $745 at September 30, 1996,
    which approximated market value at those dates.  There were no loans held
    for sale at June 30, 1998.  Other assets at June 30, 1998 include
    capitalized mortgage servicing rights with an amortized cost of $163, which
    approximated fair value.

    The Bank generally retains the servicing rights on loans sold.  Servicing
    loans for others generally consists of collecting mortgage payments,
    maintaining escrow accounts, disbursing payments to investors and, if
    necessary, processing foreclosures.  Loans serviced for others totaled
    approximately $128,500, $127,600 and $143,000 at June 30, 1998, September
    30, 1997 and September 30, 1996, respectively.  These amounts include loans
    sold with recourse of approximately $2,900, $3,500 and $4,200, respectively,
    for which management does not expect the Bank to incur any significant
    losses. Loan servicing income includes servicing fees from investors and
    certain charges collected from borrowers, such as late payment fees.
    Mortgage escrow funds include amounts held in connection with loans serviced
    for others of $5,271, $1,873 and $2,076 at June 30, 1998, September 30, 1997
    and September 30, 1996, respectively.

                                      F-20
<PAGE>
 
                                PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED 
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)


(5)  ACCRUED INTEREST RECEIVABLE
     ---------------------------

The components of accrued interest receivable were as follows:

<TABLE>
<CAPTION>
 
                                                                 SEPTEMBER 30,
                                             JUNE 30,      ------------------------
                                              1998           1997            1996
                                           ---------       --------        --------
<S>                                       <C>         <C>            <C>         
                                                                  
Loans receivable......................... $   2,997   $     2,933    $      2,910
Allowance for uncollected interest.......      (505)         (433)           (540)
                                             ------         -----           -----
                                              2,492         2,500           2,370
Investment securities....................     1,311           868             787
Mortgage-backed securities...............       822           894             939
                                             ------         -----           -----
                                                                  
 Total accrued interest receivable, net.. $   4,625   $     4,262    $      4,096
                                              =====         =====           =====
</TABLE>

(6)  PREMISES AND EQUIPMENT
     ----------------------

    Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
 
                                                                SEPTEMBER 30,
                                             JUNE 30,         ----------------
                                              1998          1997             1996
                                           ---------       ------          --------
<S>                                       <C>         <C>            <C>         
                                                                  
Land and land improvements............... $  1,088    $     1,082    $      1,006
Buildings................................    3,159          3,348           3,136
Leasehold improvements...................    2,893          2,642           2,614
Furniture and fixtures...................    6,510          5,820           5,310
                                            ------         ------          -------
                                            13,650         12,892          12,066
Accumulated depreciation and amortization   (6,888)        (5,845)         (4,472)
                                            ------         ------          -------
 Total premises and equipment, net....... $  6,762    $     7,047    $      7,594
                                            ======         ======          ======
</TABLE>

    Depreciation and amortization expense, which is included in occupancy and
    office operations expense, amounted to $1,044 and $1,084 in the nine months
    ended June 30, 1998 and 1997, respectively, and $1,462, $1,297 and $975 in
    the years ended September 30, 1997, 1996 and 1995, respectively.

                                      F-21
<PAGE>
 
                                PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED 
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)


(7)    REAL ESTATE OWNED
       -----------------
       Real estate owned consisted of the following:

<TABLE>
<CAPTION>
     
                                                                         SEPTEMBER 30,
                                                  JUNE 30,          ----------------------
                                                    1998             1997            1996
                                                  --------          ------          ------
       <S>                                       <C>         <C>            <C>         
                                                                      
     
       One- to four-family properties..          $     92    $       212    $        347
       Commercial properties...........               274             --           1,010
       Allowance for losses............                --            (26)            (50)
                                                    -----          ------         ------
       
       Real estate owned, net.........          $     366    $       186    $      1,307
                                                      ===            ===           =====
 </TABLE>
    Activity in the allowance for losses on real estate owned is summarized  as
    follows:

<TABLE>
<CAPTION>
                                                        Nine Months                         Years Ended
                                                      Ended June 30,                       September 30,
                                                ---------------------------  -----------------------------------------
                                                     1998           1997          1997          1996           1995
                                                -------------  ------------  ------------  ------------  -------------
 
<S>                                             <C>            <C>           <C>           <C>           <C>
Balance at beginning of period................  $      26      $     50      $     50      $     --      $      --
Provision for losses..........................         --            --            75            64             90
Losses charged to allowance...................        (26)          (50)          (99)          (14)           (90)
                                                     -----         -----         -----         -----          -----
Balance at end of period......................  $      --      $     --      $     26      $     50      $      --
                                                     =====         =====         =====         =====          =====
</TABLE>


   Foreclosed real estate expense (income) consisted of the following:

<TABLE>
<CAPTION>
                                                        Nine Months                        Years Ended
                                                      Ended June 30,                      September 30,
                                                ---------------------------  ----------------------------------------
                                                    1998           1997          1997          1996          1995
                                                -------------  ------------  ------------  ------------  ------------
 
<S>                                             <C>            <C>           <C>           <C>           <C>
Holding costs.................................  $     100      $    145      $    164      $    382      $     66
Provision for losses..........................         --            --            75            64            90
Income from operations........................         --            --           (11)           (4)           (9)
Net gain on sales of properties...............        (34)         (254)         (268)           (1)          (47)
                                                     -----         -----         -----         -----         -----
 Expense (income), net........................  $      66      $   (109)     $    (40)     $    441      $     100
                                                     =====         =====         =====         =====         =====
</TABLE>

                                      F-22
<PAGE>
 
                                PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED 
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)



(8)    DEPOSITS
       --------
       Deposit accounts and weighted average interest rates are summarized as
       follows:

<TABLE>
<CAPTION>
                                                JUNE 30,   1998        September 30, 1997        SEPTEMBER 30, 1996
                                               -----------------       ------------------        ------------------  
                                                AMOUNT      RATE         Amount      Rate          Amount   Rate
                                                ------      ----         ------      ----          ------   ---- 
                                                                                    
       <S>                                      <C>         <C>           <C>        <C>       <C>          <C>
       Demand deposits.......................   $ 55,072      --%         $ 49,221     --%     $    42,700  %
       NOW deposits..........................     40,969    1.25            32,985   1.25           30,950   1.25
       Savings deposits......................    161,263    2.25           153,171   2.25          153,565   2.25
       Money market deposits.................     79,436    2.96            75,339   2.96           77,111   2.97
       Certificates of deposit...............    243,335    5.22           236,130   5.31          240,960   5.10
                                                --------                  --------                --------
                                                                                    
       Total deposits.......................    $580,075    3.31%         $546,846   3.40%     $   545,286   3.38%
                                                ========    ====          ========   ====         ========   ====
</TABLE>

Certificates of deposit had remaining periods to contractual 
  maturity as follows:

<TABLE>
<CAPTION>

 
                                                                              SEPTEMBER 30,
                                                              JUNE 30,        -------------
                                                                1998         1997        1996
                                                              -------      --------     -------
    <S>                                                  <C>             <C>          <C>            
    Remaining period to maturity:
      Less than one year............................     $    180,515    $  185,557   $ 186,737
      One to two years..............................           50,003        24,075      29,721
      Two to three years............................            7,088        19,086      10,328
      Over three years..............................            5,729         7,412      14,174
                                                              -------      --------     -------
                                                  
      Total certificates of deposit.................     $    243,335    $  236,130   $ 240,960
                                                              =======      ========     =======
</TABLE>
      Certificate of deposit accounts with a denomination of $100 or more
      totaled $25,780, $25,137 and $26,263 at June 30, 1998, September 30, 1997
      and September 30, 1996, respectively. The FDIC generally insures depositor
      accounts up to $100, as defined in the applicable regulations. 

      The Bank purchased two branch offices in separate transactions consummated
      in March and May 1996. In these transactions, the Bank assumed deposit
      liabilities of $104,477; received cash of $96,165 and other assets of
      $780; and recorded a core deposit purchase premium of $7,532. Premium
      amortization charged to expense amounted to $1,200 and $1,129 in the nine
      months ended June 30, 1998 and 1997, respectively, and $1,506 and $691 in
      the years ended September 30, 1997 and 1996, respectively. Unamortized
      premiums of $4,091, $5,280 and $6,841 are included in other assets at June
      30, 1998, September 30, 1997 and September 30, 1996, respectively.

                                      F-23
<PAGE>
 
                                PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED 
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)


    Interest expense on deposits is summarized as follows:

<TABLE>
<CAPTION>
                                                       NINE MONTHS                      Years Ended
                                                     Ended June 30,                    September 30,
                                                -------------------------  -------------------------------------
                                                    1998         1997         1997         1996         1995
                                                ------------  -----------  -----------  -----------  -----------
 
<S>                                             <C>           <C>          <C>          <C>          <C>
Savings deposits..............................       $ 2,731      $ 2,713      $ 3,670      $ 3,592      $ 3,741
Money market and NOW deposits                          2,016        1,992        2,675        2,480        2,136
Certificates of deposit.......................         9,568        9,184       12,347       11,041        8,563
                                                     -------      -------      -------      -------      -------
 
 Total interest expense.......................       $14,315      $13,889      $18,692      $17,113      $14,440
                                                     =======      =======      =======      =======      =======
</TABLE>

(9)    BORROWINGS
       ----------

    The Bank's borrowings consist of Federal Home Loan Bank ("FHLB") advances
    with weighted average interest rates and remaining periods to maturity as
    follows:

<TABLE>
<CAPTION>
                                        JUNE 30,    1998     September 30, 1997          SEPTEMBER 30, 1996
                                       -------------------   ---------------------       -------------------
                                         AMOUNT       RATE        AMOUNT       RATE        AMOUNT      RATE
                                        ---------    -----     -----------    ------     -----------  ------
<S>                                    <C>           <C>     <C>             <C>         <C>          <C>
Remaining period to maturity:                                                         
 Less than one year..................  $      --       --%   $        --        --%      $ 5,000      5.44%
 One to two years....................     10,000     6.20         11,000      7.16         5,000      7.81
 Two to three years..................      5,000     6.35          3,000      6.58         3,000      6.58
 Three to four years.................         --       --          5,000      6.12            --        --
 Four to five years..................     10,048     5.94          5,000      6.28            --        --
                                         -------                 -------                  -------
                                                                                      
   Total borrowings..................    $25,048     6.13%       $24,000      6.69%      $ 13,000     6.61%
                                         =======     ====        =======      ====        =======     ====
</TABLE>

    As a member of the FHLB of New York, the Bank may have outstanding FHLB
    borrowings of up to 30% of its total assets, or approximately $203,700 at
    June 30, 1998 and $194,600 at September 30, 1997, in a combination of term
    advances and overnight funds.  The Bank's unused FHLB borrowing capacity was
    approximately $178,700 at June 30, 1998 and $170,600 at September 30, 1997.

    Borrowings are secured by the Bank's investment in FHLB stock and by a
    blanket security agreement.  This agreement requires the Bank to maintain as
    collateral certain qualifying assets (principally securities and residential
    mortgage loans) not otherwise pledged.  The Bank satisfied this collateral
    requirement at June 30, 1998, September 30, 1997 and September 30, 1996.

                                      F-24
<PAGE>
 
                                PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED 
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)



(10)    INCOME TAXES
        ------------

    Income tax expense consists of the following components:

<TABLE>
<CAPTION>
                                                    NINE MONTHS                      Years Ended
                                                   Ended June 30,                   September 30,
                                              ------------------------  --------------------------------------
                                                  1998         1997        1997          1996         1995
                                              ------------  ----------  -----------  ------------  -----------
<S>                                           <C>           <C>         <C>          <C>           <C>
Current tax expense:
 Federal....................................       $2,075       $1,549       $1,898      $ 2,743       $2,431
 State......................................          506          336          435          498          645
                                                   ------       ------       ------      -------       ------
                                                    2,581        1,885        2,333        3,241        3,076
                                                   ------       ------       ------      -------       ------
Deferred tax (benefit) expense:
 Federal....................................         (435)         348          356       (1,662)         (78)
 State......................................         (151)         137          140         (889)         241
                                                   ------       ------       ------      -------       ------
                                                     (586)         485          496       (2,551)         163
                                                   ------       ------       ------      -------       ------
 
Total income tax expense....................       $1,995       $2,370       $2,829      $   690       $3,239
                                                   ======       ======       ======      =======       ======
</TABLE>

    The Bank's actual income tax expense differs from the amounts determined by
    applying the statutory Federal income tax rate to income before income taxes
    for the following reasons:

<TABLE>
<CAPTION>
                                                              NINE MONTHS ENDED JUNE 30,
                                                 --------------------------------------------
                                                        1998                     1997
                                                 -------------------      -------------------     
                                                 AMOUNT      Percent      Amount      Percent
                                                 ------      -------      ------      -------     
                                                                                 
<S>                                         <C>           <C>          <C>         <C>
Tax at Federal statutory rate.............  $    1,849         34.0%       $1,984        34.0%
State income taxes, net of                                                       
                    Federal tax effect....         234           4.3          312         5.3
Other, net................................         (88)         (1.6)          74         1.3
                                                 -----          ----       ------        ----
                                                                                 
Actual income tax expense.................  $    1,995          36.7%      $2,370        40.6%
                                                ======          ====       ======        ====
</TABLE>

<TABLE>
<CAPTION>
                                                                     YEARS ENDED SEPTEMBER 30,
                                            ----------------------------------------------------------------------------
                                                      1997                      1996                      1995
                                            ------------------------  ------------------------  ------------------------
                                              AMOUNT       Percent      Amount       Percent      Amount       PERCENT
                                            -----------  -----------  -----------  -----------  -----------  -----------
 
<S>                                         <C>          <C>          <C>          <C>          <C>          <C>
Tax at Federal statutory rate.............      $2,525         34.0%       $ 948         34.0%      $2,734         34.0%
State income taxes, net of
        Federal tax effect................         380          5.1         (258)        (9.2)         585          7.3
Other, net................................         (76)        (1.0)          --           --          (80)        (1.0)
                                                ------       ------       ------       ------       ------       ------
 
Actual income tax expense.................      $2,829         38.1%       $ 690         24.8%      $3,239         40.3%
                                                ======       ======       ======       ======       ======       ======
</TABLE>

                                      F-25
<PAGE>
 
                                PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED 
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)





    Deferred tax assets and liabilities have been recognized for temporary
    differences between the financial statement carrying amounts and the tax
    bases of assets and liabilities.  The sources of these temporary differences
    and their deferred tax effects are as follows:
<TABLE>
<CAPTION>
 
                                                                     SEPTEMBER 30,
                                                       JUNE 30,     ---------------
                                                         1998       1997      1996
                                                       --------     -----     -----
<S>                                               <C>            <C>       <C>    
 
      Deferred tax assets:
        Allowance for loan losses...............  $       1,777  $  1,470  $  1,112
        Deferred compensation...................            846       789       681
        Deposit premium amortization............            899       594        --
        Depreciation of premises and equipment..            135       122       175
        Accrued SAIF special assessment.........             --        --     1,351
        Other...................................             83        65        --
                                                          -----     -----     -----
          Total deferred tax assets.............          3,740     3,040     3,319
                                                          -----     -----     -----
 
      Deferred tax liabilities:
        Federal tax bad debt reserve in
          excess of base-year amount............            444       444       476
        Prepaid pension expense.................            354       355       253
        Deferred loan origination costs, net....            329       213        72
        Net unrealized gain on securities
          available for sale....................            260       245        59
                                                          -----     -----     -----
          Total deferred tax liabilities........          1,387     1,257       860
                                                          -----     -----     -----
 
      Net deferred tax asset....................  $       2,353  $  1,783  $  2,459
                                                          =====     =====     =====
 
</TABLE>

    Based on recent historical and anticipated future pre-tax earnings,
    management believes it is more likely than not that the Bank will realize
    its deferred tax assets.

    As a savings institution, the Bank is subject to special provisions in the
    Federal and New York State tax laws regarding its allowable tax bad debt
    deductions and related tax bad debt reserves.  These deductions historically
    were determined using methods based on loss experience or a percentage of
    taxable income.  Tax bad debt reserves represent the excess of allowable
    deductions over actual bad debt losses and other reserve reductions.  These
    reserves consist of a defined base-year amount, plus additional amounts
    ("excess reserves") accumulated after the base year.  SFAS No. 109 requires
    recognition of deferred tax liabilities with respect to such excess
    reserves, as well as any portion of the base-year amount which is expected
    to become taxable (or "recaptured") in the foreseeable future.

                                      F-26
<PAGE>
 
                                PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED 
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)




     Certain amendments to the Federal and New York State tax laws regarding bad
     debt deductions were enacted in the quarter ended September 30, 1996.  The
     Federal amendments eliminated the percentage-of-taxable-income method for
     tax years beginning after December 31, 1995 and imposed a requirement to
     recapture into taxable income (over a six-year period) the bad debt
     reserves in excess of the base-year amounts. The Bank previously
     established, and has continued to maintain, a deferred tax liability with
     respect to such excess Federal reserves. The New York State amendments
     redesignated all then-existing State bad debt reserves as the base-year
     amount and provide for future additions to that base-year reserve using the
     percentage-of-taxable-income method. These changes effectively eliminated
     the Bank's excess New York State reserves for which a deferred tax
     liability had been recognized and, accordingly, such liability was reversed
     in the quarter ended September 30, 1996 and a $500 reduction in income tax
     expense was recognized.

     The Bank's Federal and State base-year reserves were approximately $4,600
     and $24,500, respectively, at June 30, 1998 ($4,600 and $22,800,
     respectively, at September 30, 1997).  In accordance with SFAS No. 109,
     deferred tax liabilities have not been recognized with respect to these
     reserves, since the Bank does not expect that these amounts will become
     taxable in the foreseeable future.  Under the tax laws as amended, events
     that would result in taxation of certain of these reserves include failure
     to maintain a specified qualifying-assets ratio or meet other thrift
     definition tests for New York State tax purposes.  At June 30, 1998 and
     September 30, 1997, the Bank's unrecognized deferred tax liabilities with
     respect to its base-year reserves totaled approximately $3,300  and $3,200,
     respectively.


(11) REGULATORY MATTERS
     ------------------

     CAPITAL REQUIREMENTS

     OTS regulations require savings institutions 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 its 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%.

                                      F-27
<PAGE>
 
                                PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED 
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)    


    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 June 30, 1998, September 30, 1997 and
    September 30, 1996, the Bank met all capital adequacy requirements to which
    it was 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,
    compared to the OTS minimum capital adequacy requirements and the OTS
    requirements for classification as a well-capitalized institution:

<TABLE>
<CAPTION>
                                                                                OTS Requirements
                                                            ------------------------------------------------------
                                                                   MINIMUM CAPITAL              CLASSIFICATION
                                         BANK ACTUAL                   ADEQUACY              AS WELL CAPITALIZED
                                 -------------------------  --------------------------  --------------------------
                                    Amount         RATIO        AMOUNT         RATIO        AMOUNT        RATIO
                                 ------------  -----------  -------------  -----------  -------------  -----------
 
JUNE 30, 1998
<S>                           <C>            <C>          <C>            <C>          <C>            <C>
 Tangible capital...........        $49,402         7.3%       $10,120         1.5%  $           --          --%
 Tier 1 (core) capital......         49,402         7.3         20,239         3.0          33,732         5.0
 Risk-based capital:                                          
     Tier 1.................         49,402        13.0             --          --          22,748         6.0
     Total..................         53,950        14.2         30,331         8.0          37,913        10.0
                                    =======        ====        =======         ===         =======        ====
                                                              
September 30, 1997                                            
 Tangible capital...........        $44,769         7.0%       $ 9,650         1.5%  $                      --%
 Tier 1 (core) capital......         44,769         7.0         19,299         3.0          32,165         5.0
 Risk-based capital:                                          
     Tier 1.................         44,769        12.7                                     21,168         6.0
     Total..................         48,336        13.7         28,224         8.0          35,280        10.0
                                    =======        ====        =======         ===         =======        ====
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
<S>                                 <C>            <C>          <C>            <C>          <C>             <C>
 Tangible capital...........        $38,610         6.2%       $ 9,410         1.5%  $               %
 Tier 1 (core) capital......         38,610         6.2         18,820         3.0          31,366         5.0
 Risk-based capital:
     Tier 1.................         38,610        11.5                                     20,149         6.0
     Total..................         41,326        12.3         26,865         8.0          33,582        10.0
                                    =======        ====        =======         ===          ======        ====
</TABLE>

                                      F-28
<PAGE>
 
                                PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED 
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)




    The following is a reconciliation of the Bank's equity under generally
    accepted accounting principles and its regulatory capital amounts:
<TABLE>
<CAPTION>
 
                                                                        SEPTEMBER 30,
                                                         JUNE 30,    ------------------
                                                           1998        1997         1996
                                                        ---------    -------      -------
<S>                                                  <C>           <C>         <C>
 
      Equity under generally accepted
        accounting principles......................   $   53,879   $  50,399   $  45,536
      Core deposit purchase premiums...............       (4,091)     (5,280)     (6,841)
      Net unrealized gain on securities available
        for sale, net of income taxes..............         (386)       (350)        (85)
                                                          ------      ------      ------
      Tangible capital, Tier 1 (core) capital
        and Tier 1 risk-based capital..............       49,402      44,769      38,610
      Allowance for loan losses includable
        in regulatory capital......................        4,548       3,567       2,716
                                                          ------      ------      ------
 
      Total risk-based capital.....................   $   53,950   $  48,336   $  41,326
                                                          ======      ======      ======
</TABLE>
    SAIF SPECIAL 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-assessable deposits, in order to recapitalize the SAIF to the
    reserve level required by law.  The Bank's consolidated financial statements
    for the year ended September 30, 1996 reflect a separate expense charge of
    $3,298 for this special assessment.


(12)    EMPLOYEE BENEFITS
        -----------------

    PENSION PLANS

    The Bank has a noncontributory defined benefit pension plan covering
    substantially all of its employees.  Employees who are twenty-one years of
    age or older and have worked for the Bank for one year are eligible to
    participate in the plan.  The Bank's funding policy is to contribute
    annually an amount sufficient to meet statutory minimum funding
    requirements, but not in excess of the maximum amount deductible for Federal
    income tax purposes.  Contributions are intended to provide not only for
    benefits attributed to service to date, but also for those expected to be
    earned in the future.

                                      F-29
<PAGE>
 
                                PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED 
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)




    The following is a reconciliation of the funded status of the plan and the
    prepaid pension costs recognized in the consolidated statements of financial
    condition at September 30:
<TABLE>
<CAPTION>
 
                                                                        1997       1996
                                                                       ------     ------
<S>                                                                 <C>        <C>
       Accumulated benefit obligation, including vested benefits
        of $2,768 in 1997 and $2,301 in 1996......................  $  3,099   $  2,439
                                                                       =====      =====
 
      Projected benefit obligation for service rendered to date...  $  4,411   $  3,522
      Plan assets at fair value...................................     4,906      3,821
                                                                       -----      -----
      Plan assets in excess of projected benefit obligation.......       495        299
      Transition obligation.......................................       190        216
      Unrecognized prior service cost.............................      (138)      (151)
      Unrecognized net loss.......................................       319        254
                                                                       -----      -----
      Prepaid pension cost........................................  $    866   $    618
                                                                       =====      =====
</TABLE>

    Pension plan assets at September 30, 1997 and 1996 were invested principally
    in a managed growth fund and certificates of deposit with the Bank.

    The components of the net periodic pension expense were as follows for the
    years ended September 30:

<TABLE>
<CAPTION>
                                                                  1997       1996       1995
                                                              ----------  ---------  ---------
 
<S>                                                         <C>         <C>        <C>
Service cost (benefits earned during the year)............      $ 348      $ 292      $ 307
Interest cost on projected benefit obligation.............        329        273        248
Return on plan assets.....................................       (306)      (227)      (221)
Amortization:
  Transition obligation...................................         26         26         26
 Unrecognized prior service cost..........................        (14)       (14)       (14)
 Unrecognized net loss....................................         21          7         --
                                                                -----      -----      -----  
 
Net periodic pension expense..............................      $ 404      $ 357      $ 346
                                                                =====      =====      =====
</TABLE>

    Net periodic pension expense was $325 and $317 in the nine months ended June
    30, 1998 and 1997, respectively.

    The actuarial present values of the projected benefit obligation at
    September 30, 1997 and 1996 were determined using a discount rate of 7.75%
    and a rate of increase in future compensation of 6.0% (8.5% and 6.75%,
    respectively, at September 30, 1995).  The expected long-term rate of return
    on plan assets was 8.0%, 7.5% and 7.5% for the years ended September 30,
    1997, 1996 and 1995, respectively.

                                      F-30
<PAGE>
 
                                 PROVIDENT BANK
                                        
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                                        
         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
               PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
                                        
                             (Dollars in thousands)


      The Bank also has established a non-qualified Supplemental Executive
      Retirement Plan to provide certain executives with supplemental retirement
      benefits in addition to the benefits provided by the pension plan. The
      periodic pension expense related to the supplemental plan amounted to $32
      and $31 for the nine months ended June 30, 1998 and 1997, respectively,
      and $40 and $34 for the years ended September 30, 1997 and 1996,
      respectively. The actuarial present value of the accumulated benefit
      obligation was approximately $74 at September 30, 1997, all of which is
      unfunded. This amount was determined using a discount rate of 7.75% and a
      rate of increase in future compensation of 4.5%.

      OTHER POSTRETIREMENT BENEFITS

      The Bank's postretirement health care plan, which is unfunded, provides
      optional medical, dental and life insurance benefits to retirees. The Bank
      adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits
      Other Than Pensions", effective October 1, 1995. SFAS No. 106 requires
      accrual of the cost of postretirement benefits over the years in which
      employees provide services to the date of their full eligibility for such
      benefits. In accordance with SFAS No. 106, the Bank elected to amortize
      the transition obligation for accumulated benefits (which amounted to $237
      at the adoption date) as an expense over a 20-year period. The total
      periodic expense recognized under SFAS No. 106 amounted to $30 and $32 in
      the nine months ended June 30, 1998 and 1997, respectively, and $37 and
      $42 in the years ended September 30, 1997 and 1996, respectively.

      401(k) SAVINGS PLAN

      The Bank also sponsors a defined contribution plan established under
      Section 401(k) of the Internal Revenue Code, pursuant to which eligible
      employees may elect to contribute up to 10% of their compensation. The
      Bank makes contributions equal to 100% of the participant's contributions
      up to a maximum contribution equal to 6% of the participant's
      compensation. Voluntary and matching contributions are invested, in
      accordance with the participant's direction, in one or a number of
      investment options. Compensation and employee benefits expense includes
      401(k) savings plan expense of $225 and $200 in the nine months ended 
      June 30, 1998 and 1997, respectively, and $276, $234 and $228 in the years
      ended September 30, 1997, 1996 and 1995, respectively.


(13)  COMMITMENTS AND CONTINGENCIES
      -----------------------------

      Certain premises and equipment are leased under operating leases with
      terms expiring through 2025. The Bank has the option to renew certain of
      these leases for terms of up to five years. Future minimum rental payments
      due under non-cancelable operating leases with initial or remaining terms
      of more than one year at September 30, 1997 are $834 for fiscal 1998; $823
      for fiscal 1999; $748 for fiscal 2000; $782 for fiscal 2001; $800 for
      fiscal 2002; and $7,683 for later years. There were no significant changes
      in future minimum lease rentals during the nine months ended June 30,
      1998. Net rent expense, which is 

                                     F-31
<PAGE>
 
                                 PROVIDENT BANK
                                        
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                                        
         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
               PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
                                        
                             (Dollars in thousands)


      included in occupancy and office operations expense, amounted to $716 and
      $672 in the nine months ended June 30, 1998 and 1997, respectively, and
      $951, $941 and $858 in the years ended September 30, 1997, 1996 and 1995,
      respectively.

      The Bank is a defendant in certain claims and legal actions arising in the
      ordinary course of business. Management, after consultation with legal
      counsel, does not anticipate losses on any of these claims or actions
      which would have a material adverse effect on the Bank's consolidated
      financial statements.


(14)  OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
      ---------------------------------------

      In the normal course of business, the Bank is a party to off-balance-sheet
      financial instruments that involve, to varying degrees, elements of credit
      risk and interest rate risk in addition to the amounts recognized in the
      consolidated financial statements. The contractual or notional amounts of
      these instruments, which reflect the extent of the Bank's involvement in
      particular classes of off-balance-sheet financial instruments, are
      summarized as follows:

<TABLE>
<CAPTION>
                                                         SEPTEMBER 30,  
                                           JUNE 30,   ------------------
                                             1998       1997      1996  
                                           --------   --------  --------
      <S>                                  <C>        <C>       <C>     
      LENDING-RELATED INSTRUMENTS:                                      
        Commitments to extend credit:                                   
          Fixed-rate loans..............    $ 9,694    $ 8,610   $ 3,925
          Adjustable-rate loans.........     20,086     14,503    10,393
        Unused lines of credit..........     27,574     25,883    29,373
        Standby letters of credit.......      3,893      4,222     2,470
      INTEREST RATE RISK MANAGEMENT:                                    
        Interest rate cap agreement.....     20,000         --        --
                                            =======    =======   =======
</TABLE>

      LENDING-RELATED INSTRUMENTS

      The contractual amounts of the lending-related instruments set forth above
      represent the Bank's maximum potential exposure to credit loss, assuming
      (i) the instruments are fully funded at a later date, (ii) the borrower
      does not meet the contractual payment obligations and (iii) any collateral
      or other security proves to be worthless. The contractual amounts of these
      instruments do not necessarily represent future cash requirements since
      certain of these instruments may expire without being funded and others
      may not be fully drawn upon. Substantially all of these lending-related
      instruments have been entered into with customers located in the Bank's
      primary market area described in Note 4.

                                     F-32
<PAGE>
 
                                 PROVIDENT BANK
                                        
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                                        
         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
               PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
                                        
                             (Dollars in thousands)


      Commitments to extend credit are legally-binding agreements to lend to a
      customer as long as there is no violation of any condition established in
      the contract. Commitments have fixed expiration dates (generally ranging
      up to 45 days) or other termination clauses, and may require payment of a
      fee by the customer. The Bank evaluates each customer's credit worthiness
      on a case-by-case basis. The amount of collateral, if any, obtained by the
      Bank upon extension of credit, is based on management's credit evaluation
      of the borrower. Collateral held varies but may include mortgages on
      residential and commercial real estate, deposit accounts with the Bank,
      and other property. The Bank's fixed-rate loan commitments at June 30,
      1998 provide for interest rates ranging from 6.125% to 10.25%.

      Unused lines of credit are legally-binding agreements to lend to a
      customer as long as there is no violation of any condition established in
      the contract. Lines of credit generally have fixed expiration dates or
      other termination clauses. The amount of collateral obtained, if deemed
      necessary by the Bank, is based on management's credit evaluation of the
      borrower.

      Standby letters of credit are conditional commitments issued by the Bank
      to assure the performance of financial obligations of a customer to a
      third party. These commitments are primarily issued in favor of local
      municipalities to support the obligor's completion of real estate
      development projects. The credit risk involved in issuing letters of
      credit is essentially the same as that involved in extending loan
      facilities to customers.

      INTEREST RATE CAP AGREEMENT

      At June 30, 1998, the Bank was a party to an interest rate cap agreement
      with a notional amount of $20,000 and a five-year term ending in March
      2003. This agreement was entered into to reduce the Bank's exposure to
      potential increases in interest rates on a portion of its certificate of
      deposit accounts. The counterparty in the transaction has agreed to make
      interest payments to the Bank, based on the notional amount, to the extent
      that the three-month LIBOR rate exceeds 6.50% over the term of the cap
      agreement. No payments were due from the counterparty through June 30,
      1998. The carrying amount of the cap agreement at June 30, 1998
      represented the unamortized premium of $286, which is included in other
      assets. Premium amortization of $20 is included in deposit interest
      expense for the nine months ended June 30, 1998. The estimated fair value
      of the interest rate cap agreement at June 30, 1998 was approximately
      $158, representing the estimated amount the Bank would receive to
      terminate the contract at that date.


(15)  RELATED PARTY TRANSACTIONS
      --------------------------

      The Bank was indebted to its directors for deferred directors fees (and
      accrued interest thereon) totaling $1,964, $1,859 and $1,663 at June 30,
      1998, September 30, 1997 and September 30, 1996, respectively. The
      interest rates on these amounts were 6.53%, 6.64% and 6.41% at the
      respective dates.

                                     F-33
<PAGE>

 
                                        
         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
               PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
                                        
                             (Dollars in thousands)


      The Bank has had, and expects to have in the future, banking transactions
      in the ordinary course of business with its directors, senior officers and
      their affiliates. Loans are made to these individuals on the same terms as
      those prevailing for comparable transactions with other borrowers and do
      not involve more than normal collection risk. Loans receivable from
      related parties totaled $378, $426 and $456 at June 30, 1998, September
      30, 1997 and September 30, 1996, respectively. Repayments on related party
      loans were $48 in the nine months ended June 30, 1998 and $30 in the year
      ended September 30, 1997. No new loans were granted to such related
      parties during these periods.


(16)  FAIR VALUES OF FINANCIAL INSTRUMENTS
      ------------------------------------

      SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
      requires disclosure of fair value information for those financial
      instruments for which it is practicable to estimate fair value, whether or
      not such financial instruments are recognized in the consolidated
      statements of financial condition. Fair value is the amount at which a
      financial instrument could be exchanged in a current transaction between
      willing parties, other than in a forced sale or liquidation.

      Quoted market prices are used to estimate fair values when those prices
      are available. However, active markets do not exist for many types of
      financial instruments. Consequently, fair values for these instruments
      must be estimated by management using techniques such as discounted cash
      flow analysis and comparison to similar instruments. These estimates are
      highly subjective and require judgments regarding significant matters,
      such as the amount and timing of future cash flows and the selection of
      discount rates that appropriately reflect market and credit risks. Changes
      in these judgments often have a material effect on the fair value
      estimates. Since these estimates are made as of a specific point in time,
      they are susceptible to material near-term changes. Fair values disclosed
      in accordance with SFAS No. 107 do not reflect any premium or discount
      that could result from the sale of a large volume of a particular
      financial instrument, nor do they reflect possible tax ramifications or
      estimated transaction costs.

                                     F-34
<PAGE>
 
                                 PROVIDENT BANK
                                        
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                                        
         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
               PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
                                        
                             (Dollars in thousands)


      The following is a summary of the carrying amounts and estimated fair
      values of financial assets and liabilities (none of which were held for
      trading purposes):

<TABLE>
<CAPTION>
                                        JUNE 30, 1998       SEPTEMBER 30, 1997     SEPTEMBER 30, 1996
                                    ---------------------  ---------------------  ---------------------
                                    CARRYING   ESTIMATED   CARRYING   ESTIMATED   CARRYING   ESTIMATED
                                     AMOUNT    FAIR VALUE   AMOUNT    FAIR VALUE   AMOUNT    FAIR VALUE
                                    ---------  ----------  ---------  ----------  ---------  ----------
<S>                                 <C>        <C>         <C>        <C>         <C>        <C>
Financial assets:
 Cash and due from banks..........   $  7,785    $  7,785   $  9,191    $  9,191   $  8,669    $  8,669
 Federal funds sold...............      5,000       5,000                             5,000       5,000
 Investment securities............     68,826      68,808     70,712      70,608     69,451      69,113
 Mortgage-backed securities.......    133,109     133,838    140,224     140,777    154,345     153,001
 Loans receivable.................    440,360     446,624    404,497     410,382    369,487     373,068
 Accrued interest receivable......      4,625       4,625      4,262       4,262      4,096       4,096
 Federal Home Loan Bank stock.....      3,690       3,690      3,641       3,641      3,211       3,211
                                     ========    ========   ========    ========   ========    ========
Financial liabilities:
 Deposits.........................   $580,075    $579,437   $546,846    $547,557   $545,286    $546,039
 Borrowings.......................     25,048      24,139     24,000      24,071     13,000      13,299
 Bank overdraft...................        147         147     17,623      17,623     17,157      17,157
 Mortgage escrow funds............     14,471      14,471      4,559       4,559      4,996       4,996
                                     ========    ========   ========    ========   ========    ========
</TABLE>

      The following methods and assumptions were used to estimate the fair value
      of each class of financial instruments:

      INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES

      The estimated fair values of securities were based on quoted market 
      prices.

      LOANS RECEIVABLE
  
      Fair values were estimated for portfolios of loans with similar financial
      characteristics. For valuation purposes, the total loan portfolio was
      segregated into performing and non-performing categories. Performing loans
      were segregated by adjustable-rate and fixed-rate loans; fixed-rate loans
      were further segmented by type, such as residential mortgage, commercial
      mortgage, commercial business and consumer loans. Residential loans were
      also segmented by maturity.

                                     F-35
<PAGE>
 
                                 PROVIDENT BANK
                                        
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                                        
         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
               PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
                                        
                             (Dollars in thousands)


      Fair values were estimated by discounting scheduled future cash flows
      through estimated maturity using a discount rate equivalent to the rate at
      which the Bank would currently make loans which are similar with regard to
      collateral, maturity and the type of borrower. The discounted value of the
      cash flows was reduced by a credit risk adjustment based on loan
      categories. Based on the current composition of the Bank's loan portfolio,
      as well as both past experience and current economic conditions and
      trends, the future cash flows were adjusted by prepayment assumptions
      which shortened the estimated remaining time to maturity and therefore
      impacted the fair value estimates.

      Estimated fair values of loans held for sale were based on contractual
      sale prices for loans covered by forward sale commitments. Any remaining
      loans held for sale were valued based on current secondary market prices
      and yields.

      DEPOSITS
  
      In accordance with SFAS No. 107, deposits with no stated maturity (such as
      savings, demand and money market deposits) were assigned fair values equal
      to the carrying amounts payable on demand. Certificates of deposit were
      segregated by account type and original term, and fair values were
      estimated based on the discounted value of contractual cash flows. The
      discount rate for each account grouping was equivalent to the then-current
      rate offered by the Bank for deposits of similar type and maturity.

      These fair values do not include the value of core deposit relationships
      which comprise a significant portion of the Bank's deposit base.
      Management believes that the Bank's core deposit relationships provide a
      relatively stable, low-cost funding source which has a substantial
      unrecognized value separate from the deposit balances.

      BORROWINGS

      Estimated fair values of FHLB advances were based on the discounted value
      of contractual cash flows. A discount rate was utilized for each
      outstanding advance equivalent to the then-current rate offered by the
      FHLB on borrowings of similar type and maturity.

      OTHER FINANCIAL INSTRUMENTS

      The other financial assets and liabilities listed in the preceding table
      have estimated fair values that approximate the respective carrying
      amounts because the instruments are payable on demand or have short-term
      maturities and present relatively low credit risk and interest rate risk.

      The carrying amount and estimated fair value of the Bank's interest rate
      cap agreement at June 30, 1998 is set forth in Note 14. The fair values of
      the Bank's lending-related off-balance-sheet financial instruments
      described in Note 14 were estimated based on the

                                     F-36
<PAGE>
 
                                 PROVIDENT BANK
                                        
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                                        
         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
               PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
                                        
                             (Dollars in thousands)


      interest rates and fees currently charged to enter into similar
      agreements, considering the remaining terms of the agreements and the
      present credit worthiness of the counterparties. At June 30, 1998,
      September 30, 1997 and September 30, 1996, the estimated fair values of
      these instruments approximated the related carrying amounts which were not
      significant.


(17)  ACCOUNTING STANDARDS
      --------------------

      In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
      Income," which establishes standards for the reporting and display of
      comprehensive income (and its components) in financial statements. The
      standard does not, however, specify when to recognize or how to measure
      items that make up comprehensive income. Comprehensive income represents
      net income and certain amounts reported directly in equity, such as the
      net unrealized gain or loss on available-for-sale securities. While SFAS
      No. 130 does not require a specific reporting format, it does require that
      an enterprise display in the financial statements an amount representing
      total comprehensive income for the period. SFAS No. 130 is effective for
      fiscal years beginning after December 15, 1997 and, accordingly, will be
      adopted by the Bank in the fiscal year beginning October 1, 1998.
      Management does not anticipate that the adoption of this standard will
      significantly affect the Bank's financial reporting.

      In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures
      about Pensions and Other Postretirement Benefits," which standardizes the
      disclosure requirements for pensions and other postretirement benefits;
      requires additional information on changes in the benefit obligations and
      fair values of plan assets; and eliminates certain present disclosure
      requirements. The standard does not change the recognition or measurement
      requirements for postretirement benefits. SFAS No. 132 is effective for
      fiscal years beginning after December 15, 1997 and, accordingly, will be
      adopted by the Bank in the fiscal year beginning October 1, 1998.
      Management does not anticipate that the adoption of this standard will
      significantly affect the Bank's financial reporting.

      In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
      Instruments and Hedging Activities," which requires entities to recognize
      all derivatives as either assets or liabilities in the statement of
      financial condition at fair value. If certain conditions are met, a
      derivative may be specifically designated as a fair value hedge, a cash
      flow hedge, or a foreign currency hedge. A specific accounting treatment
      applies to each type of hedge. Entities may reclassify securities from the
      held-to-maturity category to the available-for-sale category at the time
      of adopting SFAS No. 133. The Bank has not yet determined whether it will
      reclassify securities between categories. SFAS No. 133 is effective for
      all fiscal quarters of fiscal years beginning after June 15, 1999 and,
      accordingly, will be adopted by the Bank in the fiscal year beginning on
      October 1, 1999. The Bank has engaged in limited derivatives and hedging
      activities covered by the new standard and, accordingly, SFAS No. 133 is
      not expected to have a material impact on the Bank's consolidated
      financial statements.

                                     F-37
<PAGE>
 
                                 PROVIDENT BANK
                                        
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                                        
         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
               PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
                                        
                             (Dollars in thousands)


(18)  MUTUAL HOLDING COMPANY REORGANIZATION AND OFFERING
      --------------------------------------------------

      On April 23, 1998, the Board of Directors of the Bank adopted a Plan of
      Reorganization and Stock Issuance Plan ("the Plan") pursuant to which the
      Bank will convert from mutual to stock form of ownership under a two-tier
      mutual holding company structure and shares of common stock will be sold
      in an initial public offering. As part of the Plan, the Bank will
      establish a federally-chartered mutual holding company known as Provident
      Bancorp, MHC (the "Mutual Holding Company") and a capital stock holding
      company known as Provident Bancorp, Inc. (the "Company"). The Bank will
      become a federally-chartered capital stock savings bank, wholly owned by
      the Company.

      The Company plans to offer for sale 46.6% of its common shares in a
      subscription offering (the "Offering") initially to eligible Bank
      depositors; tax-qualified employee benefit plans of the Bank; certain
      other Bank depositors and borrowers; and employees, officers and directors
      of the Bank. Any shares of common stock not sold in the Offering will be
      offered to certain members of the general public in a community offering,
      with preference given to natural persons residing in Rockland County, New
      York. The Mutual Holding Company will own the remaining 53.4% of the
      Company's issued common shares.

      Following the completion of the reorganization, all depositors who had
      liquidation rights with respect to the Bank as of the effective date of
      the reorganization will continue to have such rights solely with respect
      to the Mutual Holding Company so long as they continue to hold deposit
      accounts with the Bank. In addition, all persons who become depositors of
      the Bank subsequent to the reorganization will have such liquidation
      rights with respect to the Mutual Holding Company.

      Offering costs will be deferred and reduce the proceeds from the shares
      sold in the Offering. If the Offering is not completed, these costs will
      be charged to expense. At June 30, 1998, offering costs of $49 had been
      incurred and are included in other assets.

                                     F-38
<PAGE>
 
================================================================================

     NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE PROVIDENT BANCORP, INC. OR PROVIDENT BANK.  THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OF COMMON STOCK 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. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.


                            PROVIDENT BANCORP, INC.

                         (Proposed Holding Company for
                                Provident Bank)


                             UP TO 3,484,500 SHARES


                                  Common Stock
                          ($0.10 par value per share)


                                SUBSCRIPTION AND
                               COMMUNITY OFFERING
                                   PROSPECTUS


                             RYAN BECK & CO., INC.

                               November __, 1998

                 THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS
                  AND ARE NOT FEDERALLY INSURED OR GUARANTEED

Until December __, 1998 or 25 days after the commencement of the offering of
Common Stock, all dealers effecting transactions in the registered securities,
whether or not participating in this distribution, may be required to deliver a
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.

================================================================================
<PAGE>
 
PART II:  INFORMATION NOT REQUIRED IN PROSPECTUS                               
                                                                               
ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION                          

<TABLE> 
<CAPTION>                                                              
                                                                       Amount   
                                                                       ------   
     <S>  <C>                                                       <C> 
     *    Legal Fees and Expenses (including Blue Sky fees)......     $180,000  
     **   Underwriter's fees.....................................      470,000  
     *    Printing, Postage, EDGAR and Mailing...................      225,000  
     *    Appraisal and Business Plan Fees and Expenses..........       52,500  
     *    Accounting Fees and Expenses...........................      125,000  
     *    Underwriter's Counsel Fees.............................       42,000  
     *    Filing Fees (NASD, NASDAQ, OTS and SEC)................       95,900  
     *    Conversion Agent/Transfer Agent........................       25,000  
     *    Other Expenses.........................................       34,000  
                                                                    ----------  
     *    Total..................................................   $1,250,000  
                                                                    ==========  
</TABLE>

_____________
*    Estimated
**   Provident Bancorp, Inc. has retained Ryan, Beck & Co., Inc. ("Ryan, Beck")
     to assist in the sale of common stock on a best efforts basis in the
     Offerings.  Ryan, Beck will receive fees of approximately $450,000,
     exclusive of estimated expenses of $20,000.


ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS OF PROVIDENT BANK AND
          PROVIDENT BANCORP, INC.

          Generally, federal regulations define areas for indemnity coverage for
federal savings associations, and proposed federal regulations define areas for
indemnity coverage for federal MHC subsidiary holding companies, as follows:

          (a)  Any person against whom any action is brought or threatened
because that person is or was a director or officer of the savings association
shall be indemnified by the savings association for:

               (i)  Any amount for which that person becomes liable under a
          judgment in such action; and

               (ii) Reasonable costs and expenses, including reasonable
          attorneys' fees, actually paid

          or incurred by that person in defending or settling such action, or in
          enforcing his or her rights under this section if he or she attains a
          favorable judgement in such enforcement action.
 
          (b) Indemnification shall be made to such person under paragraph (b)
of this Section only if:

               (i)  Final judgement on the merits is in his or her favor; or

               (ii) In case of:

                    a.   Settlement,
                    b.   Final judgement against him or her, or
                    c.   Final judgement in his or her favor, other than on the
                         merits, if a majority of the disinterested directors of
                         the savings association determine that he or she was
                         acting in good faith within the scope of his or her
                         employment or authority as he or she could reasonably
                         have perceived it under the circumstances and for a
                         purpose he or she could reasonably have believed under
                         the circumstances was in the best interest of the
                         savings association or its members. However, no
                         indemnification shall be made unless the association
                         gives the Office at least 60 days

                                      II-1
<PAGE>
 
                         notice of its intention to make such indemnification.
                         Such notice shall state the facts on which the action
                         arose, the terms of any settlement, and any disposition
                         of the action by a court. Such notice, a copy thereof,
                         and a certified copy of the resolution containing the
                         required determination by the board of directors shall
                         be sent to the Regional Director, who shall promptly
                         acknowledge receipt thereof. The notice period shall
                         run from the date of such receipt. No such
                         indemnification shall be made if the OTS advises the
                         association in writing, within such notice period, of
                         its objection thereto.

          (c)  As used in this paragraph:

               (i)   "Action" means any judicial or administrative proceeding,
          or threatened proceeding, whether civil, criminal, or otherwise,
          including any appeal or other proceeding for review;

               (ii)  "Court" includes, without limitation, any court to which or
          in which any appeal or any proceeding for review is brought;

               (iii) "Final Judgment" means a judgment, decree, or order which
          is not appealable or as to which the period for appeal has expired
          with no appeal taken;

               (iv)  "Settlement" includes the entry of a judgment by consent or
          confession or a plea of guilty or of nolo contendere.

ITEM 15.  RECENT SALES OF UNREGISTERED SECURITIES

          Not Applicable.

ITEM 16.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES:

          See the Exhibit Index which immediately preceeds the Exhibits to the
          Form S-1.

ITEM 17.  UNDERTAKINGS

          The undersigned Registrant hereby undertakes to:

          (1) File, during any period in which it offers or sales are being
made, a post-effective amendment to this registration statement to:

          (i)   Include any prospectus required by Section 10(a)(3) of the
          Securities Act of 1933;

          (ii)  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 and 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 20 percent change in the
          maximum aggregate offering price set forth in the "Calculation of
          Registration Fee" table in the effective registration statement;

          (iii) 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.

                                      II-2
<PAGE>
 
          (2)  For the purpose of determining liability under the Securities
Act, 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.

          (3)  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.

          The registrant will provide to the underwriter at the closing
specified in the Underwriting Agreement certificates in such documentation and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.

          Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, 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 director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, 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.

                                      II-3
<PAGE>
 
   As filed with the Securities and Exchange Commission on September 17, 1998
                                                           Registration No. 333-
                                                                                
================================================================================


                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549


                              ___________________

                                   EXHIBITS
                                      TO
                            REGISTRATION STATEMENT
                                      ON
                                   FORM S-1

                              ___________________




                            PROVIDENT BANCORP, INC.
                             MONTEBELLO, NEW YORK
<PAGE>
 
                                 EXHIBIT INDEX

1.1  Engagement Letter between Provident Bank and Ryan, Beck & Co., Inc.

1.2  Agency Agreement among Provident Bancorp, Inc., Provident Bank and Ryan,
     Beck & Co., Inc.*

2    Plan of Reorganization from Mutual Savings Association to Mutual Holding
     Company and
     Stock Issuance Plan

3.1  Proposed Federal Holding Company Charter of Provident Bancorp, Inc.
     (contained in Exhibit 2)

3.2  Proposed Bylaws of Provident Bancorp, Inc (contained in Exhibit 2)

4    Form of Common Stock Certificate of Provident Bancorp, Inc

5    Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. regarding legality of
     securities being registered

8.1  Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C.
 
8.2  Opinion of RP Financial, LC with respect to Subscription Rights

10.1 Form of Employee Stock Ownership Plan

10.2 Employment Agreement with George Strayton, as amended

10.3 Form of Employment Agreement

10.4 Deferred Compensation Agreement

10.5 Supplemental Executive Retirement Plan, as amended

10.6 Management Incentive Program*

10.7 1996 Long-Term Incentive Plan for Officers and Directors*

21   Subsidiaries of the Registrant

23.1 Consent of Luse Lehman Gorman Pomerenk & Schick, P.C. (contained in
     Opinions included on Exhibits 5 and 8.1)

23.2 Consent of KPMG Peat Marwick LLP

23.3 Consent of Deloitte & Touche LLP

23.4 Consent of RP Financial, LC

24   Power of Attorney (set forth on signature page)

27   EDGAR Financial Data Schedule

99.1 Appraisal Agreement between Provident Bank and RP Financial, LC.
 
99.2 Business Plan Agreement between Provident Bank and RP Financial, LC.

99.3 Appraisal Report of RP Financial, LC*

99.4 Proxy Statement

99.5 Marketing Materials*

99.6 Order Form*

99.7 401(k) Supplement*

___________________
*    To be filed supplementally or by amendment.
[{"type": "S-1", "sequence": "1", "description": "PROSPECTUS", "secsgml_size_bytes": 711162}]
{"company-data": {"conformed-name": "PROVIDENT BANCORP INC/NY/", "cik": "0001070154", "assigned-sic": "", "fiscal-year-end": "0430"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-63593", "film-number": "98710965"}, "business-address": {"street1": "400 RELLA BLVD", "city": "MONTEBELLO", "state": "NY", "zip": "10901", "phone": "9143698040"}}
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1998
                                                           REGISTRATION NO. 333-
================================================================================

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM S-1
                            REGISTRATION STATEMENT
                                     UNDER
                          THE SECURITIES ACT OF 1933

                            PROVIDENT BANCORP, INC.
            (Exact Name of Registrant as Specified in Its Charter )

      FEDERAL                         6712                   (TO BE APPLIED FOR)
(State or Jurisdiction          (Primary Standard              (I.R.S. Employer
of Incorporation or      Industrial Classification Code      Identification No.)
   Organization)                     Number)

                              400 RELLA BOULEVARD
                          MONTEBELLO, NEW YORK 10901
                                (914) 369-8040
         (Address and Telephone Number of Principal Executive Offices)

                                GEORGE STRAYTON
                     PRESIDENT AND CHIEF EXECUTIVE OFFICER
                              400 RELLA BOULEVARD
                          MONTEBELLO, NEW YORK 10901
                                (914) 369-8040
          (Name, Address  and Telephone Number of Agent for Service)

                                  COPIES TO:
                                ERIC LUSE, ESQ.
                            KENNETH R. LEHMAN, ESQ.
                  LUSE LEHMAN GORMAN POMERENK & SCHICK, P.C.
                    5335 WISCONSIN AVENUE, N.W., SUITE 400
                                (202) 274-2000
                            WASHINGTON, D.C. 20015

APPROXIMATE DATE OF PROPOSED SALE TO THE 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, 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 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(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]  

If the delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box: [_]
CALCULATION OF REGISTRATION FEE
==================================================================================================================

                                                                 PROPOSED        PROPOSED                            
                                             AMOUNT TO BE        MAXIMUM         MAXIMUM                            
    TITLE OF EACH CLASS OF                   REGISTERED       OFFERING PRICE    AGGREGATE        AMOUNT OF          
    SECURITIES TO BE REGISTERED                                     PER          OFFERING    REGISTRATION FEE       
                                                                SHARE/UNIT      PRICE (1)                            
------------------------------------------------------------------------------------------------------------------
Common Stock, $0.10 par value per share    4,007,175 shares       $10.00        $40,071,750       $11,822
 
Participation Interests (2)                340,000  interests        --              --              --
==================================================================================================================
____________________

(1)  Estimated solely for the purpose of calculating the registration fee.
(2)  The securities of Provident Bancorp, Inc. to be purchased by the Provident
     Savings Bank 401(k) Plan as adopted by Provident Bank are included in the
     amount shown for Common Stock.  However, pursuant to Rule 457(h) of the
     Securities Act of 1933, as amended, no separate fee is required for the
     participation interests.  Pursuant to such rule, the amount being
     registered 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 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 SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.

================================================================================
PROSPECTUS
UP TO 3,484,500 SHARES OF COMMON STOCK
                                                         PROVIDENT BANCORP, INC.
                                                             400 RELLA BOULEVARD
                                                     MONTEBELLO, NEW YORK, 10901

================================================================================
     Provident Bancorp, Inc., a federal corporation, is offering for sale up to
3,484,500 shares, or 46.6% of its to-be outstanding common stock, in connection
with the mutual holding company reorganization of Provident Bank.  Provident
Bancorp, Inc. will issue the remaining 53.4% of its to-be outstanding common
stock to Provident Bancorp, MHC, a federal mutual holding company.  The shares
of common stock of Provident Bancorp, Inc. are being offered to the public under
the terms of a plan of reorganization that must be approved by members of
Provident Bank and by the Office of Thrift Supervision. Because the names of
Provident Bank, Provident Bancorp, Inc. and Provident Bancorp, MHC are so
similar, we will refer to Provident Bank as the "Bank," we will refer to
Provident Bancorp, Inc. as the "Company," and we will refer to Provident
Bancorp, MHC as the "Mutual Holding Company."
================================================================================

                                 OFFERING TERMS

     An independent appraiser has estimated that the market value of the Company
after giving effect to the reorganization and offering is between $55,250,000
and $74,750,000.  Based on the valuation, the Company will issue between
5,525,000 and 7,475,000 shares of its common stock in the reorganization.  The
Company intends to sell 46.6% of these shares, or between 2,575,500 and
3,484,500 shares, to the public, and issue 53.4% of these shares, or between
2,949,500 and 3,990,500 shares, to the Mutual Holding Company.  The Company may
increase the shares issued in the reorganization to up to 8,596,250 shares.  If
the Company increases the shares issued in the reorganization it will also
increase the shares it sells in the offering to up to 4,007,175 shares.  The
number of shares to be issued is subject to approval of the Office of Thrift
Supervision.  Based on these estimates, the Company is making the following
offering of shares of common stock.
Adjusted
                                    Minimum       Midpoint       Maximum        Maximum
                                 -----------    -----------    -----------    -----------
. Price per share...........     $     10.00    $     10.00    $     10.00    $     10.00
 . Number of shares..........       2,575,500      3,030,000      3,484,500      4,007,175
 . Offering expenses.........     $ 1,250,000    $ 1,250,000    $ 1,250,000    $ 1,250,000
 . Net proceeds..............     $24,505,000    $29,050,000    $33,595,000    $38,821,750
 . Net proceeds per share....     $      9.51    $      9.59    $      9.64    $      9.69
PLEASE REFER TO RISK FACTORS BEGINNING ON PAGE _____ OF THIS DOCUMENT.
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT INSURED OR GUARANTEED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT
SUPERVISION, THE FEDERAL DEPOSIT INSURANCE CORPORATION, NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

     Ryan, Beck & Co., Inc. will use its best efforts to assist in selling at
least the minimum number of shares, but does not guarantee that this number will
be sold. All funds received from subscribers will be held in an interest-bearing
savings account at the Bank until the completion or termination of the offering.
The Company has applied to have the common stock quoted on the Nasdaq National
Market under the symbol "_______"

     For information on how to subscribe, call the Stock Information Center at
(914) 369-_____.

                             RYAN, BECK & CO., INC.

                       Prospectus dated November __, 1998
[MAP]

                                       2
TABLE OF CONTENTS
PAGE
                                                                    ----
QUESTIONS AND ANSWERS ABOUT THE REORGANIZATION AND STOCK OFFERING....  4
SUMMARY AND OVERVIEW.................................................  7
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA....................... 13
RISK FACTORS......................................................... 15
PROVIDENT BANCORP, MHC............................................... 19
PROVIDENT BANCORP, INC............................................... 20
PROVIDENT BANK....................................................... 21
REGULATORY CAPITAL COMPLIANCE........................................ 22
USE OF PROCEEDS...................................................... 23
DIVIDEND POLICY...................................................... 24
MARKET FOR COMMON STOCK.............................................. 24
CAPITALIZATION....................................................... 25
PRO FORMA DATA....................................................... 26
PROPOSED PURCHASES BY DIRECTORS AND EXECUTIVE OFFICERS............... 33
THE REORGANIZATION AND OFFERING...................................... 34
PROVIDENT BANK CONSOLIDATED STATEMENTS OF INCOME..................... 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
     AND RESULTS OF OPERATIONS....................................... 47
BUSINESS OF PROVIDENT BANCORP, INC................................... 62
BUSINESS OF PROVIDENT BANK........................................... 62
TAXATION............................................................. 90
REGULATION............................................................92
MANAGEMENT OF THE COMPANY............................................ 98
MANAGEMENT OF THE BANK...............................................100
RESTRICTIONS ON ACQUISITION OF THE COMPANY...........................109
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY..........................111
TRANSFER AGENT AND REGISTRAR.........................................112
LEGAL AND TAX MATTERS................................................112
EXPERTS..............................................................112
ADDITIONAL INFORMATION...............................................112
CONSOLIDATED FINANCIAL STATEMENTS....................................F-1
GLOSSARY.............................................................G-1
This document contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors" beginning on page ____ of this Prospectus.

     You should note as you read this Prospectus that at times capitalized terms
are used.  These capitalized  terms are generally defined in the glossary that
is at the end of this Prospectus.  Defined terms are used to help you
differentiate between the various components of the transaction, to simplify the
discussion and to avoid unnecessary repetition by not having to define or
describe a term each time it is used.  For example, to avoid confusion, all of
the steps that are part of the transactions described in this Prospectus are
referred to as the "Reorganization," and the offer and sale of 46.6% of the
Company's common stock is referred to as the "Offering."  To further assist you
in reading this Prospectus, in addition to including a glossary, each term
defined in the glossary is also defined the first time that it is used in the
Prospectus.

                                       3
QUESTIONS AND ANSWERS ABOUT THE REORGANIZATION AND STOCK OFFERING

Q:   WHAT IS THE PURPOSE OF THE REORGANIZATION AND STOCK OFFERING?

A:   We are selling shares of common stock so that we can raise capital to grow
     and compete more effectively, and so that our depositors, employees,
     management and directors may obtain an equity ownership in the Company.
     You will have the opportunity to subscribe for stock.  Stockholders of the
     Company will share indirectly in the future earnings and growth of our
     Bank.  The offering will increase our capital for lending and investment
     activities. This will better enable us to continue the expansion of our
     retail banking franchise and product lines and to diversify operations.
     Moreover, the capital raised in the offering may be used to acquire new
     branch offices or other financial institutions.  Also, as a stock bank
     operating through a holding company structure, we will improve our future
     access to the capital markets.

Q:   WHY IS THE BANK FORMING A TWO-TIER MUTUAL HOLDING COMPANY AND CONDUCTING A
     MINORITY STOCK OFFERING INSTEAD OF UNDERGOING A FULL CONVERSION TO STOCK
     FORM?

A:   The Bank is currently a well-capitalized financial institution with
     tangible capital equal to 7.3% of total assets at June 30, 1998.  A savings
     institution that converts from the mutual to stock form of organization
     using the mutual holding company structure sells less than half of its
     shares to the public at the time of the reorganization, and, as a result,
     raises less than half the capital that would be raised in a full
     conversion. Management believes that the proceeds from the offering will
     provide the Bank with sufficient capital to implement its business
     strategy, and that at the present time the Bank would not have a use for
     the additional capital that would be raised if all shares were sold.

     In addition, because OTS regulations and policy generally prohibit the sale
     of a savings association in the mutual holding company structure, the
     reorganization and offering will permit the Bank to achieve the benefits of
     the stock form of organization without the threat of a change of control,
     which may occur following a standard conversion from mutual to stock form.

Q:   WHO WILL BE THE MINORITY STOCKHOLDERS OF THE COMPANY?

A:   All persons who purchase common stock in the offering, including the
     employee stock ownership plan the Bank is adopting in connection with the
     reorganization, will be minority stockholders of the Company, and will own
     46.6% of the Company's common stock upon completion of the offering.  The
     Mutual Holding Company will initially own 53.4% of the Company's common
     stock, and will remain the majority stockholder of the Company as long as
     the Mutual Holding Company remains in existence.

Q:   HOW DO I ORDER THE STOCK?

A:   You must complete and return the stock order form to us together with your
     payment, so that we receive it on or before 10:00 a.m., New York time, on
     December __, 1998.

                                       4
Q:   WHO WILL BE PERMITTED TO PURCHASE STOCK?

A:   The stock is being offered on a priority basis to the following persons:

     .    Persons who had aggregate deposit accounts of at least $50 with the
          Bank on December 31, 1996 ("Eligible Account Holders"). Any remaining
          shares will be offered to:

     .    The Bank's tax-qualified employee plans.  Any remaining shares will be
          offered to:

     .    Persons other than Eligible Account Holders who had aggregate deposit
          accounts of at least $50 with the Bank on September 30, 1998
          ("Supplemental Eligible Account Holders"). Any remaining shares will
          be offered to:

     .    Depositors of the Bank as of ___________, 1998 (the "Voting Record
          Date") and borrowers of the Bank as of July 9, 1998 whose borrowings
          remained outstanding as of the Voting Record Date, who are not
          Eligible Account Holders or Supplemental Eligible Account Holders
          ("Other Members"). Any remaining shares will be offered to:
 
     .    Employees, officers and directors of the Bank.

     If the above persons do not subscribe for all of the shares, the remaining
     shares may be offered in a Community Offering to certain members of the
     general public, with preference given to natural persons residing in
     Rockland County, New York.

Q:   HOW MUCH STOCK MAY I ORDER?

A:   The minimum number of shares that may be purchased is 25 shares.  No
     Eligible Account Holder, Supplemental Eligible Account Holder or Other
     Member may, in their capacities as such, purchase more than 20,000 shares
     (or $200,000) of common stock.  No person, together with associates of and
     persons acting in concert with such person, may purchase in the offering
     more than 40,000 shares (or $400,000) of common stock.  However, the
     maximum purchase limitation may be increased or decreased at the sole
     discretion of the Company and the Bank, provided that the aggregate
     purchase limitation may not be reduced below 1% of the shares issued in the
     offering.

Q:   WHAT HAPPENS IF THERE ARE NOT ENOUGH SHARES TO FILL ALL ORDERS?

A:   If the offering is oversubscribed, we will allocate shares based on the
     purchase priorities described above that are contained in the plan of
     reorganization and stock issuance plan.  These purchase priorities are in
     accordance with regulations of the Office of Thrift Supervision.  If the
     offering is oversubscribed in a particular category of the offering, then
     shares will be allocated among all subscribers in that category based on a
     formula that is described in detail in "The Reorganization and Offering."
     The categories are described in answer to the second preceding question.

Q:   AS A DEPOSITOR OR BORROWER OF THE BANK, WHAT WILL HAPPEN IF I DO NOT ORDER
     ANY COMMON STOCK?

A:   You are not required to purchase common stock. Your deposit accounts,
     certificate accounts and any loans you may have with the Bank will not be
     affected by the reorganization.

Q:   HOW DO I DECIDE WHETHER TO BUY STOCK IN THE OFFERING?

A:   In order to make an informed investment decision, you should read this
     entire Prospectus, including the section titled "Risk Factors."

                                       5
Q:   WHO CAN HELP ANSWER ANY QUESTIONS I MAY HAVE ABOUT THE OFFERING?

     If you have questions about the offering, you may contact:

                            STOCK INFORMATION CENTER
                                 PROVIDENT BANK
                                (800) ____-____

     SELLING OR ASSIGNING YOUR SUBSCRIPTION RIGHTS IS ILLEGAL.  ALL PERSONS
EXERCISING THEIR SUBSCRIPTION RIGHTS WILL BE REQUIRED TO CERTIFY THAT THEY ARE
PURCHASING SHARES SOLELY FOR THEIR OWN ACCOUNT AND THAT THEY HAVE NO AGREEMENT
OR UNDERSTANDING REGARDING THE SALE OR TRANSFER OF SUCH SHARES.  THE COMPANY AND
THE BANK INTEND TO PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES IN THE EVENT
IT BECOMES AWARE OF THE TRANSFER OF SUBSCRIPTION RIGHTS.  ORDERS KNOWN TO
INVOLVE THE TRANSFER OF SUBSCRIPTION RIGHTS WILL NOT BE HONORED.  IN ADDITION,
PERSONS WHO VIOLATE THE PURCHASE LIMITATIONS MAY BE SUBJECT TO SANCTIONS AND
PENALTIES IMPOSED BY THE OTS.

                                       6
SUMMARY AND OVERVIEW

     This summary highlights selected information from this Prospectus and does
not contain all the information that you need to know before making an informed
investment decision. To understand the Offering fully, you should read the
entire Prospectus carefully, including the consolidated financial statements and
the notes to the consolidated financial statements of the Bank.  Certain
financial information contained in the Prospectus has been derived from the
audited and unaudited consolidated financial statements of the Bank.

THE COMPANIES

                             Provident Bancorp, MHC
                              400 Rella Boulevard
                           Montebello, New York 10901
                                 (914) 369-8040

      The Mutual Holding Company is not currently an operating company and has
not engaged in any business to date.  Upon completion of the Reorganization, the
Mutual Holding Company will be chartered under Federal law and will own 53.4% of
the outstanding Common Stock of the Company.  The Mutual Holding Company is not
expected to engage in any business activities other than owning the Common Stock
of the Company.  So long as the Mutual Holding Company exists, it will own at
least a majority of the Company's voting stock.  Following completion of the
Reorganization, persons who were members of the Bank will become members of the
Mutual Holding Company, so long as their existing borrowings from the Bank
remain outstanding or they continue to maintain a deposit account with the Bank.

                            Provident Bancorp, Inc.
                              400 Rella Boulevard
                           Montebello, New York 10901
                                 (914) 369-8040

     The Company is not currently an operating company and has not engaged in
any business to date.  After the Reorganization, the Company will own all of the
Bank's common stock.  Purchasers in the Offering will own 46.6% of the Company's
common stock and the Mutual Holding Company will own 53.4% of the Company's
common stock. Although these percentages may change in the future, the Mutual
Holding Company must always own a majority of the Company's Common Stock.  It is
expected that the Company will make the loan to the ESOP and invest up to 42% of
the net proceeds of the Offering as described in "Use of Proceeds."  The holding
company structure will provide us greater flexibility in terms of operations,
expansion and diversification.  See page __.

                                 Provident Bank
                              400 Rella Boulevard
                           Montebello, New York 10901
                                 (914) 369-8040

     The Bank is a community bank that offers financial services to individuals,
families and businesses primarily in Rockland County, New York and communities
in contiguous counties.  The Bank is engaged primarily in the business of
offering various FDIC-insured savings and demand deposits to individual and
business customers through eleven full-service offices, and using those
deposits, together with funds generated from operations and borrowings, to make
one- to four-family residential and commercial real estate loans, consumer
loans, construction and land loans, commercial business loans, and multi-family
residential loans.  The Bank also invests its funds in mortgage-backed
securities and investment securities.  At June 30, 1998, the Bank had total
assets of $679.1 million, total deposits of $580.1 million and total equity of
$53.9 million.  See pages __ to __.

                                       7
THE REORGANIZATION AND OFFERING

     The Reorganization and Offering involve a number of steps, including the
     following:

     .    The Bank will establish the Company and the Mutual Holding Company,
          neither of which will have any assets prior to the completion of the
          Reorganization.

     .    The Bank will convert from the mutual form of organization to the
          capital stock form of organization and issue 100% of its capital stock
          to the Company.

     .    The Company will issue between 5,525,000 and 7,475,000 shares of its
          common stock, par value $0.10 per share (the "Common Stock"), in the
          Reorganization; 53.4% of these shares (or between 2,949,500 shares and
          3,990,500 shares) will be issued to the Mutual Holding Company, and
          46.6% (or between 2,575,500 shares and 3,484,500 shares) will be
          offered for sale in the Offering.

     .    Membership interests that depositors and certain borrowers had in the
          Bank will become membership interests in the Mutual Holding Company.
          As a result, former members of the Bank who controlled 100% of the
          votes eligible to be cast by the Bank's members prior to the
          Reorganization will control 100% of the votes eligible to be cast by
          members of the Mutual Holding Company immediately after the
          Reorganization and, through the Mutual Holding Company, will control
          53.4% of the votes eligible to be cast by the Company's stockholders
          immediately following the Reorganization.

DESCRIPTION OF THE MUTUAL HOLDING COMPANY STRUCTURE

     Following completion of the Reorganization, the corporate structure of the
Bank will be as follows:

        ---------------------    -------------------------- 
                                         Minority
         Provident Bancorp,            Stockholders
               MHC                   (Including ESOP)
        ---------------------    --------------------------
                    53.4% of                    46.6% of
                     the                          the
                    Common                       Common    
                    Stock                        Stock
        --------------------------------------------------- 

                       Provident Bancorp, Inc.
 
        ---------------------------------------------------
                                  100% of the
                                  Common Stock
        ---------------------------------------------------
                          Provident Bank
        ---------------------------------------------------          

     The mutual holding company structure differs in significant respects from
the holding company structure that is used in a standard mutual-to-stock
conversion.  In a standard conversion, a converting mutual institution or its
newly-formed holding company sells 100% of its common stock in a stock offering.
A savings institution that converts from the mutual to stock form of
organization using the mutual holding company structure sells less than half of
its shares at the time of its reorganization and stock offering.  By doing so, a
converting institution using the mutual holding company structure will raise
less than half the capital that it would have raised in a standard mutual to
stock

                                       8
conversion. The Company is selling 46.6% of its Common Stock in the Offering.
This will enable the Company to issue authorized but unissued shares of Common
Stock, or treasury stock, to finance the acquisition of other financial
institutions in stock-for-stock acquisitions, while still remaining in the
mutual holding company structure. The Company has no current plans,
understandings or agreements regarding any acquisition or merger, and such
transactions would be subject to regulatory approval. The shares that are issued
to the Mutual Holding Company may be subsequently sold to the Bank's customers
in an incremental stock offering or if the Mutual Holding Company converts from
the mutual to the stock form of organization. See "Conversion of the Mutual
Holding Company to the Stock Form of Organization."

     In addition, because Office of Thrift Supervision ("OTS") regulations and
policy generally prohibit the sale of a savings institution in the mutual
holding company structure, management believes that the Reorganization and
Offering will permit the Bank to achieve the benefits of a stock company without
the threat of a change of control that may occur following a standard conversion
from mutual to stock form.

     Because the Mutual Holding Company is a mutual corporation, its actions
will not necessarily always be in the best interests of the Company's minority
stockholders.  In making business decisions, the Mutual Holding Company's Board
of Directors will consider a variety of constituencies, including the customers
and employees of the Bank, and the communities in which the Bank operates.  As
the majority stockholder of the Company, the Mutual Holding Company is also
interested in the continued success and profitability of the Bank and the
Company. Consequently, the Mutual Holding Company will act in a manner that
furthers the general interest of all of its constituencies, including, but not
limited to, the interests of the minority stockholders of the Company.  The
Mutual Holding Company believes that the interests of the stockholders of the
Company, and those of the Mutual Holding Company's other constituencies, are in
many circumstances the same, such as the ongoing profitability of the Company
and the Bank and continued service to the communities in which the Bank
operates.

THE STOCK OFFERING

     The Company is offering for sale between 2,575,500 and 3,484,500 shares of
its Common Stock, par value $0.10 per share, at a price of $10.00 per share. The
Offering may be increased to 4,007,175 shares without further notice to you if
the estimated pro forma market value of the Common Stock (the "Independent
Valuation") is increased as a result of changes in market or financial
conditions prior to the completion of the Offering.  The shares sold in the
Offering will represent a minority ownership interest of 46.6% (the "Minority
Ownership Interest") of the shares of Common Stock of the Company.  The
remaining 53.4% of the shares of Common Stock of the Company will be issued to
the Mutual Holding Company.

STOCK PURCHASE PRIORITIES

     The Common Stock is being offered for sale in the following order of
priority in a subscription offering (the "Subscription Offering"):

     (i)    the Bank's Eligible Account Holders (holders of deposit accounts
            totaling $50 or more as of December 31, 1996);

     (ii)   the Bank's tax-qualified employee benefit plans, including the ESOP,
            which intends to purchase 8% of the shares sold in the Offering
            (however, the ESOP shall have the first priority to purchase any
            Common Stock which is sold in excess of 3,484,500 shares);

     (iii)  the Bank's Supplemental Eligible Account Holders (holders of deposit
            accounts totaling $50 or more as of September 30, 1998);

                                       9
(iv) depositors of the Bank as of the Voting Record Date (November __,
          1998), and borrowers of the Bank as of July 9, 1998 whose borrowings
          remain outstanding as of the Voting Record Date, who are not Eligible
          Account Holders or Supplemental Eligible Account Holders ("Other
          Members");

     (v)  employees, officers and directors of the Bank.

     Any shares of Common Stock not subscribed for in the Subscription Offering
may be offered for sale in a community offering (the "Community Offering") and
possibly a syndicated community offering (the "Syndicated Community Offering").
See pages ___ to ___.  Ryan, Beck & Co., Inc. ("Ryan Beck") will assist in
selling the Common Stock on a best efforts basis.

PROHIBITION ON TRANSFER OF SUBSCRIPTION RIGHTS

     Selling or assigning your subscription rights is illegal.  If you exercise
your subscription rights you will be required to certify that you are purchasing
shares solely for your own account and that you have no agreement or
understanding regarding the sale or transfer of such shares.  The Company and
the Bank intend to pursue any and all legal and equitable remedies in the event
the Company and the Bank become aware of the transfer of subscription rights,
and the Company and the Bank will not honor orders known to involve the transfer
of such rights.  In addition, persons who violate the purchase limitations may
be subject to sanctions and penalties imposed by the OTS.  In order to maintain
the appropriate stock purchase priorities, stock order forms submitted in the
Subscription Offering must indicate the name of the Eligible Account Holder or,
Supplemental Eligible Account Holder or Other Member, as the case may be.
Adding the name(s) of other persons who are not account holders, or were account
holders at a later date, will result in a loss of your purchase priority.

STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED

     RP Financial, LC., Arlington, Virginia, an appraisal firm independent of
the Bank and experienced in appraisals of savings associations, has estimated
that, in its opinion, as of _______, 1998, the aggregate pro forma market value
of the Company and the Bank ranged from $55.3 million to $74.8 million (the
"Estimated Valuation Range") with a midpoint of $65.0 million.  The Company is
offering to sell 46.6% of its Common Stock in the Offering and, based on the
Independent Valuation, 46.6% of the Common Stock ranged in value from $25.8
million to $34.8 million, with a midpoint of $30.3 million (the "Offering
Range").  The Company is offering its Common Stock for sale at $10.00 per share,
representing 2,575,500 shares and 3,484,500 shares at the minimum and maximum of
the Offering Range, respectively, with a midpoint of 3,030,000 shares.  The
Independent Valuation was based in part upon the Bank's financial condition and
operations and the effect of the additional capital raised by the sale of Common
Stock in the Offering.  In addition to the 2,575,500 to 3,484,500 shares to be
sold in the Offering, between 2,949,500 and 3,990,500 shares will be issued to
the Mutual Holding Company, which will represent 53.4% of the outstanding shares
of Common Stock.  The Independent Valuation will be updated prior to the
completion of the Offering.  If the Independent Valuation increases, there will
be a corresponding change in the total number of shares issued to the Mutual
Holding Company in the Reorganization and sold to subscribers in the Offering,
but the percentage of shares of the Company's Common Stock owned by the Mutual
Holding Company and the Minority Stockholders will not change as a result of a
change in the Independent Valuation.  If the Independent Valuation increases by
15%, or up to $86.0 million, the number of shares sold in the Offering will,
subject to OTS approval, increase to 4,007,175 shares and the number of shares
issued to the Mutual Holding Company will increase to 4,589,075 shares.
Prospective purchasers will be given the opportunity to change or withdraw their
purchase orders only if the Estimated Valuation Range decreases below the
minimum or increases by more than 15% above the maximum of such range, or if
fewer than 2,575,500 shares or more than 4,007,175 shares are sold in the
Offering. See pages __ to __.

                                       10
TERMINATION OF THE OFFERING

     The Subscription Offering will terminate at 10:00 a.m., New York time, on
December __, 1998. The Community Offering, if one is held, is expected to begin
immediately after the termination of the Subscription Offering, but may begin at
any time during the Subscription Offering.  The Community Offering may terminate
on or after December __, 1998, but in any event, no later than __________, 1999,
without OTS approval.

BENEFITS TO MANAGEMENT AND EMPLOYEES FROM THE OFFERING

     The Bank's full-time employees will be eligible to participate in the ESOP.
The Company also intends to implement a stock recognition plan (the "Recognition
Plan") and a stock option plan (the "Stock Option Plan") following completion of
the Reorganization, which will benefit the Bank's and the Company's officers and
directors. If the Recognition Plan is adopted, certain officers and directors
will be awarded shares of Common Stock at no cost to them.  However, the
Recognition Plan and Stock Option Plan may not be adopted until at least six
months after completion of the Reorganization and are subject to shareholder
approval.   The Bank will also enter into employment agreements with certain
officers of the Bank, which will provide for benefits and cash payments in the
event of a change in control of the Company or the Bank.  See "Management of the
Bank--Benefit Plans."

     The following table presents the dollar value of the shares to be granted
pursuant to the proposed stock benefit plans and the percentage of the Company's
outstanding Common Stock which will be represented by these shares.
PERCENTAGE OF
                                VALUE OF          OUTSTANDING 
                          SHARES GRANTED/(1)/    COMMON STOCK
                          -------------------   -------------
BENEFIT PLAN:                        
     ESOP...............       $2,424,000            3.73%
     Recognition Plan...        1,212,000            1.86
     Stock Option Plan..               --/(2)/       4.66
                               ----------           -----
                               $3,636,000           10.25%
                               ==========           =====
-------------------------
/(1)/ Assumes shares are granted at $10.00 per share and that shares are sold in
      the Offering at the midpoint of the Offering Range.
/(2)/ Recipients of stock options realize value only in the event of an increase
      in the price of the Common Stock of the Company following the date of
      grant of the stock options. Options to purchase 303,000 shares at the
      midpoint of the Offering Range may be granted if the Stock Option Plan is
      approved by shareholders.

USE OF THE PROCEEDS RAISED FROM THE SALE OF COMMON STOCK

     The Company expects to use the net proceeds from the Offering as follows:

     .    50% will be used to buy all the capital stock of the Bank.
     .    8% will be loaned to the ESOP to fund its purchase of Common Stock.
     .    42% will be retained by the Company for general corporate purposes,
          and will be invested initially in short- and medium-term investments.

     The proceeds to be received by the Bank will be available for general
corporate purposes including continued expansion of the retail banking franchise
through new branch openings or acquisitions, continued growth in the loan
portfolio, and the purchase of investment and mortgage-backed securities.  See
pages __ and __.

                                       11
DIVIDENDS

     The decision as to whether or not to declare dividends by the Company will
depend upon a number of factors including investment opportunities available to
the Company or the Bank, and upon the Company's financial condition and results
of operations.  If the Company decides to pay dividends on the Common Stock, the
Mutual Holding Company may waive its receipt of cash dividends, subject to
regulatory approval.  See pages __ to __.

MARKET FOR THE COMMON STOCK

     The Company has never issued capital stock.  The Company expects that the
Common Stock will be quoted on the Nasdaq National Market under the symbol
"______", but there can be no assurance that an active and liquid trading market
in the Common Stock will develop or be maintained.  The requirements for listing
include a minimum number of publicly traded shares, market makers and record
holders, and a minimum market capitalization.  Ryan Beck has indicated its
intention to make a market in the Common Stock, subject to compliance with
applicable provisions of federal and state securities laws and other regulatory
requirements, although Ryan Beck is not required to do so.  If you purchase
shares, you may not be able to sell them when you want to at a price that is
equal to or more than the price you paid. See page ____.

CONVERSION OF THE MUTUAL HOLDING COMPANY TO THE STOCK FORM OF ORGANIZATION

     OTS regulations and the Bank's Plan of Reorganization from a Mutual Savings
Bank to a Mutual Holding Company and Stock Issuance Plan (the "Plan") permit the
Mutual Holding Company to convert from the mutual to the capital stock form of
organization.  There can be no assurance that such a transaction will ever
occur, and the Board of Directors has no current intention or plan to undertake
such a transaction.  If the Mutual Holding Company were to convert to the
capital stock form of organization, eligible depositors and borrowers would
receive the right to subscribe for additional shares of the new stock holding
company that would be formed in the transaction.  Any such transaction would be
subject to OTS regulations in effect at that time.  In such a transaction, under
current OTS policy, each share of Common Stock outstanding and held by persons
other than the Mutual Holding Company would be converted automatically into
shares of common stock of the new stock holding company.  The number of shares
that each stockholder would receive would be determined pursuant to an exchange
ratio that ensures that after the transaction (subject only to an adjustment to
reflect any dividends that the Mutual Holding Company may have waived and any
assets that the Mutual Holding Company may have other than common stock of the
Company), the percentage of the to-be outstanding shares of the new stock
holding company received by such stockholder in exchange for his/her Common
Stock equals the percentage of the outstanding shares of Common Stock owned by
such stockholder immediately prior to the conversion transaction.

                                       12
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

     The following selected historical financial data at and for each of the
years in the five-year period ended September 30, 1997 is derived in part from
the audited consolidated financial statements of the Bank.  Data at and for the
nine-month periods ended June 30, 1998 and 1997 is derived in part from the
unaudited consolidated financial statements of the Bank. The selected financial
data set forth below is qualified in its entirety by, and should be read in
conjunction with, the unaudited consolidated financial statements as of June 30,
1998 and for the nine months ended June 30, 1998 and 1997, and the audited
consolidated financial statements as of September 30, 1997 and 1996 and for the
years ended September 30, 1997, 1996 and 1995, including the notes thereto,
included elsewhere in this Prospectus.
AT JUNE 30,                    AT SEPTEMBER 30,
                                             ------------------    ----------------------------------------------
                                               1998      1997       1997     1996      1995      1994      1993
                                             --------  --------  --------  --------  --------  --------  --------
(IN THOUSANDS)
SELECTED FINANCIAL CONDITION DATA:         
                                           
Total assets...........................      $679,104  $641,583  $648,742  $634,250  $526,593  $480,478  $470,021
Loans receivable, net..................       440,360   389,213   404,497   369,487   331,947   315,154   295,077
Mortgage-backed securities (1):            
  Held to maturity.....................        89,334   104,186   104,071   112,863    80,735        --        --
  Available for sale...................        43,775    35,873    36,153    41,482    30,329        --     1,010
  Held for investment..................            --        --        --        --        --    97,780    96,544
Investment securities (1):                 
  Held to maturity.....................        20,197    27,181    22,195    22,138    37,920        --        --
  Available for sale...................        48,629    49,367    48,517    47,313    21,456        --        --
  Held for investment..................            --        --        --        --        --    47,356    58,155
Deposits...............................       580,075   557,934   546,846   545,286   443,667   419,808   413,816
Borrowings.............................        25,048    13,000    24,000    13,000    13,900    10,100     9,800
Equity.................................        53,879    49,141    50,399    45,536    43,828    38,551    33,746
 
                                                  NINE MONTHS
                                                 ENDED JUNE 30,              YEARS ENDED SEPTEMBER 30,
                                             ------------------  ------------------------------------------------
                                               1998      1997      1997      1996      1995      1994      1993
                                             --------  --------  --------  --------  --------  --------  --------
                                                                          (IN THOUSANDS)                     
SELECTED OPERATING DATA:                 
                                         
Interest and dividend income...........      $ 35,739  $ 34,755  $ 46,555  $ 42,566  $ 37,030  $ 32,175  $ 33,543
Interest expense.......................        15,609    15,070    20,179    18,585    15,064    11,556    13,945
                                             --------  --------  --------  --------  --------  --------  --------
  Net interest income..................        20,130    19,685    26,376    23,981    21,966    20,619    19,598
Provision for loan losses..............         1,347       875     1,058       911       760       452       760
                                             --------  --------  --------  --------  --------  --------  --------
  Net interest income after provision    
   for loan losses.....................        18,783    18,810    25,318    23,070    21,206    20,167    18,838
Non-interest income....................         2,298     2,212     2,711     2,451     2,100     2,168     2,247
Non-interest expense (excluding special  
 assessment)...........................        15,642    15,188    20,602    19,436    15,264    13,518    12,154
SAIF special assessment (2)............            --        --        --     3,298        --        --        --
                                             --------  --------  --------  --------  --------  --------  --------
  Income before income tax expense and   
   cumulative effect of change in        
   accounting principle................         5,439     5,834     7,427     2,787     8,042     8,817     8,931
Income tax expense.....................         1,995     2,370     2,829       690     3,239     3,611     3,593
                                             --------  --------  --------  --------  --------  --------  --------
  Income before cumulative effect of     
    change in accounting principle.....         3,444     3,464     4,598     2,097     4,803     5,206     5,338
Cumulative effect of change in           
 accounting                              
 for income taxes......................            --        --        --        --        --       401        --
                                             --------  --------  --------  --------  --------  --------  --------
                                         
  Net income (2).......................      $  3,444  $  3,464  $  4,598  $  2,097  $  4,803  $  4,805  $  5,338
                                             ========  ========  ========  ========  ========  ========  ========
(Footnotes on next page)

                                       13
AT OR FOR THE
                                                NINE MONTHS
                                                ENDED JUNE 30,      AT OR FOR THE YEARS ENDED SEPTEMBER 30,
                                               --------------    -------------------------------------------
                                                1998     1997      1997    1996     1995      1994    1993
                                                ----     -----    ------  ------   ------    ------  ------
SELECTED FINANCIAL RATIOS AND OTHER DATA:
PERFORMANCE RATIOS (3):
Return on assets (ratio of net income to
 average total assets) (2)(4)...............    0.70%    0.73%    0.72%    0.36%    0.96%    1.01%    1.15%
Return on equity (ratio of net income
 to average equity) (2)(4)..................    8.72     9.72     9.51     4.60    11.77    13.37    17.54
Average interest rate spread (4)(5).........    3.80     3.95     3.92     3.88     4.15     4.19     4.06
Net interest margin (4) (6).................    4.30     4.37     4.36     4.30     4.53     4.46     4.35
Efficiency ratio (7)........................   69.74    69.36    70.83    73.53    63.43    59.32    55.64
Non-interest expense to average total
 assets (4) (8).............................    3.19     3.20     3.24     3.91     3.06     2.83     2.62
Average interest-earning assets to average
interest-bearing liabilities................  114.95   112.75   113.07   112.60   112.38   110.86   109.35
 
ASSET QUALITY RATIOS:
Non-performing assets to total assets.......    0.90     0.67     0.75     1.21     1.29     0.94     1.17
Non-performing loans to total loans.........    1.30     0.89     1.16     1.72     1.99     1.19     1.46
Allowance for loan losses to
 non-performing loans.......................   79.27   112.08    80.80    52.87    52.59    75.55    59.49
Allowance for loan losses to total loans
 receivable, net............................    1.03     1.00     0.93     0.91     1.05     0.90     0.87
 
CAPITAL RATIOS:
Equity to total assets at end of period.....    7.93     7.66     7.77     7.18     8.32     8.02     7.18
Average equity to average assets............    8.05     7.51     7.59     7.83     8.17     7.53     6.56
 
OTHER DATA:
Number of full-service offices..............      11       11       11       11        9        9        9
_______________________________
/(1)/ The Bank has classified its securities as "held to maturity" or "available
      for sale" since October 1, 1994, when it adopted Statement of Financial
      Accounting Standards No. 115, "Accounting for Certain Investments in Debt
      and Equity Securities."  Prior thereto, substantially all securities were
      classified as "held for investment."
/(2)/ The SAIF special assessment in fiscal 1996 represents the Bank's share of
      an assessment imposed on all financial institutions with deposits insured
      by the Savings Association Insurance Fund (the "SAIF").  On an after-tax
      basis, the special assessment reduced net income for fiscal 1996 by
      approximately $2.0 million.  See "Management's Discussion and Analysis of
      Financial Condition and Results of Operations--Comparison of Operating
      Results for the Years Ended September 30, 1997 and 1996" and Note 8 of the
      Notes to Consolidated Financial Statements.
/(3)/ Ratios for the nine-month periods have been annualized.
/(4)/ Ratio is based on average monthly balances during the indicated periods.
/(5)/ The average interest rate spread represents the difference between the
      weighted-average yield on interest-earning assets and the weighted-average
      cost of interest-bearing liabilities for the period.
/(6)/ The net interest margin represents net interest income as a percent of
      average interest-earning assets for the period.
/(7)/ The efficiency ratio represents non-interest expense (other than the SAIF
      special assessment in fiscal 1996) divided by the sum of net interest
      income and non-interest income.
/(8)/ Excluding the SAIF special assessment, the ratio of non-interest expense
      to average total assets for fiscal 1996 was 3.34%.

                                       14
RISK FACTORS

     In addition to the other information in this Prospectus, you should
consider carefully the following risk factors in evaluating an investment in the
Common Stock.

POTENTIAL EFFECTS OF CHANGES IN INTEREST RATES AND THE CURRENT INTEREST RATE
ENVIRONMENT

     The Bank's net income and financial condition are significantly affected by
changes in market interest rates, and its results of operations substantially
depend on its net interest income.  Net interest income is the difference
between the interest income earned on the Bank's interest-earning assets and the
interest expense paid on its interest-bearing liabilities. The Bank's interest-
bearing liabilities reprice or mature sooner than the contractual repricing
dates or maturities of its interest-earning assets.  Thus, if interest rates
were to rise quickly, interest-bearing liabilities would reprice to higher rates
sooner than would the interest-earning assets.  However, repayment options are
available to residential loan borrowers.  Should interest rates fall
precipitously, many borrowers would tend to refinance, and interest rates on
interest earning assets could fall as quickly, and perhaps lower, than the
interest rates on the Bank's liabilities.  As a result, large fluctuations in
interest rates in either direction would likely result in a decrease in the
Bank's average interest rate spread and net interest income.  Net interest
income could also be negatively impacted by a flat or inverted yield curve.  The
Bank has sought to manage its interest rate risk exposure by emphasizing bi-
weekly fixed-rate mortgage loans, residential and commercial adjustable-rate
mortgage loans and consumer loans. Depending on market interest rates and the
Bank's capital and liquidity position, the Bank may retain all of its newly
originated longer-term fixed-rate, fixed-term residential mortgage loans or may
decide to sell all or a portion of such loans on a servicing-retained basis.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Management of Market Risk."
 
     Changes in interest rates also affect the value of the Bank's interest-
earning assets, and in particular the Bank's securities portfolios.  Generally,
the value of debt securities fluctuates inversely with changes in interest
rates. That is, an increase in interest rates would result in a decrease in the
value of debt securities.  At June 30, 1998, the Bank's investment securities
and mortgage-backed securities portfolios totaled $201.9 million, and included
$92.4 million of securities available for sale.  After-tax unrealized gains and
losses on securities available for sale are reported as a separate component of
equity.  Decreases in the fair value of securities available for sale therefore
could have an adverse effect on stockholders' equity.  See "Business of the
Bank--Investment Activities."

     The Bank is also subject to reinvestment risk relating to interest rate
movements.  Changes in interest rates can affect the average life of loans and
mortgage-backed securities.  Decreases in interest rates can result in increased
prepayments of loans and mortgage-backed securities, as borrowers refinance to
reduce borrowing costs.  Under these circumstances, the Bank is subject to
reinvestment risk to the extent that it is not able to reinvest such prepayments
at rates that are comparable to the rates on the maturing loans or securities.
Moreover, volatility in interest rates can also result in the flow of funds away
from the Bank into investments such as U.S. Government and corporate securities
and other investments that generally pay higher rates of return than the rates
paid on deposits by financial institutions.

LENDING RISKS ASSOCIATED WITH COMMERCIAL AND MULTI-FAMILY REAL ESTATE,
CONSTRUCTION AND LAND AND COMMERCIAL BUSINESS LENDING

     At June 30, 1998, the Bank's portfolio of commercial and multi-family real
estate loans totaled $70.8 million or 15.5% of total loans, its portfolio of
construction and land loans totaled $27.8 million or 6.1% of total loans and its
portfolio of commercial business loans totaled $24.0 million or 5.3% of total
loans.  As part of management's strategy of operating the Bank as a community
bank, it is expected that these loans will increase as a percentage of the
Bank's total loan portfolio.  These types of loans generally expose a lender to
a greater risk of loss than one- to four-family residential loans.  See
"Business of the Bank--Lending Activities" and "Business of the Bank--Lending
Activities--Non-performing Assets and Delinquencies."

                                       15
GEOGRAPHIC CONCENTRATION OF LOANS
 
     The Bank's mortgage loans are secured by residential and commercial real
estate properties located primarily in Rockland County, New York.  If the local
economy, national economy or real estate market weakens, the financial condition
and results of operations of the Bank could be adversely affected.  A weakening
in the local real estate market or a decline in the local economy could increase
the number of delinquent or non-performing loans and reduce the value of the
collateral securing such loans, which would reduce the Bank's net income.

COMPETITION

     Numerous commercial banks and savings institutions have branches in the
immediate vicinity of the Bank. There is strong competition from financial
institutions and mortgage brokers in the Bank's local market, as well as from
mutual funds, in both originating loans and attracting funds.  The Bank's
primary competitors are commerical banks, other savings institutions, commercial
banks, mortgage banking companies and mortgage brokers.  Trends toward the
consolidation of the financial institutions industry and removal of restrictions
on interstate banking and branching may make it more difficult for smaller
institutions such as the Bank to compete effectively with large national and
regional banking institutions.  Such competition may have an adverse effect on
the Bank's growth and profitability in the future.  See "Competition."

DECREASED RETURN ON AVERAGE EQUITY IMMEDIATELY AFTER REORGANIZATION

     At June 30, 1998, the Bank's equity as a percentage of assets was 7.93%,
and for the nine months ended June 30, 1998 the Bank's annualized return on
average equity (net income divided by average equity) was 8.72%.  The Company's
consolidated equity as a percentage of assets will significantly increase as a
result of its receipt of the net proceeds received in the Offering.  On a pro
forma basis as of June 30, 1998, the Company's equity as a percentage of
consolidated assets would be approximately 12.31% at the adjusted maximum of the
Offering Range.  Management believes that it will take time to prudently deploy
the capital raised in the Offering.  As a result, until the Company has
leveraged the capital raised in the Offering by increasing the  Company's
interest-earning assets (and its interest-bearing liabilities) and reducing its
equity as a percentage of assets, the  Company's return on average equity is
expected to be below the Bank's historical returns.  There can be no assurances
that the  Company will be able to successfully leverage the capital raised in
the Offering, or that the  Company will be successful in generating future
returns on equity equal to the Bank's historical returns or industry averages.

MINORITY PUBLIC OWNERSHIP AND CERTAIN ANTI-TAKEOVER PROVISIONS

     VOTING CONTROL OF THE MUTUAL HOLDING COMPANY.  Under regulations of the
OTS, the Plan, and the Company's governing corporate instruments, a majority of
the Company's voting shares must be owned by the Mutual Holding Company, and the
Mutual Holding Company will own 53.4% of the Common Stock outstanding at the
completion of the Offering.  The Mutual Holding Company will be controlled by
its executive officers and directors, who initially will consist of persons who
are executive officers and directors of the Company.  The Mutual Holding Company
will elect all members of the Board of Directors of the Company, and, with
certain exceptions, will control the outcome of matters presented to the
stockholders of the Company for resolution by vote.   The situations in which
the Mutual Holding Company may not control the outcome of such vote include any
stockholder vote to approve a restricted stock plan or stock option plan
instituted within one year of the Offering (which would require the approval of
a majority of the shares other than shares held by the Mutual Holding Company),
any stockholder vote relating to the Mutual Holding Company's conversion from
the mutual to the stock form of organization (which would require the approval
of a majority of shares other than shares held by the Mutual Holding Company and
of two-thirds of all shares  including shares held by the Mutual Holding
Company), or any other stockholder vote in which the OTS may impose such a
requirement.  The Mutual Holding Company, acting through its Board of Directors,
will be able to control the business and operations of the Company and the Bank
and will be able to prevent any challenge to the ownership or control of the
Company by stockholders other than the Mutual Holding Company ("Minority

                                       16
Stockholders").  Although OTS regulations and the Plan permit the Mutual Holding
Company to convert from the mutual to the capital stock form of organization,
there can be no assurance when, if ever, a conversion of the Mutual Holding
Company will occur.

     PROVISIONS IN THE COMPANY'S AND THE BANK'S GOVERNING INSTRUMENTS.  In
addition, certain provisions of the Company's charter and bylaws, particularly a
provision limiting voting rights, as well as certain federal regulations will
assist the Company in maintaining its status as an independent publicly-owned
corporation. These provisions provide for, among other things, staggered boards
of directors, no cumulative voting for directors, limits on the calling of
special meetings of shareholders, and limits on the ability to vote Common Stock
in excess of 10% of outstanding shares (except as to shares held by the Mutual
Holding Company and the ESOP).

POSSIBLE DILUTION IN OWNERSHIP INTEREST

     DIVIDEND WAIVERS BY THE MUTUAL HOLDING COMPANY.  It has been the policy of
many mutual holding companies to waive the receipt of dividends declared by
their subsidiaries.  OTS regulations require that mutual holding companies
request OTS approval before they waive dividends.  The OTS has generally
permitted mutual holding companies to waive dividends under certain conditions,
including that in the event the Mutual Holding Company converts to stock form in
the future (a "Conversion Transaction"), any waived dividends would reduce the
percentage of the resulting entity's shares of common stock issued to Minority
Stockholders in exchange for their shares of Common Stock.  The reduction would
be calculated by multiplying the Minority Ownership Interest (expressed as a
percentage) immediately prior to the Conversion Transaction by the following
fraction:

  (Company stockholders' equity immediately prior to Conversion Transaction) -
  ----------------------------------------------------------------------------
        (aggregate amount of dividends waived by Mutual Holding Company)
        --------------------------------------------------------------- 
    Company stockholders' equity immediately prior to Conversion Transaction

     See "Regulation--Holding Company Regulation--Conversion of the Mutual
Holding Company to Stock Form."  The Mutual Holding Company has not determined
whether it will waive dividends declared by the Company and there is no
assurance that the OTS would approve any request by the Mutual Holding Company
to waive dividends.

     TERMS OF ANY CONVERSION TRANSACTION.  If the Mutual Holding Company
conducts a Conversion Transaction, the stock offering that would be conducted as
part of the Conversion Transaction would include maximum purchase limitations
that restrict the amount of stock that a person could purchase.  Minority
Stockholders would be likely to receive shares of the resulting entity in
exchange for their shares of Common Stock.  Under current OTS policy, the shares
of the resulting entity that Minority Stockholders receive in exchange for their
shares of Common Stock will be included in the maximum purchase limitations that
apply to the stock offering.  This means that certain Minority Stockholders may
not be able to exercise subscription rights to purchase shares of common stock
sold in the Conversion Transaction.

POSSIBLE DILUTIVE EFFECT OF ISSUANCE OF ADDITIONAL SHARES

     Various possible and planned issuances of additional shares of Common Stock
could dilute the interests of prospective stockholders of the Company following
consummation of the Offering, as noted below.

     The number of shares to be sold in the Offering may be increased as a
result of an increase in the Estimated Valuation Range of up to 15% to reflect
changes in the market and financial conditions and demand for the stock
following the commencement of the Offering.  In the event that the Estimated
Valuation Range is so increased, it is expected that the Company will issue up
to 8,596,250 shares of Common Stock.  An increase in the number of shares will
decrease net income per share and stockholders' equity per share on a pro forma
basis and will increase the Company's consolidated stockholders' equity and net
income.  See "Capitalization" and "Pro Forma Data."

     The Recognition Plan that the Bank intends to implement no earlier than six
months after the Reorganization intends to acquire an amount of Common Stock
equal to 4% of the shares of Common Stock sold in the Offering. 

                                       17
Such shares of Common Stock may be acquired in the open market with funds
provided by the Company, if permissible, or from authorized but unissued shares
of Common Stock. See "Pro Forma Data" and "Management of the Bank--Recognition
Plan." Moreover, the Company's Stock Option Plan will reserve for future
issuance pursuant to such plan a number of shares of Common Stock equal to 10%
of the Common Stock sold in the Offering (303,000 shares, based on the midpoint
of the Offering Range). See "Pro Forma Data" and "Management of the Bank--
Executive Compensation--Stock Option Plan."

     If the Company issues additional shares of Common Stock in a supplemental
offering to increase the Minority Ownership Interest to 49.9% of the outstanding
Common Stock, the additional shares of Common Stock to be issued would be
received from the Mutual Holding Company and, as a result, no dilution of
Minority Stockholders would occur as a result of such an incremental stock
offering.

EXPENSES ASSOCIATED WITH ESOP AND RECOGNITION PLAN

     The Bank will recognize material employee compensation and benefit expenses
assuming the ESOP and the Recognition Plan are implemented.  The actual
aggregate amount of these new expenses cannot be predicted at the present time
because applicable accounting practices require that such expenses be measured
based on the fair market value of the shares of Common Stock.  In the case of
the ESOP, fair market value would be measured when shares are committed to be
released for allocation to the ESOP participants; in the case of the Recognition
Plan, fair market value would be measured at the grant date and amortized over
the award's vesting period.  These expenses have been reflected in the pro forma
financial information under "Pro Forma Data" assuming the Purchase Price ($10.00
per share) represents the fair market value for accounting purposes.  Actual
expenses, however, will be based on the fair market value of the Common Stock at
future dates, which may be higher or lower than the Purchase Price.  See
"Management of the Bank--Executive Compensation--Benefits--Employee Stock
Ownership Plan and Trust" and "--Benefits--Recognition Plan."

CAPABILITY OF THE BANK'S DATA PROCESSING TO ACCOMMODATE THE YEAR 2000

     The Bank, like all companies that utilize computer technology, is facing
the significant challenge of ensuring that its computer systems will be able to
process time-sensitive data accurately beyond the Year 1999 (referred to as the
"Year 2000 issue").  The Year 2000 issue has arisen since many existing computer
programs use two digits rather than four in data fields that define the year.
Such computer programs may recognize a data field using "00" as the Year 1900
rather than the Year 2000.  If the Bank's computer systems are not adequately
changed to properly identify the Year 2000, computer applications could fail or
create erroneous results, and the Bank could experience a temporary inability to
process transactions and engage in other normal business activities.  The Year
2000 issue could have a significant adverse impact on the Bank's products,
services and competitive condition.

     The Bank has conducted a comprehensive review of its computer systems to
identify systems that could be affected by the Year 2000 issue, and has
developed an implementation plan (including establishing priorities for mission-
critical applications) to modify or replace the affected systems and test them
for Year 2000 compliance.  The Bank's most significant mission-critical
applications are those that compromise its "core" data processing system for
loans, deposits and the general ledger.  The Bank plans to convert to a new core
system by December 31, 1998, which it believes will enhance the quality of its
information technology and result in improved customer service.  Like the Bank's
present core system, the new system is maintained by a third-party vendor.  The
Bank plans to begin Year 2000 testing on the new core system promptly following
the conversion, with a targeted testing completion date of March 31, 1999.

     The Bank presently believes that, with modifications to existing software
and conversions to new software, the Year 2000 issue will be mitigated without
causing a material adverse impact on its operations.  However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 issue could have a material adverse impact on the Bank's operations.
Monitoring and managing the Year 2000 issue will result in additional direct and
indirect costs for the Bank.  Costs incurred to date have not been material, and
management does not expect that 

                                       18
additional costs to be incurred in connection with the Year 2000 issue will have
a material impact on the Bank's financial condition or results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Capability of the Bank's Data Processing to Accommodate the Year
2000."

RECENT MARKET VOLATILITY

     In recent months, stock markets in the United States and worldwide have
been extremely volatile.  The securities of individual companies have, in many
instances, experienced significant fluctuations in price for reasons unrelated
to the specific company's financial condition, results of operations or business
prospects.  In particular, the value of all financial institution securities has
been adversely affected by weakening economies worldwide, even though local
community-based financial institutions may not have any credit exposure outside
the United States.  An investor should understand that, in the short-term, the
value of an investment in the Common Stock is subject to fluctuation, including
loss, due to volatility in stock markets generally.

INTENT TO REMAIN INDEPENDENT

     The Bank has operated as an independent community-oriented savings
institution since 1888.  The Bank intends to continue to operate as an
independent community-oriented savings institution following the Reorganization.
The Bank and the Company will be controlled by the Mutual Holding Company, and,
under current OTS policy, control of the Mutual Holding Company may not be sold
to a third party.  Accordingly, you are urged not to subscribe for shares of
Common Stock if you are anticipating a sale of control of the Bank or the
Company.  See "Business of the Bank."

MARKET FOR THE COMMON STOCK

     The Company has never issued capital stock to the public, and there can be
no assurance that an active and liquid trading market for the Common Stock will
develop or be maintained.  It is anticipated that the Common Stock will be
quoted on the Nasdaq National Market under the symbol "____."  Ryan Beck has
indicated its intention to make a market in the Common Stock, subject to
compliance with applicable provisions of federal and state securities laws and
other regulatory requirements, although Ryan Beck is not required to do so.  If
you purchase shares of Common Stock, you may not be able to sell them when you
want to at a price that equals or exceeds the price you paid for the Common
Stock.

RISK OF DELAYED OFFERING

     Although the Reorganization and Offering are expected to be completed
within the time periods indicated in this Prospectus, it is possible that
adverse market, economic or other factors may significantly delay the completion
of the Reorganization and Offering, which could significantly increase the costs
of the Reorganization and Offering. See "The Reorganization and Offering."

                             PROVIDENT BANCORP, MHC

     The Mutual Holding Company will be formed as a federal mutual holding
company and will initially own 53.4% of the Common Stock.  The Company has not
yet been formed, although the OTS has approved an application for the Mutual
Holding Company to become a savings and loan holding company.  The Mutual
Holding Company will have all of the powers set forth in its federal charter,
and federal law and OTS regulations.  The Mutual Holding Company initially will
not conduct any active business other than activities relating to its investment
in a majority of the Common Stock and maintenance of books and records relating
to its members.  The Mutual Holding Company does not intend to employ any
persons other than its officers, although it may use the Bank's support staff
from time to time.  Federal law and OTS regulations, and the Plan, require that
as long as the Mutual Holding Company is in existence it must own a majority of
the Company's common stock.  Federal law and OTS regulations, and the Plan,
permit the Mutual Holding Company to convert to the capital stock form of
organization.  The manner in which such

                                       19
a transaction would be conducted and the regulations and policy affecting such a
transaction are described in "Regulation--Holding Company Regulation."

     Although many federal mutual holding companies waive the receipt of cash
dividends declared by their subsidiaries, the Mutual Holding Company has not
determined whether or not it will do so, and intends to make such a
determination at the time the Company declares a dividend.   OTS regulations
require the Mutual Holding Company to give the OTS prior written notice of any
such waiver, and the conditions pursuant to which the OTS generally approves
dividend waivers are described in "Regulation--Holding Company Regulation."  The
Mutual Holding Company's Board of Directors will waive dividends paid by the
Company if the Board determines that such a waiver is in the Mutual Holding
Company's members' best interest because, among other reasons: (i) the Mutual
Holding Company has no need for the dividend considering its business
operations;  (ii) the cash that would be received could be invested by the
Company or the Bank at a more favorable rate of return; (iii) such waiver may
increase the capital of the Bank and enhance its business so that members will
continue to have access to the offices and services of the Bank; and (iv) such
waiver preserves the net worth of the Mutual Holding Company through its
principal asset (the Company, and indirectly, the Bank), which would be
available for distribution in the unlikely event of a voluntary liquidation of
the Company and the Bank after satisfaction of claims of depositors and
creditors.  The Board of Directors may consider other factors in determining
whether such waiver is consistent with its fiduciary duties to members of the
Mutual Holding Company.  Any waiver of dividends by the Mutual Holding Company
is likely to result in a downward adjustment to the ratio pursuant to which
shares of Common Stock are exchanged for shares of the resulting company in a
Conversion Transaction.

     The Mutual Holding Company's Board of Directors will accept dividends paid
by the Company in an amount necessary to pay the Mutual Holding Company's
expenses, and will accept additional dividends if it determines that accepting
such dividends is in the Mutual Holding Company's best interest because, among
other reasons: (i) the Mutual Holding Company may increase its direct ownership
of the Company, and indirect ownership of the Bank, by using cash dividends to
purchase additional shares of Common Stock in the open market from time to time;
and (ii) such dividends may be used to promote activities that are in the
interest of members and the Bank's community. Any purchases of Common Stock by
the Mutual Holding Company will increase the percentage of the outstanding
shares of Common Stock held by the Mutual Holding Company and, in a Conversion
Transaction, will decrease the aggregate number of shares of the resulting
company issued to Minority Stockholders in exchange for their shares of Common
Stock.

     The Mutual Holding Company's executive office will located at the executive
offices of the Bank, at 400 Rella Boulevard, Montebello, New York 10901. Its
telephone number will be (914) 369-8040.

                            PROVIDENT BANCORP, INC.

     The Company will be formed as a federal corporation and will own 100% of
the Bank's common stock.  The Company has not yet been formed, and, accordingly,
no financial statements of the Company are included in this Prospectus.  The OTS
has approved an application for the Company to become a savings and loan holding
company through the acquisition of all of the capital stock of the Bank to be
issued and outstanding upon completion of the Reorganization.  The Company will
have all of the powers set forth in its federal charter and federal law and OTS
regulations.

     The Company will retain up to 50% of the net proceeds of the offering.
Part of the net proceeds will be used to fund a loan to the Bank's ESOP, which
is expected to purchase up to 8% of the Common Stock sold in the Offering.  The
remainder of the net proceeds will be used for general corporate purposes.  The
holding company structure will provide the Company with greater flexibility than
is currently available to the Bank to diversify its business activities, either
through newly-formed subsidiaries or through acquisitions. The business
activities of the Company will be subject to the same restrictions under federal
law as the Mutual Holding Company.  The Company has no present plans regarding
diversification, acquisitions or expansion. The Company initially will not
conduct any

                                       20
active business and does not intend to employ any persons other than its
officers, although it may utilize the Bank's support staff from time to time.

     The Company's executive office will be located at the executive offices of
the Bank, at 400 Rella Boulevard, Montebello, New York 10901. Its telephone
number will be (914) 369-8040.

                                 PROVIDENT BANK

     The Bank was organized in 1888 as a New York-chartered mutual savings and
loan association and adopted a federal mutual charter in _______.  The Bank's
deposits are insured by the Savings Association Insurance Fund (the "SAIF"), as
administered by the FDIC, up to the maximum amount permitted by law.  The Bank
is engaged primarily in the business of offering various FDIC-insured savings
and demand deposits to customers through its eleven full-service offices, and
using those deposits, together with funds generated from operations and
borrowings, to originate one-to four-family residential and commercial real
estate loans, consumer loans, construction and land loans, commercial business
loans, and multi-family residential loans.  The Bank also invests in investment
securities and mortgage-backed securities.  At June 30, 1998, the Bank had total
assets of $679.1 million, total deposits of $580.1 million and total equity of
$53.9 million.

     The Bank's executive office is located at 400 Rella Boulevard, Montebello,
New York 10901. Its telephone number is (914) 369-8040.

                                       21
REGULATORY CAPITAL COMPLIANCE

     At June 30, 1998, the Bank exceeded each of its regulatory capital
requirements. Set forth below is a summary of the Bank's compliance with the OTS
capital standards as of June 30, 1998, on an 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 from the Offering. For purposes
of the table below, the entire amount expected to be borrowed by the ESOP and
the cost of all shares expected to be acquired by the Recognition Plan are
deducted from pro forma regulatory capital.  See "Management of the Bank."
PRO FORMA AT JUNE 30, 1998, BASED UPON THE SALE OF
                                                ---------------------------------------------------------------------------
                                                                                                          4,007,175 SHARES/(1)/
                                                 2,575,500 SHARES     3,030,000 SHARES   3,484,500 SHARES      AT ADJUSTED
                               HISTORICAL AT       AT MINIMUM OF      AT MIDPOINT OF      AT MAXIMUM OF        MAXIMUM OF
                               JUNE 30, 1998       OFFERING RANGE      OFFERING RANGE    OFFERING RANGE     OFFERING RANGE
                             ----------------   ------------------- ------------------  ----------------  -----------------
                             AMOUNT   PERCENT   AMOUNT    PERCENT   AMOUNT     PERCENT  AMOUNT   PERCENT   AMOUNT   PERCENT
                             ------   -------   ------    --------- ------     -------  ------   -------  -------  --------
                                                               (DOLLARS IN THOUSANDS)
Equity under generally
 accepted accounting
 principles................  $53,879    7.93%   $62,942    9.12%   $64,668      9.34%  $66,395    9.56%   $68,381    9.81%
                             =======   =====    =======   =====    =======     =====   =======   =====    =======   =====
                                                                                                                   
Tangible capital/(2)/:                                                                                             
  Tangible capital/ (3)/...  $49,402    7.32%   $58,465    8.53%   $60,191      8.75%  $61,918    8.97%   $63,904    9.23%
  Requirement..............   10,120    1.50     10,286    1.50     10,318      1.50    10,349    1.50     10,385    1.50
                             -------   -----    -------   -----    -------     -----   -------   -----    -------   -----
    Excess.................  $39,282    5.82%   $48,179    7.03%   $49,873      7.25%  $51,569    7.47%   $53,519    7.73%
                             =======   =====    =======   =====    =======     =====   =======   =====    =======   =====
                                                                                                                   
Core capital/(2)/:                                                                                                 
  Core capital /(3)/.......  $49,402    7.32%   $58,465    8.53%   $60,191      8.75%  $61,918    8.97%   $63,904    9.23%
  Requirement /(4)/........   20,239    3.00     20,573    3.00     20,636      3.00    20,698    3.00     20,771    3.00
                             -------   -----    -------   -----    -------     -----   -------   -----    -------   -----
    Excess.................  $29,163    4.32%   $37,892    5.53%   $39,555      5.75%  $41,220    5.97%   $43,133    6.23%
                             =======   =====    =======   =====    =======     =====   =======   =====    =======   =====
Risk-based capital/(2)/:                                                                                           
  Risk-based capital
  /(3)(5)/.................   $53,950   14.23%   $63,013   16.38%   $64,739     16.79%  $66,466   17.19%   $68,452   17.65%
  Requirement..............   30,331    8.00     30,771    8.00     30,855      8.00    30,939    8.00     31,035    8.00
                             -------   -----    -------   -----    -------     -----   -------   -----    -------   -----
    Excess.................  $23,619    6.23%   $32,242    8.38%   $33,884      8.79%  $35,527    9.19%   $37,417    9.65%
                             =======   =====    =======   =====    =======     =====   =======   =====    =======   =====
___________________________
/(1)/ As adjusted to give effect to an increase in the number of shares which
      could occur due to an increase in the Offering Range of up to 15% as a
      result of regulatory considerations, demand for the shares, or changes in
      market conditions or general financial and economic conditions following
      the commencement of the Offering.
/(2)/ Tangible capital levels are shown as a percentage of tangible 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)/ Pro forma capital levels assume that (i) the Bank funds the
      Recognition Plan through purchases in the open market of a number of
      shares equal to 4% of the Common Stock sold in the Offering, (ii) the ESOP
      purchases 8% of the shares sold in the Offering and (iii) the Mutual
      Holding Company is capitalized with $100,000. See "Management of the Bank"
      for a discussion of the Recognition Plan and ESOP.
/(4)/ The current core capital requirement for savings associations is 3% of
      total adjusted assets. The OTS has proposed core capital requirements that
      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.

                                       22
USE OF PROCEEDS

     Although the actual net proceeds from the sale of the Common Stock cannot
be determined until the Offering is completed, it is presently anticipated
(based on the assumptions set forth in "Pro Forma Data") that the net proceeds
from the sale of the Common Stock will be as set forth in the following table.
NET OFFERING PROCEEDS
                                BASED UPON THE SALE FOR $10.00 PER SHARE OF
                          -------------------------------------------------
4,007,175
                            2,575,500    3,030,000   3,484,500   SHARES AT
                           SHARES AT     SHARES AT   SHARES AT   ADJUSTED
                           MINIMUM OF    MIDPOINT OF MAXIMUM OF  MAXIMUM OF
                           OFFERING      OFFERING    OFFERING    OFFERING
                             RANGE        RANGE       RANGE        RANGE
                           ----------  ----------  ----------    -------
                                           (IN THOUSANDS)
 
Gross proceeds..........   $   25,755  $   30,300  $   34,845    $40,072
Offering expenses.......        1,250       1,250       1,250      1,250
                           ----------  ----------  ----------    -------
Estimated net proceeds..   $   24,505  $   29,050  $   33,595    $38,822
                           ==========  ==========  ==========    =======
The Company will use 50% of the net proceeds of the Offering to purchase
all of the Common Stock to be issued by the Bank.  Such portion of net proceeds
received by the Bank from the Company will be added to the Bank's general funds
which the Bank currently intends to use for general corporate purposes,
including increasing its origination of mortgage, consumer and commercial
business loans and purchasing investment and mortgage-backed securities.  The
Bank may also use such funds for the expansion of its retail banking franchise
through new branch openings or acquisitions.  To the extent that the stock-based
benefit programs which the Company intends to adopt subsequent to the Offering
are not funded with authorized but unissued shares of Common Stock, the Company
or Bank may use net proceeds from the Offering to fund the purchase of stock to
be awarded under such stock benefit programs. See "Risk Factors--Possible
Dilutive Effect of Issuance of Additional Shares" and "Management of the Bank--
Stock Option Plan" and "--Recognition Plan."

     The Company intends to use a portion of the net proceeds it retains to make
a loan directly to the ESOP to enable the ESOP to purchase 8% of the shares sold
in the Offering.  See "Management of the Bank--Employee Stock Ownership Plan and
Trust." The remaining net proceeds retained by the Company will be invested
initially in short-and medium-term investments.  The net proceeds retained by
the Company may also be used to support the future expansion of operations,
including the acquisition of other financial institutions or diversification
into other banking related businesses. However, the Company and the Bank have no
current arrangements, understandings or agreements regarding any such
transactions.  Upon completion of the Reorganization, the Company will be
regulated as a mutual holding company under the Home Owners' Loan Act (the
"HOLA") and regulations of the OTS.  See "Regulation --Holding Company
Regulation."

     Upon completion of the Reorganization, the Board of Directors of the
Company will have the authority to repurchase stock, subject to statutory and
regulatory requirements.  Based upon facts and circumstances following the
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, 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 repurchases stock,
such repurchases may be made at market prices which may be in excess of the
Subscription Price in the Offering.  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 stockholders' equity per share of Common Stock.

                                       23
DIVIDEND POLICY

     Upon completion of the Offering, the Board of Directors of the Company will
have the authority to declare dividends on the Common Stock, subject to
statutory and regulatory requirements.  While the Board of Directors may
consider a policy of paying cash dividends on the Common Stock in the future,
there can be no assurance that dividends will be paid or, if paid, what the
amounts of dividends will be, or whether such dividends, once paid, will
continue to be paid.

     Dividends will be subject to determination and declaration by the Board of
Directors in its discretion, which will take into account the Company's
consolidated financial condition and results of operations, tax considerations,
industry standards, economic conditions, capital levels, regulatory restrictions
on dividend payments by the Bank to the Company, general business practices and
other factors. The Company will not be subject to OTS regulatory restrictions on
the payment of dividends although the source of such dividends depends in part
upon the receipt of dividends from the Bank.  The Bank must provide the OTS with
30 days prior notice of its intention to make a capital distribution to the
Company.  OTS regulations in certain circumstances limit the amount of any
capital distribution by federal savings associations.  In addition, the portion
of the Bank's earnings which has been appropriated for bad debt reserves and
deducted for federal income tax purposes cannot be used by the Bank to pay cash
dividends to the Company without the payment of federal income taxes by the Bank
at the then current income tax rate on the amount deemed distributed, which
would include the amount of any federal income taxes attributable to the
distribution. The Company does not contemplate any distribution by the Bank that
would result in a recapture of the Bank's bad debt reserve or otherwise create
federal tax liabilities.   See "Federal and State Taxation--Federal Taxation,"
Note 10 to the Consolidated Financial Statements, and "Regulation--Federal
Regulation of Savings Institutions--Limitations on Capital Distributions."

     If permitted by regulatory authorities, the Mutual Holding Company may
waive the receipt of any cash dividends declared on the Common Stock if the
Mutual Holding Company's Board of Directors determines that such waiver is in
the best interests of the Mutual Holding Company.  The Board of Directors may
conclude that such waiver, which permits retention of capital by the Company, is
in the best interests of the Mutual Holding Company because, among other
reasons, (i) the Mutual Holding Company has no need for the dividend considering
its current business operations, and (ii) the cash that would be received could
be invested by the Company at a more favorable rate of return. The Board of
Directors may consider other factors in  determining whether such waiver is
consistent with its fiduciary duties to the Mutual Holding Company.  A waiver of
dividends by the Mutual Holding Company will result in a greater likelihood that
dividends will be paid to stockholders other than the Mutual Holding Company.
There is no assurance that the Mutual Holding Company will waive the receipt of
dividends.

     Additionally, in connection with the Reorganization, the Company and Bank
have committed to the OTS that during the one-year period following the
consummation of the Reorganization, the Company will not 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 COMMON STOCK

     The Company has received conditional approval to have the Common Stock
quoted on the Nasdaq National Market System under the symbol "______" subject to
the completion of the Offering and compliance with certain conditions including
the presence of at least three registered and active market makers.  Ryan Beck
has indicated its intention to make a market in the Common Stock, and based on
the Bank's analysis of the results of recent conversion stock offerings, it is
anticipated that the Company will satisfy the listing requirements.

     The existence of a public trading market will depend upon the presence in
the market of both willing buyers and willing sellers at any given time. The
presence of a sufficient number of buyers and sellers at any given time is a
factor over which neither the Company nor any broker or dealer has control.  The
absence of an active and liquid trading market may make it difficult to sell the
Common Stock and may have an adverse effect on the price of the

                                       24
Common Stock. Purchasers should consider the potentially illiquid and long-term
nature of their investment in the Common Stock.

                                 CAPITALIZATION

     The following table presents the historical capitalization of the Bank at
June 30, 1998, and the pro forma consolidated capitalization of the Company as
of that date, giving effect to the Offering based upon the sale of the number of
shares indicated in the table and the other assumptions set forth below and
under "Pro Forma Data."
PRO FORMA CONSOLIDATED CAPITALIZATION
                                                                       BASED UPON THE SALE FOR $10.00 PER SHARE OF
                                                                  ---------------------------------------------------
                                                                                                             4,007,175        
                                                                    2,575,500     3,030,000    3,484,500     SHARES AT
                                                                   SHARES AT     SHARES AT     SHARES AT     ADJUSTED
                                                                   MINIMUM OF    MIDPOINT OF    MAXIMUM      MAXIMUM OF
                                                    HISTORICAL      OFFERING      OFFERING      OFFERING     OFFERING
                                                  CAPITALIZATION     RANGE         RANGE         RANGE        RANGE /(1)/
                                                  --------------  ----------     --------     ----------    -----------
                                                                              (DOLLARS IN THOUSANDS)
Deposits /(2)/....................................   $  580,075   $  580,075     $580,075      $580,075     $580,075
Borrowings........................................       25,048       25,048       25,048        25,048       25,048
                                                     ----------   ----------     --------      --------     --------
  Total deposits and borrowings...................   $  605,123   $  605,123     $605,123      $605,123     $605,123
                                                     ==========   ==========     ========      ========     ========

Stockholders' equity:
 Preferred stock, $0.10 par value, per share;
  10,000,000 shares authorized; none to be
  issued /(3)/....................................   $       --   $       --     $     --      $     --     $     --
 Common stock, $0.10 par value per share;
  20,000,000 shares authorized; shares to be
  issued as shown /(3)/...........................           --          553          650           748          860
 Additional paid-in capital /(3)/.................           --       23,952       28,400        32,847       37,962
 Retained earnings /(4)/..........................       53,493       53,393       53,393        53,393       53,393
 Net unrealized gain on securities available for
  sale, net of income taxes.......................          386          386          386           386          386
 Less:
  Common Stock acquired by ESOP /(5)/.............           --       (2,060)      (2,424)       (2,788)      (3,206)
  Common Stock acquired by
   Recognition Plan /(6)/.........................           --       (1,030)      (1,212)       (1,394)      (1,603)
                                                     ----------   ----------     --------      --------     --------

   Total stockholders' equity.....................   $   53,879   $   75,194     $ 79,193      $ 83,192     $ 87,792
                                                     ==========   ==========     ========      ========     ========

 Total stockholders' equity as a percentage of
  total assets....................................         7.93%       10.74%       11.24%        11.74%       12.31%
                                                     ==========   ==========     ========      ========     ========
--------------------------------------
/(1)/ As adjusted to give effect to an increase in the number of shares which
      could occur due to a 15% increase in the Estimated Valuation Range to
      reflect changes in market or general financial conditions following the
      commencement of the Offering.
/(2)/ Does not reflect withdrawals from deposit accounts for the purchase of
      Common Stock in the Offering.  Such withdrawals would reduce pro forma
      deposits by the amount of such withdrawals.
/(3)/ Reflects the sale of shares in the Offering. Does not include proceeds
      from the Offering that the Company intends to lend to the ESOP to enable
      it to purchase shares of Common Stock in the Offering. No effect has been
      given to the issuance of additional shares of Common Stock pursuant to the
      Stock Option Plan that the Company expects to adopt. If such plan is
      approved by stockholders, an amount equal to 10% of the shares of Common
      Stock issued in the Offering will be reserved for issuance upon the
      exercise of options. See "Management of the Bank."
/(4)/ The retained earnings of the Bank will be substantially restricted after
      the Reorganization.  See "Dividend Policy" and "Regulation--Federal
      Regulation of Savings Institutions--Limitations on Capital Distributions."
      Pro forma amounts are reduced by the $100,000 that will be used to
      capitalize the Mutual Holding Company.
/(5)/ Assumes that 8% of the shares sold in  the Offering will be purchased by
      the ESOP and that the funds used to acquire the ESOP shares will be
      borrowed from the Company. The Common Stock acquired by the ESOP is
      reflected as a reduction of stockholders' equity. As the ESOP debt is
      repaid, shares will be released and allocated to participants' accounts,
      and a corresponding reduction in the charge against stockholders' equity
      will occur.  See "Executive Compensation and Related Transactions of the
      Bank-- Employee Stock Ownership Plan and Trust."
/(6)/ Assuming the receipt of shareholder approval, the Company intends to
      implement the Recognition Plan. Assuming such implementation, the
      Recognition Plan will purchase an amount of shares equal to 4% of the
      shares of Common Stock sold in the Offering if the Recognition Plan is
      implemented within one year of the completion of the Reorganization or up
      to 5% of the shares of Common Stock sold in the Offering  if the
      Recognition Plan is implemented more than one year after the
      Reorganization.  Such shares may be purchased from authorized but unissued
      shares or in the open market.  Under the terms of the Recognition Plan,
      assuming it is implemented within one year of the Reorganization, shares
      awarded to officers and directors will vest at the rate of 20% per year.
      The Common Stock to be purchased by the Recognition Plan

                                       25
represents unearned compensation and is, accordingly, reflected as a
     reduction to pro forma stockholders' equity. As shares of the Common Stock
     granted pursuant to the Recognition Plan vest, a corresponding reduction in
     the charge against stockholders' equity will occur.

                                 PRO FORMA DATA

     The actual net proceeds from the sale of the Common Stock cannot be
determined until the Offering is completed. The following estimated pro forma
information is based upon assumptions, including that: (i) the ESOP will
purchase 8% of the Common Stock sold in the Offering, and the remaining shares
will be sold in the Subscription and/or Community Offering; (ii) Ryan Beck will
receive a fee of $450,000; (iii) Offering expenses, excluding the fee paid to
Ryan Beck, will be approximately $800,000; and (iv) the Mutual Holding Company
will be capitalized with $100,000 which will be contributed by the Bank from
equity.  Actual Offering expenses may vary from those estimated.  Additional
assumptions are described in the footnotes to the table.

     Pro forma consolidated net income of the Company for the nine months ended
June 30, 1998 and for the fiscal year ended September 30, 1997 has been
calculated as if the Common Stock had been sold at the beginning of the
respective periods and the net proceeds had been invested at 5.37% and 5.44%,
respectively (the one year U.S. Treasury bill rate as of June 30, 1998 and
September 30, 1997, respectively).  The U.S. Treasury bill rate was used on the
reinvestment of proceeds because it more appropriately reflects a market rate of
return, as compared to using the rate equal to the arithmetic average of the
average yield on the Bank's interest-earning assets and its average cost of
deposits.  The tables do not reflect the effect of withdrawals from deposit
accounts for the purchase of Common Stock. The pro forma after-tax yield on
reinvestment of the net proceeds is assumed to be 3.22% for the nine months
ended June 30, 1998 and 3.26% for the fiscal year ended September 30, 1997 (in
both cases, based on an assumed tax rate of 40%).  Historical and pro forma per
share amounts have been calculated by dividing historical and pro forma amounts
by the indicated number of shares of Common Stock, as adjusted to give effect to
the purchase of shares by the ESOP.  No effect has been given in the pro forma
stockholders' equity calculations for the assumed earnings on the net proceeds.
As discussed under "Use of Proceeds," the Company will retain 50% of the net
proceeds of the Offering.

     The pro forma information derived from the above assumptions 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 considered
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.

                                       26
The following tables set forth pro forma data of the Company at or for the
nine months ended June 30, 1998 and at or for the fiscal year ended September
30, 1997, based on the assumptions set forth above and in the footnotes to the
tables, and should not be used as a basis for projections of market value of the
common stock following the Offering. The tables below give effect to the
Recognition Plan, which is expected to be adopted by the Company following the
Offering and presented to stockholders for approval. See "Management of the
Bank--Recognition Plan." No effect has been given in the tables to the possible
issuance of additional shares reserved for future issuance pursuant to the Stock
Option Plan to be adopted by the Board of Directors of the Company and presented
to stockholders for approval, nor does book value as presented give any effect
to the liquidation account to be established for the benefit of Eligible Account
Holders or Supplemental Eligible Account Holders, or the tax effect of the bad
debt reserve and other factors.
AT OR FOR THE NINE MONTHS ENDED JUNE 30, 1998
                                                                            BASED UPON THE SALE FOR $10.00 PER SHARE OF
                                                                ------------------------------------------------------------------
                                                                                                                     4,007,175 
                                                                   2,575,500        3,030,000       3,484,500       SHARES/(1)/
                                                                    SHARES           SHARES           SHARES        AT ADJUSTED
                                                                  AT MINIMUM OF   AT MIDPOINT OF   AT MAXIMUM OF     MAXIMUM OF
                                                                 OFFERING RANGE   OFFERING RANGE   OFFERING RANGE   OFFERING RANGE
                                                                 --------------   --------------   --------------   --------------
                                                                           (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Gross proceeds.................................................      $   25,755       $   30,300       $   34,845    $   40,072
Less offering expenses.........................................           1,250            1,250            1,250         1,250
                                                                     ----------       ----------       ----------    ----------
 Estimated net proceeds........................................          24,505           29,050           33,595        38,822
Less common stock acquired by ESOP.............................          (2,060)          (2,424)          (2,788)       (3,206)
Less common stock acquired by Recognition Plan.................          (1,030)          (1,212)          (1,394)       (1,603)
                                                                     ----------       ----------       ----------    ----------
  Estimated net proceeds, as adjusted..........................      $   21,415       $   25,414       $   29,413    $   34,013
                                                                     ==========       ==========       ==========    ==========
 
FOR THE NINE MONTHS ENDED JUNE 30, 1998
Consolidated net income:
 Historical net income.........................................      $    3,444       $    3,444       $    3,444    $    3,444
 Pro forma income on net proceeds /(2)/........................             515              612              708           820
 Less pro forma ESOP adjustment /(3)/..........................             (93)            (109)            (125)         (144)
 Less pro forma Recognition Plan adjustment /(4)/..............             (93)            (109)            (125)         (144)
                                                                     ----------       ----------       ----------    ----------
  Pro forma net income.........................................      $    3,773       $    3,838       $    3,902    $    3,976
                                                                     ==========       ==========       ==========    ==========
 
Net income per share:
 Historical....................................................      $     0.65       $     0.55       $     0.48    $     0.42
 Pro forma income on net proceeds /(2)/........................            0.10             0.10             0.10          0.10
 Less pro forma ESOP adjustment/ (3)/..........................           (0.02)           (0.02)           (0.02)        (0.02)
 Less pro forma Recognition Plan adjustment /(4)/..............           (0.02)           (0.02)           (0.02)        (0.02)
                                                                     ----------       ----------       ----------    ----------
  Pro forma net income per share/ (3)(4)(5)/...................      $     0.71       $     0.61       $     0.54    $     0.48
                                                                     ==========       ==========       ==========    ==========
 
Number of shares used in calculating earnings per share /(6)/..       5,326,687        6,266,690        7,206,694     8,287,698
                                                                     ==========       ==========       ==========    ==========
 
AT JUNE 30, 1998
Stockholders' equity:
 Historical /(7)/..............................................      $   53,879       $   53,879       $   53,879    $   53,879
 Estimated net proceeds /(8)/..................................          24,505           29,050           33,595        38,822
 Less capitalization of the Mutual Holding Company.............            (100)            (100)            (100)         (100)
 Less common stock acquired by ESOP /(3)/......................          (2,060)          (2,424)          (2,788)       (3,206)
 Less common stock acquired by Recognition Plan /(4)/..........          (1,030)          (1,212)          (1,394)       (1,603)
                                                                     ----------       ----------       ----------    ----------
  Pro forma stockholders' equity /(5)/.........................      $   75,194       $   79,193       $   83,192    $   87,792
                                                                     ==========       ==========       ==========    ==========
 
Stockholders' equity per share:
 Historical /(7)/..............................................      $     9.75       $     8.29       $     7.21    $     6.27
 Estimated net proceeds /(8)/..................................            4.44             4.47             4.49          4.52
 Less capitalization of the Mutual Holding Company.............           (0.02)           (0.02)           (0.02)        (0.01)
 Less common stock acquired by ESOP /(3)/......................           (0.37)           (0.37)           (0.37)        (0.37)
 Less common stock acquired by Recognition Plan /(4)/..........           (0.19)           (0.19)           (0.19)        (0.19)
                                                                     ----------       ----------       ----------    ----------
   Pro forma stockholders' equity per share/(4)(5)/............      $    13.61       $    12.18       $    11.12    $    10.22
                                                                     ==========       ==========       ==========    ==========
 
Number of shares used in calculating
 stockholders' equity per share................................       5,525,000        6,500,000        7,475,000     8,596,250
                                                                     ==========       ==========       ==========    ==========
Offering price as a multiple of pro forma net earnings
 per share (annualized)........................................          10.56x           12.30x           13.89x        15.63x
                                                                     ==========       ==========       ==========    ==========
 
Offering price as a percentage of pro forma stockholders'
 equity per share..............................................           73.48%           82.10%           89.93%        97.85%
                                                                     ==========       ==========       ==========    ==========
(Footnotes begin on next page)
                                       27
_________________________
/(1)/ As adjusted to give effect to an increase in the number of shares which
      could occur due to a 15% increase in the Estimated Valuation Range to
      reflect changes in market or general financial conditions following the
      commencement of the Offering.
/(2)/ No effect has been given to withdrawals from deposit accounts for the
      purpose of purchasing Common Stock. Since funds on deposit at the Bank may
      be withdrawn to purchase shares of Common Stock (which will reduce
      deposits by the amount of such purchases), the net amount of additional
      funds available to the Bank for investment following receipt of the net
      proceeds of the Offering will be reduced by the amount of such
      withdrawals.
/(3)/ It is assumed that 8% of the shares sold in the Offering 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 payment of the ESOP debt is based upon equal principal installments
      plus interest over a 10-year period. Assuming the Company makes the ESOP
      loan, interest income earned by the Company on the ESOP debt will offset
      the interest paid by the Bank. Accordingly, only the principal payments on
      the ESOP debt are recorded as an expense (tax-effected) to the Company on
      a consolidated basis. The pro forma net earnings information makes the
      following assumptions: (i) the Bank's contribution to the ESOP is
      equivalent to the debt service requirement for a nine-month period and was
      made at the end of the period; (ii) 7,726, 9,090, 10,453 and 12,022 shares
      at the minimum, midpoint, maximum and adjusted maximum of the Offering
      Range, respectively, were committed to be released during the nine months
      ended June 30, 1998, on a weighted average basis, at an average fair value
      of $10.00 per share in accordance with Statement of Position ("SOP") No.
      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--Employee Stock Ownership Plan
      and Trust."
/(4)/ Gives effect to the Recognition Plan expected to be adopted by the Company
      following the Offering. This plan intends to acquire a number of shares of
      common stock equal to 4% of the shares sold in the Offering, or 103,020,
      121,200, 139,380 and 160,287 shares of common stock at the minimum,
      midpoint, maximum and adjusted maximum of the Offering Range,
      respectively, either through open market purchases, or from authorized but
      unissued shares of common stock or treasury stock of the Company, if any.
      Funds used by the Recognition Plan to purchase the shares will be
      contributed to the plan by the Company. In calculating the pro forma
      effect of the Recognition Plan, it is assumed that the shares were
      acquired by the plan in open market purchases at the beginning of the
      period presented for a purchase price equal to the Subscription Price, and
      that 20% of the amount contributed was an amortized expense during the
      period. The issuance of authorized but unissued shares of the common stock
      to the Recognition Plan instead of open market purchases would dilute the
      voting interests of existing stockholders by approximately 1.9% and pro
      forma net earnings per share would be $0.69, $0.60, $0.53 and $0.47 at the
      minimum, midpoint, maximum and adjusted maximum of the Offering Range,
      respectively, and pro forma stockholders' equity per share would be
      $13.55, $12.14, $11.11 and $10.21 at the minimum, midpoint, maximum and
      adjusted maximum of the Offering Range, respectively. The actual purchase
      price of the shares granted under the Recognition Plan may be higher or
      lower than the Subscription Price. See "Management of the Bank--
      Recognition Plan."
/(5)/ No effect has been given to the issuance of additional shares of Common
      Stock pursuant to the Stock Option Plan expected to be adopted by the
      Company following the Offering. An amount equal to 10% of the common stock
      sold in the Offering, or 257,550, 303,000, 348,450 and 400,718 shares at
      the minimum, midpoint, maximum and adjusted maximum of the Offering Range,
      respectively, will be reserved for future issuance upon the exercise of
      options to be granted under the Stock Option Plan. The issuance of common
      stock pursuant to the exercise of options under the Stock Option 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 equal
      to the Subscription Price, existing stockholders' voting interest would be
      diluted by 4.5%, and at the minimum, midpoint, maximum and adjusted
      maximum of the Offering Range, the pro forma net earnings per share would
      be $0.68, $0.58, $0.52 and $0.47, respectively, and the pro forma
      stockholders' equity per share would be $13.44, $12.09, $11.07 and $10.20,
      respectively. See "Management of the Bank--Stock Option Plan."
/(6)/ Such number of shares includes shares sold in the Offering and shares
      issued to the Mutual Holding Company in the Reorganization.  The number of
      shares outstanding excludes shares to be acquired by the ESOP amounting to
      198,314, 233,310, 268,307 and 308,552 at the minimum, midpoint, maximum
      and adjusted maximum of the Offering Range, respectively. The number of
      shares outstanding includes ESOP shares committed to be released

                                       28
of 7,726, 9,090, 10,453 and 12,022 at the minimum, midpoint, maximum and
      adjusted maximum, respectively. No effect has been given to the issuance
      of additional shares of Common Stock pursuant to the Stock Option Plan
      (which will not be established within the first year after the conclusion
      of the Offering unless approved by Minority Stockholders). Recognition
      Plan shares are assumed to be fully vested for purposes of computing net
      earnings per share.
/(7)/ Stockholders' equity represents the excess of the carrying value of the
      assets of the Bank over its liabilities.  The amounts shown do not reflect
      the federal income tax consequences of the potential restoration to income
      of the bad debt reserves for income tax purposes, which would be required
      in the event of liquidation.  Retained earnings will be substantially
      restricted following the Reorganization. See "Dividends" and Note 10 of
      Notes to the Consolidated Financial Statements. For purposes of
      calculating pro forma stockholders' equity per share, shares outstanding
      represent total shares issued in the Offering and to the Mutual Holding
      Company of 5,525,000, 6,500,000, 7,475,000 and 8,596,250 at the minimum,
      midpoint, maximum and adjusted maximum of the Offering Range,
      respectively.
/(8)/ Includes assumed proceeds from sale to the Recognition Plan for $10.00 per
      share of a number of authorized but unissued shares equal to 4% of the
      Minority Ownership Interest. Purchases by the Recognition Plan will be
      made at the fair market value of such shares at the time of purchase,
      which may be more or less than $10.00.

                                       29
AT OR FOR THE YEAR ENDED SEPTEMBER 30, 1997
                                                                            BASED UPON THE SALE FOR $10.00 PER SHARE OF
                                                                 -----------------------------------------------------------------
                                                                                                                      4,007,175
                                                                   2,575,500        3,030,000        3,484,500       SHARES/(1)/
                                                                     SHARES           SHARES           SHARES        AT ADJUSTED
                                                                 AT MINIMUM OF    AT MIDPOINT OF   AT MAXIMUM OF      MAXIMUM OF
                                                                 OFFERING RANGE   OFFERING RANGE   OFFERING RANGE   OFFERING RANGE
                                                                 --------------   --------------   --------------   --------------
                                                                           (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Gross proceeds.................................................      $   25,755       $   30,300       $   34,845    $   40,072
Less offering expenses.........................................           1,250            1,250            1,250         1,250
                                                                     ----------       ----------       ----------    ----------
 Estimated net proceeds........................................          24,505           29,050           33,595        38,822
Less common stock acquired by ESOP.............................          (2,060)          (2,424)          (2,788)       (3,206)
Less common stock acquired by Recognition Plan.................          (1,030)          (1,212)          (1,394)       (1,603)
                                                                     ----------       ----------       ----------    ----------
  Estimated net proceeds, as adjusted..........................      $   21,415       $   25,414       $   29,413    $   34,013
                                                                     ==========       ==========       ==========    ==========
FOR THE YEAR ENDED SEPTEMBER 30, 1997
Consolidated net income:
 Historical net income.........................................      $    4,598       $    4,598       $    4,598    $    4,598
 Pro forma income on net proceeds /(2)/........................             696              826              957         1,107
 Less pro forma ESOP adjustment /(3)/..........................            (124)            (145)            (167)         (192)
 Less pro forma Recognition Plan adjustment /(4)/..............            (124)            (145)            (167)         (192)
                                                                     ----------       ----------       ----------    ----------
  Pro forma net income.........................................      $    5,046       $    5,134       $    5,221    $    5,321
                                                                     ==========       ==========       ==========    ==========
Net income per share:
 Historical....................................................      $     0.86       $     0.73       $     0.64    $     0.55
 Pro forma income on net proceeds /(2)/........................            0.13             0.13             0.13          0.13
 Less pro forma ESOP adjustment/ (3)/..........................           (0.02)           (0.02)           (0.02)        (0.02)
 Less pro forma Recognition Plan adjustment /(4)/..............           (0.02)           (0.02)           (0.02)        (0.02)
                                                                     ----------       ----------       ----------    ----------
  Pro forma net income per share/ (3)(4)(5)/...................      $     0.95       $     0.82       $     0.73    $     0.64
                                                                     ==========       ==========       ==========    ==========
 
Number of shares used in calculating earnings per share /(6)/..       5,329,262        6,269,720        7,210,178     8,291,705
                                                                     ==========       ==========       ==========    ==========
AT SEPTEMBER 30, 1997
Stockholders' equity:
 Historical /(7)/..............................................      $   50,399       $   50,399       $   50,399    $   50,399
 Estimated net proceeds /(8)/..................................          24,505           29,050           33,595        38,822
 Less capitalization of the Mutual Holding Company.............            (100)            (100)            (100)         (100)
 Less common stock acquired by ESOP /(3)/......................          (2,060)          (2,424)          (2,788)       (3,206)
 Less common stock acquired by Recognition Plan /(4)/..........          (1,030)          (1,212)          (1,394)       (1,603)
                                                                     ----------       ----------       ----------    ----------
  Pro forma stockholders' equity /(5)/.........................      $   71,714       $   75,713       $   79,712    $   84,312
                                                                     ==========       ==========       ==========    ==========
Stockholders' equity per share:
 Historical /(7)/..............................................      $     9.12       $     7.75       $     6.74    $     5.86
 Estimated net proceeds /(8)/..................................            4.44             4.47             4.49          4.52
 Less capitalization of the Mutual Holding Company.............           (0.02)           (0.01)           (0.01)        (0.01)
 Less common stock acquired by ESOP/(3)/.......................           (0.37)           (0.37)           (0.37)        (0.37)
 Less common stock acquired by Recognition Plan/(4)/...........           (0.19)           (0.19)           (0.19)        (0.19)
                                                                     ----------       ----------       ----------    ----------
   Pro forma stockholders' equity per share/(4)(5)/............      $    12.98       $    11.65       $    10.66    $     9.81
                                                                     ==========       ==========       ==========    ==========
Number of shares used in calculating
 stockholders' equity per share................................       5,525,000        6,500,000        7,475,000     8,596,250
                                                                     ==========       ==========       ==========    ==========
Offering price as a multiple of pro forma net earnings
 per share.....................................................          10.53x           12.20x           13.70x        15.63x
                                                                     ==========       ==========       ==========    ==========
Offering price as a percentage of pro forma stockholders'
 equity per share..............................................           77.04%           85.84%           93.81%       101.94%
                                                                     ==========       ==========       ==========    ==========
(Footnotes begin on next page)

                                       30
_________________________
/(1)/ As adjusted to give effect to an increase in the number of shares which
      could occur due to a 15% increase in the Estimated Valuation Range to
      reflect changes in market or general financial conditions following the
      commencement of the Offering.
/(2)/ No effect has been given to withdrawals from deposit accounts for the
      purpose of purchasing Common Stock. Since funds on deposit at the Bank may
      be withdrawn to purchase shares of Common Stock (which will reduce
      deposits by the amount of such purchases), the net amount of additional
      funds available to the Bank for investment following receipt of the net
      proceeds of the Offering will be reduced by the amount of such
      withdrawals.
/(3)/ It is assumed that 8% of the shares sold in the Offering 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 payment of the ESOP debt is based upon equal principal installments
      plus interest over a 10-year period. Assuming the Company makes the ESOP
      loan, interest income earned by the Company on the ESOP debt will offset
      the interest paid by the Bank. Accordingly, only the principal payments on
      the ESOP debt are recorded as an expense (tax-effected) to the Company on
      a consolidated basis. The pro forma net earnings information makes the
      following assumptions: (i) the Bank's contribution to the ESOP is
      equivalent to the debt service requirement for a full year and was made at
      the end of the period; (ii) 10,302, 12,120, 13,938 and 16,029 shares at
      the minimum, midpoint, maximum and adjusted maximum of the Offering Range,
      respectively, were committed to be released during the year ended
      September 30, 1997 on a weighted average basis, at an average fair value
      of $10.00 per share in accordance with SOP No. 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--Employee Stock Ownership Plan and Trust."
/(4)/ Gives effect to the Recognition Plan expected to be adopted by the Company
      following the Offering. This plan intends to acquire a number of shares of
      common stock equal to 4% of the shares sold in the Offering, or 103,020,
      121,200, 139,380 and 160,287 shares of common stock at the minimum,
      midpoint, maximum and adjusted maximum of the Offering Range,
      respectively, either through open market purchases, or from authorized but
      unissued shares of common stock or treasury stock of the Company, if any.
      Funds used by the Recognition Plan to purchase the shares will be
      contributed to the plan by the Company. In calculating the pro forma
      effect of the Recognition Plan, it is assumed that the shares were
      acquired by the plan in open market purchases at the beginning of the
      period presented for a purchase price equal to the Subscription Price, and
      that 20% of the amount contributed was an amortized expense during the
      period. The issuance of authorized but unissued shares of the common stock
      to the Recognition Plan instead of open market purchases would dilute the
      voting interests of existing stockholders by approximately 1.9% and pro
      forma net earnings per share would be $0.94, $0.82, $0.73 and $0.64 at the
      minimum, midpoint, maximum and adjusted maximum of the Offering Range,
      respectively, and pro forma stockholders' equity per share would be
      $12.93, $11.62, $10.66 and $9.81 at the minimum, midpoint, maximum and
      adjusted maximum of the Offering Range, respectively. The actual purchase
      price of the shares granted under the Recognition Plan may be higher or
      lower than the Subscription Price. See "Management of the Bank--
      Recognition Plan."
/(5)/ No effect has been given to the issuance of additional shares of Common
      Stock pursuant to the Stock Option Plan expected to be adopted by the
      Company following the Offering. An amount equal to 10% of the common stock
      sold in the Offering, or 257,550, 303,000, 348,450 and 400,718 shares at
      the minimum, midpoint, maximum and adjusted maximum of the Offering Range,
      respectively, will be reserved for future issuance upon the exercise of
      options to be granted under the Stock Option Plan. The issuance of common
      stock pursuant to the exercise of options under the Stock Option 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 equal
      to the Subscription Price, existing stockholders' voting interest would be
      diluted by 4.5%, and at the minimum, midpoint, maximum and adjusted
      maximum of the Offering Range, the pro forma net earnings per share would
      be $0.92, $0.80, $0.71 and $0.63, respectively, and the pro forma
      stockholders' equity per share would be $12.84, $11.57, $10.63 and $9.81,
      respectively. See "Management of the Bank--Stock Option Plan."
/(6)/ Such number of shares includes shares sold in the Offering and shares
      issued to the Mutual Holding Company in the Reorganization. The number of
      shares outstanding excludes shares to be acquired by the ESOP amounting to
      195,738, 230,280, 264,822 and 304,545 at the minimum, midpoint, maximum
      and adjusted maximum of the Offering Range, respectively. The number of
      shares outstanding includes ESOP shares committed to be released 

                                       31
of 10,302, 12,120, 13,938 and 16,029 at the minimum, midpoint, maximum and
      adjusted maximum, respectively. No effect has been given to the issuance
      of additional shares of Common Stock pursuant to the Stock Option Plan
      (which will not be established within the first year after the conclusion
      of the Offering unless approved by Minority Stockholders). Recognition
      Plan shares are assumed to be fully vested for purposes of computing net
      earnings per share.
/(7)/ Stockholders' equity represents the excess of the carrying value of the
      assets of the Bank over its liabilities. The amounts shown do not reflect
      the federal income tax consequences of the potential restoration to income
      of the bad debt reserves for income tax purposes, which would be required
      in the event of liquidation. Retained earnings will be substantially
      restricted following the Reorganization. See "Dividends" and Note 10 of
      Notes to the Consolidated Financial Statements. For purposes of
      calculating pro forma stockholders' equity per share, shares outstanding
      represent total shares issued in the Offering and to the Mutual Holding
      Company of 5,525,000, 6,500,000, 7,475,000 and 8,596,250 at the minimum,
      midpoint, maximum and adjusted maximum of the Offering Range,
      respectively.
/(8)/ Includes assumed proceeds from sale to the Recognition Plan for $10.00 per
      share of a number of authorized but unissued shares equal to 4% of the
      Minority Ownership Interest. Purchases by the Recognition Plan will be
      made at the fair market value of such shares at the time of purchase,
      which may be more or less than $10.00.

        

                                       32
PROPOSED PURCHASES BY DIRECTORS AND EXECUTIVE OFFICERS
 
     The following table sets forth information regarding intended Common Stock
subscriptions by each of the Directors and executive officers of the Bank and
the Company and their associates, and by all such Directors and executive
officers as a group. In the event the individual maximum purchase limitation is
increased, persons subscribing for the maximum amount may increase their
purchase order. This table excludes shares to be purchased by the ESOP, and any
Recognition Plan awards or Stock Option Plan grants that may be made no earlier
than six months after the completion of the Reorganization. See "Management of
the Bank--Recognition Plan" and "--Stock Option Plan."
PERCENT OF   
                                                                            INTENDED SUBSCRIPTIONS        SHARES ISSUED 
                                              POSITION                ----------------------------------     IN THE
NAME                                        WITH THE BANK             TOTAL SHARES/(1)/  AGGREGATE PRICE  OFFERING/(2)/
--------------------------------  ----------------------------------  -----------------  ---------------  -------------
William F. Helmer                       Chairman of the Board              40,000          $  400,000          1.1%
George Strayton                   President, Chief Executive Officer       40,000             400,000          1.1
                                             and Director                                                
Dennis L. Coyle                       Vice Chairman of the Board           40,000             400,000          1.1
Murray L. Korn                                 Director                    40,000             400,000          1.1
Donald T. McNelis                              Director                    20,000             200,000            *
Richard A. Nozell                              Director                     7,500              75,000            *
William R. Sichol, Jr.                         Director                    20,000             200,000            *
Wilbur C. Ward                                 Director                     7,500              75,000            *
F. Gary Zeh                                    Director                    40,000             400,000          1.1
Daniel G. Rothstein                   Executive Vice President,            35,000             350,000          1.0
                                         Chief Credit Officer                                            
                                        and Regulatory Counsel                                           
Robert J. Sansky                     Executive Vice President and          10,000             100,000            *
                                     Director of Human Resources                                         
Katherine A. Dering                   Senior Vice President and            10,000             100,000            *
                                       Chief Financial Officer                                           
Stephen G. Dormer                     Senior Vice President and            10,000             100,000            *
                                    Director of Business Activity                                        
John F. Fitzpatrick                   Senior Vice President and            10,000             100,000            *
                                     Director of Support Services                                        
                                                                          -------          ----------      
All Directors and executive                                                                              
officers as a group (14 persons)                                          330,000          $3,300,000          9.5%
                                                                          =======          ==========          ===
----------------
*   Less than 1%.  
/(1)/ The maximum number of shares for which any officer or director may
      subscribe is 40,000 shares.
/(2)/ At the maximum of the Offering Range. 

                                       33
THE REORGANIZATION AND OFFERING

     THE OTS HAS APPROVED THE PLAN AND THE OFFERING OF THE COMMON STOCK SUBJECT
TO THE APPROVAL OF THE BANK'S MEMBERS AND THE SATISFACTION OF CERTAIN CONDITIONS
IMPOSED BY THE OTS.  HOWEVER, SUCH APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION
OR ENDORSEMENT OF THE OFFERING OR THE PLAN BY THE OTS.

DESCRIPTION OF AND REASONS FOR THE REORGANIZATION

     Pursuant to the Plan, which has been approved unanimously by the Board of
Directors, the Bank will reorganize into what is called a "two-tier" mutual
holding company structure.  It is a two-tier structure because it will have two
levels of holding companies--a "mid-tier" stock holding company and a "top-tier"
mutual holding company.  Under the terms of the Plan (i) the Bank will form the
Company as a federal  corporation; (ii) the Bank will form the Mutual Holding
Company as a federal mutual holding company; (iii) the Bank will reorganize into
the capital stock form of organization and issue 100% of the Bank's to-be
outstanding common stock to the Company; and (iv) the Company will issue shares
of Common Stock to the public and the Mutual Holding Company.  The number of
shares of Common Stock sold to the public pursuant to this Prospectus will be
equal to 46.6% of the shares issued in the Reorganization, and the number of
shares issued to the Mutual Holding Company will be equal to 53.4% of the shares
issued in the Reorganization.

     In adopting the Plan, the Bank's Board of Directors determined that the
Reorganization is in the best interest of the Bank.  The primary purpose of the
Reorganization is to establish a structure that will enable the Bank to compete
and expand more effectively in the financial services marketplace, and that will
enable the Bank's depositors, certain borrowers, employees, management and
directors to obtain an indirect equity ownership interest in the Bank. The new
structure will permit the Company to issue capital stock, which is a source of
capital not available to mutual savings banks, and the Company will take
advantage of this new ability by issuing Common Stock in the Offering. Since the
Company is not offering all of its Common Stock for sale in the Offering (but is
issuing a majority of its stock to the Mutual Holding Company), the
Reorganization will result in less capital raised in comparison to a standard
mutual-to-stock conversion.  The Reorganization, however, also will offer the
Bank the opportunity to raise additional capital since the stock held by the
Mutual Holding Company will be available for sale in the future in the event the
Company sells additional shares to depositors and others in one or more
incremental stock offerings, or if the Mutual Holding Company converts to the
capital stock form of organization in a Conversion Transaction.  See
"Regulation--Holding Company Regulation--Conversion of the Mutual Holding
Company to Stock Form."

     The Reorganization will also give the Bank greater flexibility to structure
and finance the expansion of its operations, including the potential acquisition
of other financial institutions, and to diversify into other financial services.
The holding company form of organization is expected to provide additional
flexibility to diversify the Bank's business activities through existing or
newly formed subsidiaries, or through acquisitions of or mergers with other
financial institutions, as well as other companies.  Although the Bank has no
current arrangements, understandings or agreements regarding any such
opportunities, the Company will be in a position after the Reorganization,
subject to regulatory limitations and the Company's financial position, to take
advantage of any such opportunities that may arise.  Lastly, the Reorganization
will enable the Bank to better manage its capital by giving the Bank broader
investment opportunities through the holding company structure, and enable the
Company to distribute capital to its stockholders in the form of dividends and
stock repurchases.  Because only a minority of the Common Stock will be offered
for sale in the Offering, the Bank's ability to remain an independent savings
bank and to provide community-oriented financial services will be preserved
through the mutual holding company structure.

     The Board of Directors believes that these advantages outweigh the
potential disadvantages of the mutual holding company structure, which may
include: (i) the inability of stockholders other than the Mutual Holding Company
to obtain majority ownership of the Company and the Bank, which may result in
the perpetuation of the management and Board of Directors of the Bank and the
Company; and (ii) that the mutual holding company structure is a relatively new
form of corporate ownership, and new regulatory policies relating to the mutual
interest in the Mutual Holding Company that may be adopted from time-to-time may
have an adverse impact on minority stockholders.  A majority of the voting stock
of the Company will be owned by the Mutual Holding Company, which is a mutual
corporation that will be controlled by members.  While this structure will
permit management to focus 

                                       34
on the Company's and the Bank's long-term business strategy for growth and
capital redeployment without excessive pressure from stockholders, it will also
serve to perpetuate the existing management and directors of the Bank. The
Mutual Holding Company will be able to elect all members of the Board of
Directors of the Company, and will be able to control the outcome of all matters
presented to the stockholders of the Company for resolution by vote except for
certain matters that must be approved by more than a majority of stockholders of
the Company. No assurance can be given that the Company will not take action
adverse to the interests of the Minority Stockholders.

     Following the completion of the Reorganization, all depositors of the Bank
as of the effective date of the Reorganization and all borrowers of the Bank as
of July 9, 1998 will become members of the Mutual Holding Company so long as
they continue to hold deposit accounts or their loans remain outstanding with
the Bank.  In addition, all persons who become depositors subsequent to the
Reorganization will become members of the Mutual Holding Company.

     All insured deposit accounts of the Bank that are transferred to the Bank
in stock form will continue to be federally insured by the FDIC and the SAIF up
to the legal maximum limit in the same manner as deposit accounts existing in
the Bank immediately prior to the Reorganization.  Upon completion of the
Reorganization, the Bank may exercise any and all powers, rights and privileges
of, and shall be subject to all limitations applicable to, capital stock savings
banks under federal law and OTS regulations.  Although the Company will have the
power to issue shares of capital stock to persons other than the Mutual Holding
Company, as long as the Mutual Holding Company is in existence, the Mutual
Holding Company will be required to own a majority of the voting stock of the
Company.  The Company may issue any amount of non-voting stock to persons other
than the Mutual Holding Company and the Company must own 100% of the voting
stock of the Bank.  The Bank and the Company may issue any amount of non-voting
stock or debt to persons other than the Mutual Holding Company.

     Completion of the Reorganization is subject to the approval of the Plan by
the Bank's members.  The Plan is being presented for a vote of the Bank's
members at a special meeting to be held on December __, 1998.

STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED IN THE REORGANIZATION AND
OFFERING

     The Plan and federal and state regulations require that the aggregate
purchase price of the Common Stock issued in the Offering must be based on the
appraised pro forma market value of the Common Stock, as determined by an
independent valuation.  The Bank has retained RP Financial, which has prepared
the Independent Valuation. For its services in making such appraisal, RP
Financial will receive a fee of $______ (which amount does not include a fee of
$______ to be paid to RP Financial for assistance in preparation of a business
plan).  The Bank and the Company have agreed to indemnify RP Financial 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 RP Financial's liability results from its
negligence or bad faith.

     The Independent Valuation was prepared by RP Financial in reliance upon the
information contained in the Prospectus, including the Consolidated Financial
Statements.  RP Financial also considered the following factors, among others:
the present and projected operating results and financial condition of the Bank
and the economic and demographic conditions in the Bank's existing marketing
area; certain historical, financial and other information relating to the Bank;
a comparative evaluation of the operating and financial statistics of the Bank
with those of other publicly traded savings institutions located in the
Northeast and Mid-Atlantic regions and on a national basis; the aggregate size
of the Offering; the impact of the Reorganization on the Bank's stockholders'
equity and earnings potential; the proposed dividend policy of the Company; and
the trading market for securities of comparable institutions and general
conditions in the market for such securities.

     The Board of Directors reviewed the Independent Valuation and, in
particular, considered (i) the Bank's financial condition and results of
operations for the nine months ended June 30, 1998, (ii) financial comparisons
of the Bank in relation to financial institutions of similar size and asset
quality, and (iii) stock market conditions generally and in particular for
financial institutions, all of which are set forth in the Independent Valuation.
The Board also reviewed the methodology and the assumptions used by RP Financial
in preparing the Independent Valuation.

                                       35
The Independent Valuation states that as of ____________, 1998, the
estimated pro forma market value of the Common Stock ranged from a minimum of
$55,250,000 to a maximum of $74,750,000 with a midpoint of $65,000,000 (the
"Estimated Valuation Range").  The Bank's Board of Directors determined to offer
the shares in the Offering for the Subscription Price of $10.00 per share.
Based on the Estimated Valuation Range and the Subscription Price, the number of
shares of Common Stock that the Company will issue will range from 5,525,000
shares to 7,475,000 shares, with a midpoint of 6,500,000 shares.  The Bank's
Board of Directors determined to offer 46.6% of such shares in the Offering, or
between 2,575,500 shares and 3,484,500 shares with a midpoint of 3,030,000
shares (the "Offering Range").  The 53.4% of the to-be outstanding shares of
Common Stock that are not sold in the Offering will be issued to the Mutual
Holding Company.

     Following commencement of the Subscription Offering, the maximum of the
Estimated Valuation Range may be increased by up to 15% to up to $85,962,500,
which will result in a corresponding increase in the maximum of the Offering
Range to up to 4,007,175 shares to reflect changes in market and financial
conditions, without the resolicitation of subscribers.  The minimum of the
Estimated Valuation Range and the minimum of the Offering Range may not be
decreased without a resolicitation of subscribers.  The Subscription Price of
$10.00 per share will remain fixed.  See "--Limitations Upon Purchases of Common
Stock" as to the method of distribution and allocation of additional shares that
may be issued in the event of an increase in the Offering Range to fill unfilled
orders in the Subscription and Community Offerings.  In the event the
Independent Valuation is updated to increase the pro forma market value of the
Common Stock to more than $85,962,500 or less than $55,250,000, such appraisal
will be filed with the Securities and Exchange Commission (the "SEC") by post-
effective amendment.

     THE INDEPENDENT VALUATION, HOWEVER, IS NOT INTENDED, AND MUST NOT BE
CONSTRUED, AS A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING
SUCH SHARES.  RP FINANCIAL DID NOT INDEPENDENTLY VERIFY THE CONSOLIDATED
FINANCIAL STATEMENTS AND OTHER INFORMATION PROVIDED BY THE BANK, NOR DID RP
FINANCIAL VALUE INDEPENDENTLY THE ASSETS OR LIABILITIES OF THE BANK.  THE
INDEPENDENT VALUATION CONSIDERS THE BANK AS A GOING CONCERN AND SHOULD NOT BE
CONSIDERED AS AN INDICATION OF THE LIQUIDATION VALUE OF THE BANK.  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 SUCH SHARES IN THE OFFERING WILL
THEREAFTER BE ABLE TO SELL SUCH SHARES AT PRICES AT OR ABOVE THE SUBSCRIPTION
PRICE.

     The Independent Valuation will be updated at the time of the completion of
the Offering.  If the update to the Independent Valuation at the conclusion of
the Offering results in an increase in the maximum of the Estimated Valuation
Range to more than $85,962,500 and a corresponding increase in the Offering
Range to more than 4,007,175 shares, or a decrease in the minimum of the
Estimated Valuation Range to less than $55,250,000 and a corresponding decrease
in the Offering Range to fewer than 2,575,500 shares, then the Company, after
consulting with the OTS, may terminate the Plan and return all funds promptly
with interest or resolicit subscribers relative to a new Estimated Valuation
Range and Offering Range, or take such other actions as permitted by the OTS in
order to complete the Reorganization and the Offering.  If a resolicitation is
commenced, unless subscribers respond affirmatively within a designated period
of time, all funds will be promptly returned with interest to subscribers 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 exceed 24 months
following the special meeting of the Bank's members at which the Plan is
presented for member approval, or December __, 2000.

     An increase in the Independent Valuation and the number of shares to be
issued in the Offering would decrease both a subscriber's ownership interest and
the Company's pro forma earnings and stockholders' equity on a per share basis
while increasing pro forma earnings and stockholder's equity on an aggregate
basis.  A decrease in the Independent Valuation and the number of shares to be
issued in the Offering would increase both a subscriber's ownership interest and
the Company's pro forma earnings and stockholders' equity on a per share basis
while decreasing pro forma net income and stockholders' equity on an aggregate
basis.  For a presentation of the effects of such changes, see "Pro Forma Data."

                                       36
Copies of the appraisal report of RP Financial 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."

     No sale of shares of Common Stock may be consummated unless, prior to such
consummation, RP Financial confirms to the Bank and the OTS that, to the best of
its knowledge, nothing of a material nature has occurred that, taking into
account all relevant factors, would cause RP Financial to conclude that the
Independent Valuation is incompatible with its estimate of the pro forma market
value of the Common Stock of the Company at the conclusion of the Offering.  Any
change that would result in an aggregate purchase price that is below the
minimum or above the maximum of the Estimated Valuation Range would be subject
to OTS approval.  If such confirmation is not received, the Bank may extend the
Offering, reopen or begin a new offering, establish a new Estimated Valuation
Range and begin a resolicitation of all purchasers with the approval of the OTS
or take such other actions as permitted by the OTS in order to complete the
Offering.

PURCHASE PRIORITIES AND METHOD OF OFFERING SHARES IN THE OFFERING

     Concurrent with the Reorganization, the Company is offering shares of
Common Stock to persons other than the Mutual Holding Company.  The Company  is
offering between 2,575,500 and 3,484,500 shares of the Common Stock (subject to
adjustment to up to 4,007,175 shares in the event of an increase in the maximum
of the Estimated Valuation Range).  The shares of Common Stock that will be sold
in the Offering will constitute no more than 46.6% of the shares that will be
outstanding immediately at the conclusion of the Offering.  Following the
Reorganization and the Offering, the Company also will be authorized to issue
additional Common Stock or preferred stock to persons other than the Mutual
Holding Company, without prior approval of the holders of the Common Stock.
Subject to the limitations set forth in the "--Limitations Upon Purchases of
Common Stock" section, the priorities for the purchase of shares are as follows:

     PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS.  Each depositor with aggregate
deposit account balances of $50 or more (a "Qualifying Deposit") as of December
31, 1996 (the "Eligibility Record Date," and such account holders, "Eligible
Account Holders") will receive nontransferable subscription rights to subscribe
for up to the greater of 20,000 shares or 15 times the product (rounded down to
the next whole number) obtained by multiplying the total number of shares to be
issued in the Offering by a fraction of which the numerator is the amount of the
Eligible Account Holder's Qualifying Deposit 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 shares purchased by the ESOP from any increase in the shares
offered pursuant to an increase in the maximum of the Offering Range.  See "--
Limitations Upon Purchases of Common Stock."  If there are not sufficient shares
available to satisfy all subscriptions, shares first 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 for which he subscribed.  Thereafter, unallocated shares
(except for additional shares issued to the ESOP upon an increase in the maximum
of the Offering Range) will be allocated to each subscribing Eligible Account
Holder whose subscription remains unfilled in the proportion that the amount of
his aggregate Qualifying Deposit bears to the total amount of Qualifying
Deposits of all subscribing Eligible Account Holders whose subscriptions remain
unfilled.

     To ensure proper allocation of stock, each Eligible Account Holder must
list on his Order Form all deposit accounts in which he or she has an ownership
interest on the Eligibility Record Date.  Failure to list an account could
result in fewer shares being allocated than if all accounts had been disclosed.
Neither the Company nor the Bank nor any of their agents shall be responsible
for orders on which all Qualifying Deposit Accounts have not been fully and
accurately 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 twelve months preceding the
Eligibility Record Date.  For allocation purposes, Qualifying Deposits will be
divided in the case of multiple orders.

     PRIORITY 2: EMPLOYEE PLANS.  To the extent that there are sufficient shares
remaining after satisfaction of subscriptions by Eligible Account Holders, the
tax-qualified employee plans, including the ESOP, will receive 

                                       37
nontransferable subscription rights to purchase Common Stock in the Offering on
behalf of participants subject to the purchase limitations described herein. The
ESOP intends to subscribe for 8% of the Common Stock issued in the Offering,
including 8% of the total number of shares issued if the maximum of the Offering
Range is increased. The priority right of the ESOP to purchase shares is
subordinate to the rights of Eligible Account Holders to subscribe for shares,
except that the ESOP shall have first priority to purchase shares issued in
excess of the maximum of the offering range in the event of an increase in the
maximum of the initial Estimated Valuation Range and the Offering Range.

     PRIORITY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS.  To the extent that
there are sufficient shares remaining after satisfaction of subscriptions by
Eligible Account Holders and the ESOP, each depositor with a Qualifying Deposit
as of September 30, 1998 (the "Supplemental Eligibility Record Date") who is not
an Eligible Account Holder ("Supplemental Eligible Account Holder") will receive
nontransferable subscription rights to subscribe for the greater of up to 20,000
shares, or 15 times the product (rounded down to the next whole number) obtained
by multiplying the number of shares issued in the Offering 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.  See "--Limitations Upon Purchases of Common Stock." If there are
not sufficient shares available to satisfy all subscriptions, shares first will
be allocated so as to permit each subscribing Supplemental 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 for which he
subscribed.  Thereafter, unallocated shares will be allocated to each
subscribing Supplemental Eligible Account Holder whose subscription remains
unfilled in the proportion that the amount of his or her Qualifying Deposit
bears to the total amount of Qualifying Deposits of all subscribing Supplemental
Eligible Account Holders whose subscriptions remain unfilled.

     To ensure proper allocation of stock, each Supplemental Eligible Account
Holder must list on his Order Form all deposit accounts in which he or she has
an ownership interest on the Supplemental Eligibility Record Date.  Failure to
list an account could result in less shares being allocated than if all accounts
had been disclosed.  For allocation purposes, Qualifying Deposits will be
divided in the case of multiple orders.  Neither the Company nor the Bank nor
any of their agents shall be responsible for orders on which all Qualifying
Deposit Accounts have not been fully and accurately disclosed.

     PRIORITY 4:  OTHER MEMBERS.  To the extent that there are shares remaining
after satisfaction of subscriptions by Eligible Account Holders, the Employee
Plans, and Supplemental Eligible Account Holders, each depositor as of the
Voting Record Date and borrowers as of July 9, 1998 whose borrowings remained
outstanding as of the Voting Record Date ("Other Members") who is not an
Eligible Account Holder or Supplemental Eligible Account Holder will receive
nontransferable subscription rights to subscribe for 20,000 shares subject to
the overall purchase limitation.  See "--Limitations on Stock Purchases." If
there are not sufficient shares available to satisfy all subscriptions,
available shares will be allocated in proportion to the amounts of the
subscriptions.

     PRIORITY 5: DIRECTORS, OFFICERS AND EMPLOYEES.  To the extent that shares
remain available for purchase after satisfaction of all subscriptions of the
Eligible Account Holders, Tax-Qualified Employee Plans, Supplemental Eligible
Account Holders, and Other Members, employees, officers and directors of the
Bank who are not Eligible Account Holders, Supplemental Eligible Account Holders
or Other Members shall have the opportunity to purchase up to 20,000 shares.  In
the event that directors, officers and employees subscribe for a number of
shares, which, when added to the shares subscribed for by Eligible Account
Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account Holders,
and Other Members is in excess of the total shares offered in the Stock
Offering, the subscriptions of such persons will be allocated among directors,
officers and employees on a pro rata basis based on the size of each person's
orders.

                                       38
COMMUNITY OFFERING

     Any shares of Common Stock not subscribed for in the Subscription Offering
may be offered for sale in a Community Offering.  This will involve an offering
of unsubscribed shares directly to the general public for the Subscription Price
of $10.00 per share.  If a Community Offering is conducted, it will be for a
period of not more than 45 days unless extended by the Company and the Bank, and
may begin concurrently with, during or promptly after the Subscription Offering.
The Common Stock will be offered and sold in the Community Offering, in
accordance with OTS regulations, so as to achieve the widest distribution of the
Common Stock.  No person, by himself or herself, or with an associate or group
of persons acting in concert, may subscribe for or purchase more than $400,000
of Common Stock offered in the Community Offering.  Further, the Company may
limit total subscriptions so as to assure that the number of shares available
for a syndicated community offering may be up to a specified percentage of the
number of shares of Common Stock.  The Company may reserve shares offered in the
Community Offering for sales to institutional investors.

     In the event of an oversubscription for shares in the Community Offering,
shares may be allocated in the sole discretion of the Bank (to the extent shares
remain available) first to natural persons residing in the Bank's local
community of Rockland County, New York (the "Community"), then to any other
persons subscribing for shares in the Community Offering so that each such
person may receive the lesser of the number of shares subscribed for or 1,000
shares, and thereafter, on a pro rata basis to such persons based on the amount
of their respective subscriptions.

     The terms "residence," "reside," "resided" or "residing" as used herein
with respect to any person shall mean any person who occupied a dwelling within
the Bank's Community, has an intent to remain within the Community for a period
of time, and manifests the genuineness of that intent by establishing an ongoing
physical presence within the Community together with an indication that such
presence within the Community is something other than merely transitory in
nature.  To the extent the person is a corporation or other business entity, the
principal place of business or headquarters shall be in the Community.  To the
extent a person is a personal benefit plan, the circumstances of the beneficiary
shall apply with respect to this definition.  In the case of all other benefit
plans, the circumstances of the director shall be examined for purposes of this
definition.  The Bank may use deposit or loan records or such other evidence
provided to it to determine whether a person is a resident.  In all cases,
however, such a determination shall be in the sole discretion of the Bank.

     The Bank and the Company, in their sole discretion, may reject
subscriptions, in whole or in part, received from any person in the Community
Offering.

SYNDICATED COMMUNITY OFFERING

     Depending on market conditions, the Common Stock may be offered for sale
(for $10.00 per share) to the general public on a best efforts basis in the
Syndicated Community Offering by a selling group of broker-dealers ("Selected
Dealers") to be managed by Ryan Beck.  Ryan Beck, in its discretion, will
instruct Selected Dealers as to the number of shares to be allocated to each
Selected Dealer.  Only upon allocation of shares to Selected Dealers may
Selected Dealers take orders from their customers.  Investors who desire to
purchase shares in the Community Offering directly through a Selected Dealer,
which may include Ryan Beck, are advised that Selected Dealers are required
either: (a) upon receipt of an executed Order Form or direction to execute an
Order Form on behalf of an investor, to forward the appropriate purchase price
to the Bank for deposit in a segregated account on or before twelve noon,
prevailing time, of the business day next following such receipt or execution;
or (b) upon receipt of confirmation of an investor's interest in purchasing
shares, and following a mailing of an acknowledgment by such member to such
investor on the business day next following receipt of confirmation, to debit
the account of such investor on the third business day next following receipt of
confirmation and to forward the appropriate purchase price to the Bank for
deposit in the segregated account on or before twelve noon, prevailing time, of
the business day next following such debiting.

     It is expected that the Syndicated Community Offering will begin during or
as soon as practicable after termination of the Community Offering, if any.  The
Syndicated Community Offering shall be completed within 45 days after the
termination of the Subscription Offering, unless such period is extended as
provided herein.  If for any 

                                       39
reason a Syndicated Community Offering of unsubscribed shares of Common Stock
cannot be effected or is deemed inadvisable, the Boards of Directors of the
Company and the Bank will seek to make other arrangements for the sale of the
remaining shares. Such other arrangements will be subject to the approval of the
OTS and to compliance with applicable state and federal securities laws.

RESTRICTIONS ON AGREEMENTS OR UNDERSTANDINGS REGARDING TRANSFER OF COMMON STOCK
TO BE PURCHASED IN THE OFFERING

     Prior to the completion of the Offering, no depositor may transfer or enter
into an agreement or understanding to transfer the legal or beneficial ownership
of the shares of Common Stock to be purchased by such person in the Offering.
Each depositor who submits an Order Form will be required to certify that the
purchase of Common Stock by such person is solely for the purchaser's own
account and there is no agreement or understanding regarding the sale or
transfer of such shares.  The Bank intends to pursue any and all legal and
equitable remedies in the event it becomes aware of any such agreement or
understanding, and will not honor orders reasonably believed by the Bank to
involve such an agreement or understanding.

PROCEDURE FOR PURCHASING SHARES

     To ensure that each purchaser receives a Prospectus at least 48 hours
before the Expiration Date, Prospectuses will not be mailed any later than five
days prior to such date or hand delivered any later than two days prior to such
date.  Order forms may only be distributed with a Prospectus.

     EXPIRATION DATE.  The Offering will terminate at 10:00 a.m., New York time
on December __, 1998, unless extended by the Bank for up to an additional 45
days or, if approved by the OTS, for an additional period after such 45-day
extension (as so extended, the "Expiration Date").  The Bank is not required to
give purchasers notice of any extension unless the Expiration Date is later than
__________, 1999, in which event purchasers will be given the right to increase,
decrease, confirm, or rescind their orders.  If the minimum number of shares
offered in the Offering (2,575,500 shares) is not sold by the Expiration Date,
the Bank may terminate the Offering and promptly refund all orders for Common
Stock.  If the number of shares is reduced below the minimum of the Estimated
Valuation Range or increased more than 15% above the Offering Range, purchasers
will be given an opportunity to increase, decrease, or rescind their orders.

     USE OF ORDER FORMS.  In order to purchase the Common Stock, each purchaser
must complete and sign an Order Form, except for certain persons purchasing in
the Syndicated Community Offering as more fully described above.  Any person
receiving an Order Form who desires to purchase Common Stock may do so by
delivering (by mail or in person) to the Bank a properly executed and completed
Order Form, together with full payment for the shares purchased.  The Order Form
must be received prior to 10:00 a.m., New York time on December __, 1998. ONCE
TENDERED, AN ORDER FORM CANNOT BE MODIFIED OR REVOKED WITHOUT THE CONSENT OF THE
BANK.  Each person ordering shares is required to represent that they are
purchasing such shares for their own account.  The interpretation by the Bank of
the terms and conditions of the Plan and of the acceptability of the Order Forms
will be final.  The Bank is not required to accept copies or facsimiles of Order
Forms.  Order Forms cannot and will not be accepted without the execution of the
certification appearing on the  Order Form.  Neither the Bank, the Company, nor
Ryan Beck is obligated to deliver a Prospectus and an Order Form by any means
other than the U.S. Postal Service.

     PAYMENT FOR SHARES.  Payment for all shares will be required to accompany
all completed Order Forms for the purchase to be valid.  Payment for shares may
be made by (i) check or money order, or (ii) authorization of withdrawal from
passbook accounts or certificates of deposit maintained with the Bank.
Appropriate means by which such withdrawals may be authorized are provided in
the Order Forms.  Once such a withdrawal amount has been authorized, a hold will
be placed on such funds, making them unavailable to the depositor until the
Offering has been completed or terminated.  The withdrawal will be made upon
consummation of the Offering.  In the case of payments authorized to be made
through withdrawal from deposit accounts, all funds authorized for withdrawal
will continue to earn interest at the contract rate until the Offering is
completed or terminated.  Interest penalties for early withdrawal applicable to
certificate accounts will not apply to withdrawals authorized for the purchase
of shares; however, if a withdrawal results in a certificate account with a
balance less than the applicable minimum balance 

                                       40
requirement, the certificate shall be canceled at the time of withdrawal without
penalty, and the remaining balance will earn interest at the Bank's passbook
rate subsequent to the withdrawal. In the case of payments made by check or
money order, such checks and money orders shall be made payable to "Provident
Bank." Such funds will be placed in a segregated savings account and interest
will be paid by the Bank at the Bank's passbook rate, from the date payment is
received until the Offering is completed or terminated. Such interest will be
paid by check, on all funds held, promptly upon completion or termination of the
Offering. An executed Order Form, once received by the Bank, may not be
modified, amended or rescinded without the consent of the Bank, unless the
Offering is not completed by ___________, 1998, in which event subscribers may 
be given the opportunity to increase, decrease, confirm or rescind their orders
for a specified period of time.

     Owners of self-directed IRAs may use the assets of such IRAs to purchase
shares of Common Stock in the Offering.  Individuals who are participants in
self-directed tax qualified plans maintained by self-employed individuals
("Keogh Plans") may use the assets in their self-directed Keogh Plan accounts to
purchase shares of Common Stock in the Offering.  In addition, the provisions of
ERISA and Internal Revenue Service ("IRS") regulations require that executive
officers, directors, and 10% stockholders who use self-directed IRA funds and/or
Keogh Plan accounts to purchase shares of Common Stock in the Offering, make
such purchase for the exclusive benefit of the IRA and/or Keogh Plan
participant.

     If the ESOP purchases shares of Common Stock, such plan will not be
required to pay for such shares until consummation of the Offering.  A depositor
interested in using his or her IRA funds to purchase Common Stock must do so
through a self-directed IRA.  Since the Bank does not offer such accounts, it
will allow a depositor to make a trustee-to-trustee transfer of the IRA funds to
a trustee offering a self-directed IRA program without early withdrawal
penalties with the agreement that such funds will be used to purchase the Common
Stock in the Offering.  There will be no early withdrawal or IRS penalties for
such transfers.  The new trustee would hold the Common Stock in a self-directed
account in the same manner as the Bank now holds the depositor's IRA funds.  An
annual administrative fee may be payable to the new trustee.  Depositors
interested in using funds in a Bank IRA to purchase Common Stock should contact
the Stock Information Center at the Bank as soon as possible so that the
necessary forms may be forwarded for execution and returned prior to the
Expiration Date.

     DELIVERY OF STOCK CERTIFICATES.  Certificates representing Common Stock
issued in the Offering will be mailed by the Company to the persons entitled
thereto at the registration address noted on the Order Form, as soon as
practicable following consummation of the Offering.  Any certificates returned
as undeliverable will be held by the Company until claimed by persons legally
entitled thereto or otherwise disposed of in accordance with applicable law.
Until certificates for the Common Stock are available and delivered to
purchasers, purchasers may not be able to sell the shares of stock which they
ordered.  Subscribers are at their own risk if they sell shares before receiving
the certificates or determining whether their subscription has been accepted.

PLAN OF DISTRIBUTION AND SELLING COMMISSIONS

     Offering materials for the Offering initially have been distributed to
certain persons by mail, with additional copies made available at the Bank's
offices and by Ryan Beck.

     To assist in the marketing of the Common Stock, the Bank has retained Ryan
Beck, a broker-dealer registered with the NASD.  Ryan Beck will assist the Bank
in the Offering as follows: (i) in training and educating the Bank's employees
regarding the mechanics and regulatory requirements of the Offering; (ii) in
conducting informational meetings for employees, customers and the general
public; (iii) in coordinating the selling efforts in the Bank's local
communities; and (iv) keeping records of all orders for Common Stock.  For these
services, Ryan Beck will receive an advisory and a management fee of $450,000.

     The Bank also will reimburse Ryan Beck for its reasonable out-of-pocket
expenses, the estimated maximum of which are $60,000 (including legal fees and
expenses up to a maximum of $40,000) associated with its marketing effort.  The
Bank has made an advance payment to Ryan Beck in the amount of $25,000.  The
Bank will indemnify Ryan Beck against liabilities and expenses (including legal
fees) incurred in connection with certain claims or litigation 

                                       41
arising out of or based upon untrue statements or omissions contained in the
offering materials for the Common Stock, including liabilities under the
Securities Act of 1933.

     Directors and executive officers of the Bank may participate in the
solicitation of offers to purchase Common Stock.  Other trained employees of the
Bank may participate in the Offering in ministerial capacities, providing
clerical work in effecting a sales transaction or answering questions of a
ministerial nature.  Other questions of prospective purchasers will be directed
to executive officers or registered representatives.  The Bank will rely on Rule
3a4-1 of the Securities Exchange Act of 1934 (the "Exchange Act"), so as to
permit officers, directors, and employees to participate in the sale of the
Common Stock.  No officer, director, or employee of the Bank will be compensated
for his participation by the payment of commissions or other remuneration based
either directly or indirectly on the transactions in the Common Stock.

     A Stock Information Center will be established at the Bank's administrative
office, in an area separated from the Bank's banking operations.  Employees will
inform prospective purchasers to direct their questions to the Stock Information
Center and will provide such persons with the telephone number of the Center.

     Notwithstanding any other provision of the Plan, no person is entitled to
purchase any Common Stock to the extent such purchase would be illegal under any
federal or state law or regulation (including state "blue-sky" laws and
regulations), or would violate regulations or policies of the NASD, particularly
those regarding free riding and withholding.  The Bank and/or its agents may ask
for an acceptable legal opinion from any purchaser as to the legality of such
purchase and may refuse to honor any such purchase order if such opinion is not
timely furnished.  The Plan prohibits the Bank from lending funds or extending
credit to any persons to purchase Common Stock in the Offering.

LIMITATIONS UPON PURCHASES OF COMMON STOCK

     The following additional limitations have been imposed upon purchases of
shares of Common Stock.  Defined terms used in this section and not otherwise
defined in this Prospectus shall have the meaning set forth in the Plan. In all
cases, the Bank shall have the right, in its sole discretion, to determine
whether prospective purchasers are "Associates," or "Acting in Concert" as
defined by the Plan and in interpreting any and all other provisions of the
Plan.  All such determinations are in the sole discretion of the Bank, and may
be based on whatever evidence the Bank chooses to use in making any such
determination.

     1.   The aggregate amount of outstanding Common Stock owned or controlled
          by persons other than Mutual Holding Company at the close of the
          Offering shall not exceed 50% of the total outstanding Common Stock.

     2.   No Person, Associate thereof, or group of persons Acting in Concert,
          may purchase more than $400,000 of Common Stock issued in the Offering
          to Persons other than the Mutual Holding Company, except that:  (i)
          the Company may, in its sole discretion and without further notice to
          or solicitation of subscribers or other prospective purchasers,
          increase such maximum purchase limitation to up to 5% or decrease it
          to 1% of the number of shares issued in the Offering; (ii) Tax-
          Qualified Employee Plans may purchase up to 10% of the shares issued
          in the Offering; and (iii) for purposes of this paragraph shares to be
          held by any Tax-Qualified Employee Plan and attributable to a person
          shall not be aggregated with other shares purchased directly by or
          otherwise attributable to such person.

     3.   The aggregate amount of Common Stock acquired in the Offering by all
          Management Persons and their Associates, exclusive of any stock
          acquired by such persons in the secondary market, shall not exceed 25%
          of the outstanding shares of Common Stock held by persons other than
          the Mutual Holding Company at the close of the Offering.   In
          calculating the number of shares held by Management Persons and their
          Associates under this paragraph or under the provisions of paragraph 4
          below, shares held by any Tax-Qualified Employee Benefit Plan or any
          Nontax-Qualified Employee Benefit Plan of the Bank that are
          attributable to such persons shall not be counted.

                                       42
4.   The Boards of Directors of the Bank and the Company may, in their sole
          discretion, increase the maximum purchase limitation to up to 9.9%,
          provided that orders for Common Stock in excess of 5% of the number of
          shares of Common Stock issued in the Offering shall not in the
          aggregate exceed 10% of the total shares of Common Stock issued in the
          Offering (except that this limitation shall not apply to purchases by
          Tax-Qualified Employee Plans).  If such 5% limitation is increased,
          subscribers for the maximum amount will be, and certain other large
          subscribers in the sole discretion of the Company and the Bank may be,
          given the opportunity to increase their subscriptions up to the then
          applicable limit.  Requests to purchase additional shares of Common
          Stock under this provision will be determined by the Board of
          Directors of the Company, in its sole discretion. The minimum number 
          of shares that can be subscribed for is 25 shares.

     5.   Notwithstanding any other provision of the Plan, no person shall be
          entitled to purchase any Common Stock to the extent such purchase
          would be illegal under any federal law or state law or regulation or
          would violate regulations or policies of the National Association of
          Securities Dealers, Inc., particularly those regarding free riding and
          withholding.  The Company and/or its agents may ask for an acceptable
          legal opinion from any purchaser as to the legality of such purchase
          and may refuse to honor any purchase order if such opinion is not
          timely furnished.

     6.   The Board of Directors of the Company has the right in its sole
          discretion to reject any order submitted by a person whose
          representations the Board of Directors believes to be false or who it
          otherwise believes, either alone or acting in concert with others, is
          violating, circumventing, or intends to violate, evade or circumvent
          the terms and conditions of the Plan.

     The Company, in its sole discretion, may make reasonable efforts to comply
with the securities laws of any state in the United States in which its
depositors reside, and will only offer and sell the Common Stock in states in
which the offers and sales comply with such states' securities laws.  However,
no person will be offered or allowed to purchase any Common Stock under the Plan
if they resides in a foreign country or in a state of the United States with
respect to which any of the following apply: (i) a small number of persons
otherwise eligible to purchase shares under the Plan reside in such state or
foreign county; (ii) the offer or sale of shares of Common Stock to such persons
would require the Bank or its employees to register, under the securities laws
of such state or foreign country, as a broker or dealer or to register or
otherwise qualify its securities for sale in such state or foreign country; or
(iii) such registration or qualification would be impracticable for reasons of
cost or otherwise.

     OTS regulations define "acting in concert" as (i) knowing participation in
a joint activity or interdependent conscious parallel action towards a common
goal whether or not pursuant to an express agreement, or (ii) a combination or
pooling of voting or other interests in the securities of an issuer for a common
purpose pursuant to any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise.  THE BANK WILL PRESUME THAT
CERTAIN PERSONS ARE ACTING IN CONCERT BASED UPON VARIOUS FACTS, INCLUDING THE
FACT THAT PERSONS HAVE JOINT ACCOUNT RELATIONSHIPS OR THE FACT THAT SUCH PERSONS
HAVE FILED JOINT SCHEDULES 13D WITH THE SEC WITH RESPECT TO OTHER COMPANIES.

     Directors are not treated as Associates of one another solely because of
their board membership. Compliance with the foregoing limitations does not
necessarily constitute compliance with other regulatory restrictions on
acquisitions of the Common Stock. For a further discussion of limitations on
purchases of the Common Stock during and subsequent to Reorganization, see "--
Restrictions on Sale of Stock by Directors and Officers," "--Restrictions on
Purchase of Stock by Directors and Officers Following the Offering," and
"Restrictions on Acquisition of the Company."

                                       43
RESTRICTIONS ON REPURCHASE OF STOCK BY THE COMPANY

     OTS regulations and policy currently prohibit the Company from repurchasing
any of its shares within three years following the Offering unless the
repurchase is (i) part of a general repurchase made on a pro rata basis pursuant
to an offer approved by the OTS and made to all stockholders (except the Mutual
Holding Company may be excluded from the repurchase with OTS approval), (ii)
limited to the repurchase of qualifying shares of a director, or (iii) in open
market transactions by a tax-qualified or nontax-qualified employee benefit plan
of the Bank (but not the Company) in an amount reasonable and appropriate to
fund such plan.

RESTRICTIONS ON SALE OF STOCK BY DIRECTORS AND OFFICERS

     All shares of the Common Stock purchased by directors and officers and
associates of directors and officers of the Bank or the Stock Company in the
Offering will be subject to the restriction that such shares may not be sold or
otherwise disposed of for value for a period of one year following the date of
purchase, except for any disposition of such shares (i) following the death of
the original purchaser or (ii) by reason of an exchange of securities in
connection with a merger or acquisition approved by the applicable regulatory
authorities. Sales of shares of the Common Stock by the Company's directors and
officers will also be subject to certain insider trading and other transfer
restrictions under the federal securities laws. See "Regulation--Federal
Securities Laws" and "Description of Capital Stock of the Company."

     Each certificate for such restricted shares will bear a legend prominently
stamped on its face giving notice of the restrictions on transfer, and
instructions will be issued to the Company's transfer agent 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 of the restriction. Any
shares of Common Stock issued pursuant to a stock dividend, stock split or
otherwise with respect to restricted shares will be subject to the same
restrictions on sale.

RESTRICTIONS ON PURCHASE OF STOCK BY DIRECTORS AND OFFICERS FOLLOWING THE
OFFERING

     OTS regulations provide that for a period of three years following the
Reorganization, without prior written approval of the OTS, neither directors nor
officers of the Bank or the Company nor their associates may purchase shares of
the Common Stock, except from a dealer registered with the SEC. This restriction
does not, however, apply to negotiated transactions involving more than 1% of
the outstanding Common Stock, to shares purchased pursuant to stock option or
other incentive stock plans approved by the Company's shareholders, or to shares
purchased by employee benefit plans maintained by the Company which may be
attributable to individual officers or directors.

RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND COMMON STOCK

     Prior to the completion of the Reorganization, OTS regulations and the Plan
prohibit any person with subscription rights 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 Common 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 or her account. Each person exercising
such subscription rights will be required to certify that he or she is
purchasing shares solely for his or her own account and that he or she 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 Common Stock prior to the completion of the Reorganization and
Offering.  THE BANK INTENDS TO PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES
IN THE EVENT IT BECOMES AWARE OF THE TRANSFER OF SUBSCRIPTION RIGHTS AND WILL
NOT HONOR ORDERS KNOWN TO INVOLVE THE TRANSFER OF SUCH RIGHTS. IN ADDITION,
PERSONS WHO VIOLATE THE PURCHASE LIMITATIONS MAY BE SUBJECT TO SANCTIONS AND
PENALTIES IMPOSED BY THE OTS.

FEDERAL AND STATE TAX CONSEQUENCES OF THE REORGANIZATION

     The Bank intends to proceed with the Reorganization on the basis of an
opinion from its special counsel, Luse Lehman Gorman Pomerenk & Schick, P.C.,
Washington, D.C., as to certain tax matters that are material to the

                                       44
Reorganization. The opinion is based, among other things, on certain factual
representations made by the Bank, including the representation that the exercise
price of the subscription rights to purchase the Common Stock will be
approximately equal to the fair market value of the stock at the time of the
completion of the Reorganization. With respect to the subscription rights, the
Bank has received an opinion of RP Financial which, based on certain
assumptions, concludes that the subscription rights to be received by Eligible
Account Holders, Supplemental Eligible Account Holders and Other Members do not
have any economic value at the time of distribution or the time the subscription
rights are exercised, whether or not a Community Offering takes place, and Luse
Lehman Gorman Pomerenk & Schick, P.C.'s opinion is given in reliance thereon.
The opinion of Luse Lehman Gorman Pomerenk & Schick, P.C., provides
substantially as follows:

     1.  The change in form from a mutual savings bank ("Mutual Bank") to a
     stock savings bank (the "Stock Bank") will qualify as a reorganization
     under Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended
     (the "Code"), and no gain or loss will be recognized by the Bank in either
     its mutual form or stock form by reason of the Reorganization.

     2.  No gain or loss will be recognized by the Mutual Bank upon the transfer
     of the Mutual Bank's assets to the Stock Bank solely in exchange for shares
     of Stock Bank stock and the assumption by the Stock Bank of the liabilities
     of the Mutual Bank.

     3.  No gain or loss will be recognized by Stock Bank upon the receipt of
     the assets of the Mutual Bank in exchange for shares of Stock Bank common
     stock.

     4.  Stock Bank's holding period in the assets received from the Mutual Bank
     will include the period during which such assets were held by the Mutual
     Bank.

     5.  Stock Bank's basis in the assets of the Mutual Bank will be the same as
     the basis of such assets in the hands of the Mutual Bank immediately prior
     to the Reorganization.

     6.  The Stock Bank will succeed to and take into account the Mutual Bank
     earnings and profits or deficit in earnings and profits, as of the date of
     the Reorganization.

     7.  The Stock Bank depositors will recognize no gain or loss solely by
     reason of the Reorganization.

     8.  The Mutual Holding Company and Minority Stockholders will recognize no
     gain or loss upon the transfer of Stock Bank stock and cash, respectively,
     to the Company in exchange for Common Stock.

     9.  The Company will recognize no gain or loss upon its receipt of Stock
     Bank stock and cash from the Mutual Holding Company and Minority
     Stockholders, respectively, in exchange for Common Stock.

     10. The basis of the Common Stock to Minority Stockholders will be the
     Subscription Price and a shareholder's holding period for Common Stock
     acquired through the exercise of subscription rights will begin on the date
     the rights are exercised.

     The opinion of Luse Lehman Gorman Pomerenk & Schick, P.C., unlike a letter
ruling issued by the Internal Revenue Service (the "IRS"), is not binding on the
IRS and the conclusions expressed therein may be challenged at a future date.
The IRS has issued favorable rulings for transactions substantially similar to
the proposed Reorganization, but any such ruling may not be cited as precedent
by any taxpayer other than the taxpayer to whom the ruling is addressed. The
Bank does not plan to apply for a letter ruling concerning the Reorganization.

          The Bank has also received an opinion from KPMG Peat Marwick LLP that
the New York State Franchise Tax on banking corporations and New York State
personal income tax consequences of the proposed transaction are consistent with
the federal income tax consequences.

                                       45
PROVIDENT BANK
                       CONSOLIDATED STATEMENTS OF INCOME

     The Consolidated Statements of Income for the years ended September 30,
1997 and 1996 have been audited by KPMG Peat Marwick LLP, independent auditors,
whose report appears elsewhere in this Prospectus. The Consolidated Statement of
Income for the year ended September 30, 1995 has been audited by Deloitte &
Touche LLP, independent auditors, whose report appears elsewhere in this
Prospectus. The Consolidated Statements of Income for the nine-month periods
ended June 30, 1998 and 1997 are unaudited but, in the opinion of management,
all adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of such results for such unaudited periods have been made. The
results of operations for the nine months ended June 30, 1998 are not
necessarily indicative of results that may be expected for the year ending
September 30, 1998. The Consolidated Statements of Income should be read in
conjunction with the other Consolidated Financial Statements and the Notes
thereto included in this Prospectus beginning on page F-1.
NINE MONTHS ENDED             YEARS ENDED
                                                                 JUNE 30,                 SEPTEMBER 30,
                                                           --------------------    ---------------------------
                                                             1998        1997        1997      1996      1995  
                                                           --------    --------    -------   -------   ------- 
                                                               (UNAUDITED)                                     
                                                                           (IN THOUSANDS)
Interest and dividend  income:
Interest and fees on loans..............................   $25,962     $24,249     $32,544   $29,210   $26,740
Interest on  mortgage-backed securities.................     6,748       7,118       9,398     9,008     6,687
Interest and dividends on  investment securities and
  other earning assets..................................     3,029       3,388       4,613     4,348     3,603
                                                           -------     -------     -------   -------   -------
    Total interest and dividend income..................    35,739      34,755      46,555    42,566    37,030
                                                           -------     -------     -------   -------   -------
Interest expense:
Deposits (Note 8).......................................    14,315      13,889      18,692    17,113    14,440
Borrowings..............................................     1,294       1,181       1,487     1,472       624
                                                           -------     -------     -------   -------   -------
 Total interest expense.................................    15,609      15,070      20,179    18,585    15,064
                                                           -------     -------     -------   -------   -------
 Net interest income....................................    20,130      19,685      26,376    23,981    21,966
Provision for loan losses (Note 4)......................     1,347         875       1,058       911       760
                                                           -------     -------     -------   -------   -------
    Net interest income after provision for
     loan losses........................................    18,783      18,810      25,318    23,070    21,206
                                                           -------     -------     -------   -------   -------
Non-interest income:
Loan servicing..........................................       443         445         583       648       676
Banking service fees and other income...................     1,855       1,767       2,128     1,803     1,424
                                                           -------     -------     -------   -------   -------
    Total non-interest income...........................     2,298       2,212       2,711     2,451     2,100
                                                           -------     -------     -------   -------   -------
Non-interest expense:
Compensation and employee benefits (Note 12)............     7,501       7,328       9,915     9,063     7,601
Occupancy and office operations (Notes 6 and 13)........     2,346       2,287       3,167     2,936     2,430
Advertising and promotion...............................       825         748       1,038     1,251       700
Federal deposit insurance costs, including a special
 assessment of $3,298 in 1996 (Note 11).................       246         336         409     4,373       996
Data processing.........................................       612         435         580       573       491
Foreclosed real estate expense (income),
 net (Note 7)...........................................        66        (109)        (40 )     441       100
Amortization of branch purchase premiums (Note 8).......     1,200       1,129       1,506       691        --
Other...................................................     2,846       3,034       4,027     3,406     2,946
                                                           -------     -------     -------   -------   -------
    Total...............................................    15,642      15,188      20,602    22,734    15,264
                                                           -------     -------     -------   -------   -------
    Income before income tax expense....................     5,439       5,834       7,427     2,787     8,042
                                                           -------     -------     -------   -------   -------
Income tax expense (Note 10)............................     1,995       2,370       2,829       690     3,239
                                                           -------     -------     -------   -------   -------
     Net income.........................................   $ 3,444     $ 3,464     $ 4,598   $ 2,097   $ 4,803
                                                           =======     =======     =======   =======   =======
-------------------------
Note references are to the Notes to Consolidated Financial Statements beginning
on page F-8.

                                       46
MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

     The Bank's results of operations depend primarily on its net interest
income, which is the difference between the interest income on its earning
assets, such as loans and securities, and the interest expense paid on its
deposits and borrowings.  Results of operations are also affected by non-
interest income and expense, the provision for loan losses and income tax
expense.  Non-interest income consists primarily of banking service fees and
income from loan servicing.  The Bank's non-interest expense consists primarily
of salaries and employee benefits, occupancy and office expenses, amortization
of branch purchase premiums, advertising and promotion expense, data processing
expenses and federal deposit insurance costs.  Results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.

     The Bank's equity position (as well as its regulatory capital) will
significantly increase as a result of the net proceeds that it receives in the
Offering.  Management expects to leverage the new capital by increasing the
Bank's interest-earning assets thereby reducing the Bank's equity as a
percentage of assets.  Until such leverage is achieved, however, the Bank's
return on average equity is expected to be below the Bank's historical levels
and industry averages. The net proceeds of the Offering are expected to be used
for general corporate purposes, including the origination of residential and
commercial real estate loans, commercial business loans, and consumer loans.
The net proceeds also will be invested in investment securities and mortgage-
backed securities.  The Bank may also use such funds for the expansion of its
retail banking franchise through new branch openings or acquisitions.

MANAGEMENT STRATEGY

     Management intends to continue the Bank's growth as a major independent
community bank offering a broad range of customer-focused services as an
alternative to money center banks in its market area.  The majority of the
Bank's senior management have extensive backgrounds with commercial banking
institutions.  In recent years, management determined that the long-term growth
and success of the Bank would be enhanced by operating as a community bank
rather than a traditional thrift institution, and as a result, management
implemented a business strategy that included: (i) creating an infrastructure
for commercial and consumer banking, such as an experienced commercial loan
department and delivery systems to accommodate the needs of business and
individual customers; and (ii) placing a greater emphasis on commercial real
estate and business lending, as well as checking and other transaction accounts.
Highlights of the Bank's business strategy are as follows:

 .    Community banking and customer service.  As an independent community bank,
     a principal objective of the Bank is to anticipate the financial services
     needs of its customers, and to meet those needs in an effective and
     personalized manner.  The Bank continually receives input from customers
     through its branch office network and marketing surveys, and is committed
     to implementing new programs and services designed to attract new customers
     and strengthen existing relationships.  The Bank intends to use new
     technologies to offer customers new financial products and services as
     market and regulatory conditions permit, including PC banking, cash
     management and sweep accounts, although the Bank does not currently offer
     these products or services.  The Bank also expects to offer asset
     management, trust services and personal financial planing in the near
     future. The Bank's branch offices are operated on a full-service basis, and
     branch office personnel are authorized to accept applications for mortgage
     and consumer loans and approve consumer loans.

 .    Growing and diversifying the loan portfolio.  The Bank offers retail
     customers a broad range of residential mortgage and consumer loans, and has
     grown its loan portfolio by $145.3 million, or 49.2%, to $440.4 million at
     June 30, 1998 from $295.1 million at September 30, 1993.  At June 30, 1998,
     the Bank's loan portfolio represented 64.8% of total assets.  The Bank
     continues to target commercial business and commercial real estate lending
     as a means of improving the yield on its loan portfolio and shortening the
     average maturity of its assets.  The Bank also has established experienced
     commercial loan and credit administration departments that management
     believes are critical to the success of its commercial banking 

                                       47
strategy. The Bank's commercial loans include commercial mortgages, multi-
     family mortgages, construction loans to builders and business loans. Total
     outstanding balances in these commercial loan categories increased by $45.2
     million, or 69.9%, to $109.9 million at June 30, 1998 from $64.7 million at
     September 30, 1993.

 .    Expanding the retail banking franchise. The Bank intends to continue to
     expand its retail banking franchise and to increase the number of
     households served in its market area.  The Bank fosters a sales culture in
     its branch offices that emphasizes transaction accounts.  At June 30, 1998,
     core deposits  (demand, NOW, savings and money market deposits) represented
     58.1% of the Bank's total deposits, and the weighted average rate on the
     Bank's total deposits was 3.31%.  Since 1993, the Bank has opened two full-
     service branch offices, including the first supermarket branch in Rockland
     County, and also has  purchased two existing branches from other banks.
     The Bank intends to pursue opportunities to expand its branch network as
     market conditions permit.  Two of the Bank's branch offices are now open
     seven days a week, and additional branch offices will offer seven-day
     banking to accommodate all customers.  The Bank has 12 automated teller
     machines ("ATMs") and participates in networks that permit customers to
     access their accounts through ATMs worldwide.

 .    Maintaining asset quality. Strong asset quality is a critical component of
     the Bank's long-term growth and financial success.  Accordingly, management
     is committed to maintaining conservative underwriting standards in
     originating loans.  For example, the credit review of each commercial loan
     is performed by a department independent of the department that originates
     the loan.  At the end of the past five fiscal years and at June 30, 1998,
     non-performing assets averaged 1.04% of total assets.  At June 30, 1998,
     the Bank's non-performing loans totaled $5.7 million, representing 1.30% of
     the loan portfolio, and non-performing assets totaled $6.1 million, or
     0.90% of total assets.  The Bank's allowance for loan losses was $4.5
     million at June 30, 1998, representing 1.03% of total loans and 79.27% of
     non-performing loans.

 .    Managing interest rate risk.  The Bank, like most financial institutions,
     is subject to interest rate risk since its liabilities generally have
     shorter terms to repricing or maturity than its assets.  As a result, its
     liabilities are more sensitive to changes in market interest rates.
     Management has reduced the Bank's exposure to interest rate risk by
     originating and retaining adjustable rate mortgage ("ARM") loans,
     commercial real estate and commercial business loans, and consumer loans.
     Management also manages interest rate risk by investing a portion of the
     Bank's assets in shorter duration investment securities and mortgage-backed
     securities.  Depending upon market interest rates and the Bank's capital
     and liquidity positions, the Bank from time to time sells (on a servicing-
     retained basis) fixed-rate long term mortgage loans.  As of June 30, 1998,
     securities available for sale totaled $92.4 million, or 13.6% of total
     assets.  The Bank's securities held to maturity totaled $109.5 million, or
     16.1% of total assets.

MANAGEMENT OF MARKET RISK

     Like other financial institutions, the Bank's most significant form of
market risk is interest rate risk.  The general objective of the Bank's interest
rate risk management is to determine the appropriate level of risk given the
Bank's business strategy, and then manage that risk in a manner that is
consistent with the Bank's policy to reduce the exposure of the Bank's net
interest income to changes in market interest rates.  The Bank's asset/liability
management committee ("ALCO"), which consists of senior management, evaluates
the interest rate risk inherent in certain assets and liabilities, the Bank's
operating environment, and capital and liquidity requirements, and modifies
lending, investing and deposit gathering strategies accordingly.   A committee
of the Board of Directors reviews the ALCO's activities and strategies, the
effect of those strategies on the Bank's net interest margin, and the effect
that changes in market interest rates would have on the value of the Bank's loan
and securities portfolios.  See "Risk Factors--Potential Effects of Changes in
Interest Rates and the Current Interest Rate Environment."

     The Bank actively evaluates interest rate risk concerns in connection with
its lending, investing, and deposit activities.  The Bank emphasizes the
origination of residential monthly and bi-weekly fixed-rate mortgage loans,
residential and commercial ARM loans, and consumer loans.  Depending on market
interest rates and the Bank's capital and liquidity position, the Bank may
retain all of its newly originated fixed-rate, fixed-term residential 

                                       48
mortgage loans or may decide to sell all or a portion of such longer-term loans
on a servicing-retained basis. The Bank also invests in short-term securities,
which generally have lower yields compared to longer-term investments.
Shortening the maturities of the Bank's interest-earning assets by increasing
investments in shorter-term loans and securities helps to better match the
maturities and interest rates of the Bank's assets and liabilities, thereby
reducing the exposure of the Bank's net interest income to changes in market
interest rates. These strategies may adversely impact net interest income due to
lower initial yields on these investments in comparison to longer term, fixed-
rate loans and investments. The Bank has also purchased interest rate caps to
synthetically extend the duration of its portfolio of short-term certificates of
deposit. The counterparty in the transaction has agreed to make interest
payments to the Bank, based on a $20 million notional amount, to the extent that
the three-month LIBOR rate exceeds 6.5% over the term of the cap agreement,
which has a five year term ending in March 2003. By purchasing shorter term
assets and extending the duration of its liabilities, management believes that
the corresponding reduction in interest rate risk will enhance long-term
profitability.

     The Bank monitors interest rate sensitivity primarily through the use of a
model that simulates net interest income under varying interest rate
assumptions.  The Bank also evaluates this sensitivity through a net portfolio
value model that estimates 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.  Both
models assume estimated loan prepayment rates, reinvestment rates and deposit
decay rates which seem most likely based on historical experience during prior
interest rate changes.

     The table below sets forth, as of June 30, 1998, the estimated changes in
the Bank's NPV and its net interest income that would result from the designated
instantaneous changes in the U.S. Treasury yield curve.
NPV                                               NET INTEREST INCOME
                 -------------------------------------------------------   ---------------------------------------------------
                                             ESTIMATED INCREASE                                   INCREASE (DECREASE) IN   
   CHANGE IN                                 (DECREASE) IN NPV                 ESTIMATED       ESTIMATED NET INTEREST INCOME
INTEREST RATES      ESTIMATED      -------------------------------------     NET INTEREST    ---------------------------------
(BASIS POINTS)         NPV               AMOUNT             PERCENT             INCOME            AMOUNT           PERCENT
--------------   ----------------  ------------------  ------------------  ----------------  ----------------  ---------------
(DOLLARS IN THOUSANDS)
     +300            $59,095           $(15,067)               (20)%           $24,496          $   675                3%
     +200             65,916             (8,246)                (11)            24,526              705                3
     +100             70,039             (4,123)                 (6)            24,173              352                1
        0             74,162                 --                  --             23,821               --               --
     -100             76,736              2,574                   3             23,315             (506)              (2)
     -200             79,310              5,148                   7             22,809           (1,012)              (4)
     -300             80,281              6,119                   8             22,319           (1,502)              (6)
The table set forth above indicates that at June 30, 1998, in the event of
an abrupt 200 basis point decrease in interest rates, the Bank would be expected
to experience a 7% increase in NPV.  In the event of an abrupt 200 basis point
increase in interest rates, the Bank would be expected to experience an 11%
decrease in NPV.  Since June 30, 1998, there have been no significant changes in
the Bank's interest rate risk exposures or how those exposures would be managed.
Computations of prospective effects of hypothetical interest rate changes are
based on numerous assumptions including relative levels of market interest
rates, loan prepayments and deposit decay, and should not be relied upon as
indicative of actual results.  Further, the computations do not reflect any
actions management may undertake in response to changes in interest rates.

     Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurements. Modeling changes in NPV requires making certain
assumptions that may or may not reflect the manner in which actual yields and
costs respond to changes in market interest rates. The NPV table presented above
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.  It also assumes that a particular change in interest
rates is reflected uniformly across the yield curve regardless of the duration
to maturity or the repricing characteristics of specific assets and liabilities.
Accordingly, although the NPV table provides an indication of the Bank's
sensitivity to interest rate changes 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.

                                       49
ANALYSIS OF NET INTEREST INCOME

     Net interest income is the difference between interest income on interest-
earning assets and interest expense on interest-bearing liabilities.  Net
interest income depends on the relative amounts of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on them,
respectively.

     The following tables set forth balance sheets, average yields and costs,
and certain other information at June 30, 1998, for the nine-month periods ended
June 30, 1998 and 1997, and for the years ended September 30, 1997, 1996 and
1995.  No tax-equivalent yield adjustments were made, as the effect thereof was
not material.  All average balances are monthly average balances which, in the
opinion of management, are not materially different from daily average balances.
Non-accrual loans were included in the computation of average balances, but have
been reflected in the table as loans carrying a zero yield.  The yields set
forth below include the effect of deferred fees, discounts and premiums which
are included in interest income.
NINE MONTHS ENDED JUNE 30,
                                                      ------------------------------------------------------------------------
                                 AT JUNE 30, 1998                    1998                                 1997
                             -----------------------  -----------------------------------  -----------------------------------
                                                        AVERAGE                              AVERAGE
                                ACTUAL      AVERAGE   OUTSTANDING               AVERAGE    OUTSTANDING               AVERAGE
                               BALANCE    YIELD/RATE    BALANCE     INTEREST   YIELD/RATE    BALANCE     INTEREST   YIELD/RATE   
                             -----------  ----------  -----------  ----------  ----------  -----------  ----------  ----------
                                                                     (DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS:
 Loans receivable (1)......    $440,360      8.22%     $420,683      $25,962      8.25%      $381,695      $24,249      8.49%
 Mortgage-backed                                                                                                      
  securities (2)...........     133,109      6.49       138,328        6,748      6.52        146,094        7,118      6.51
 Investment securities (2).      68,826      5.81        63,164        2,806      5.94         70,480        3,223      6.11
 Other.....................       8,690      5.43         4,194          223      7.11          3,457          165      6.38
                               --------                --------      -------                 --------      -------    
  Total interest-earning                                                                                              
   assets..................     650,985      7.57       626,369       35,739      7.63        601,726       34,755      7.72
                                                                     -------                               -------    
Non-interest-earning assets      28,119                  29,733                                32,675                 
                               --------                --------                              --------                 
   Total assets............    $679,104                $656,102                              $634,401                 
                               ========                ========                              ========                 
                                                                                                                      
INTEREST-BEARING                                                                                                      
 LIABILITIES:                                                                                                         
 Savings deposits (3)......    $174,502      2.23      $163,407        2,731      2.23       $162,418        2,713      2.23
 Money market and                                                                                                     
    NOW deposits...........     120,405      2.38       112,301        2,016      2.40        108,646        1,992      2.45
 Certificates of deposit...     243,335      5.22       240,210        9,568      5.33        237,175        9,184      5.18
 Borrowings................      25,048      6.13        29,009        1,294      5.96         25,451        1,181      6.20
                               --------                --------      -------                 --------      -------    
  Total interest-bearing                                                                                              
    liabilities............     563,290      3.73       544,927       15,609      3.83        533,690       15,070      3.77
                                                                     -------                               -------    
Non-interest-bearing                                                                                                  
 liabilities...............      61,935                  58,373                                53,041                 
                               --------                --------                              --------                 
  Total liabilities........     625,225                 603,300                               586,731                 
Equity.....................      53,879                  52,802                                47,670                 
                               --------                --------                              --------                 
  Total liabilities and                                                                                               
   equity..................    $679,104                $656,102                              $634,401                 
                               ========                ========                              ========                 
                                                                                                                      
Net interest income........                                          $20,130                               $19,685    
                                                                     =======                               =======    
Net interest rate 
 spread (4)................                  3.84%                                3.80%                                 3.95%
Net earning assets (5).....      87,695                $ 81,442                              $ 68,036                 
                               ========                ========                              ========                 
Net interest margin (6)....                                                       4.30%                                 4.37%
Ratio of interest-earning                                                                
 assets to interest-bearing                                                                     
  liabilities..............      115.57%                 114.95%                               112.75%
50
YEARS ENDED SEPTEMBER 30,
                             -------------------------------------------------------------------------------------------------------
                                            1997                               1996                               1995
                             ---------------------------------  ---------------------------------  ---------------------------------
                               AVERAGE                            AVERAGE                            AVERAGE
                             OUTSTANDING             AVERAGE    OUTSTANDING             AVERAGE    OUTSTANDING              AVERAGE
                               BALANCE    INTEREST  YIELD/RATE    BALANCE    INTEREST  YIELD/RATE    BALANCE    INTEREST  YIELD/RATE
                             -----------  --------  ----------  -----------  --------  ----------  -----------  --------  ----------
                                                                     (DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS:
 Loans receivable (1)......    $385,355    $32,544     8.45%     $348,155    $29,210     8.39%      $321,727    $26,740      8.31%
 Mortgage-backed                                                                                                            
  securities (2)...........     144,252      9,398     6.52       137,772      9,008     6.54        102,314      6,687      6.54
 Investment securities (2).      71,826      4,385     6.11        66,554      4,020     6.04         56,821      3,309      5.82
 Other.....................       3,526        228     6.47         5,681        328     5.77          4,101        294      7.17
                               --------    -------               --------    -------                --------    -------     
  Total interest-earning                                                                                                    
   assets..................     604,959     46,555     7.70       558,162     42,566     7.63        484,963     37,030      7.64
                                           -------                           -------                            -------     
Non-interest-earning assets      31,861                            24,009                             14,541                
                               --------                          --------                           --------                
  Total assets.............    $636,820                          $582,171                           $499,504                
                               ========                          ========                           ========                
                                                                                                                            
INTEREST-BEARING                                                                                                            
 LIABILITIES:                                                                                                               
 Savings deposits (3)......    $164,726      3,670     2.23      $161,215      3,592     2.23       $167,910      3,741      2.23
 Money market and                                                                                                           
  NOW deposits.............     109,289      2,675     2.45        99,344      2,480     2.50         83,763      2,136      2.55
 Certificates of deposit...     237,262     12,347     5.20       212,476     11,041     5.20        170,737      8,563      5.02
 Borrowings................      23,730      1,487     6.27        22,686      1,472     6.49          9,139        624      6.83
                               --------    -------               --------    -------                --------    -------     
  Total interest-bearing                                                                                                    
   liabilities.............     535,007     20,179     3.78       495,721     18,585     3.75        431,549     15,064      3.49
                                           -------                           -------                            -------     
Non-interest-bearing                                                                                                        
 liabilities...............      53,489                            40,880                             27,150                
                               --------                          --------                           --------                
  Total liabilities........     588,496                           536,601                            458,699                
Equity.....................      48,324                            45,570                             40,805                
                               --------                          --------                           --------                
  Total liabilities and                                                                                                     
   equity..................    $636,820                          $582,171                           $499,504                
                               ========                          ========                           ========                
                                                                                                                            
Net interest income........                $26,376                           $23,981                            $21,966     
                                           =======                           =======                            =======     
Net interest rate 
 spread (4)................                            3.92%                             3.88%                               4.15%
Net earning assets (5).....    $ 69,952                          $ 62,441                           $ 53,414                
                               ========                          ========                           ========                
Net interest margin (6)....                            4.36%                             4.30%                               4.53%
Ratio of interest-earning                                                                        
 assets to interest-bearing                                                                             
  liabilities..............      113.07%                           112.60%                            112.38%
---------------
(1)  Balances include the effect of net deferred loan origination fees and
     costs, loans in process and the allowance for loan losses.
(2)  Average outstanding balances are based on amortized cost.
(3)  Includes club accounts and interest-bearing mortgage escrow balances.
(4) Net interest rate spread represents the difference between the yield on
    average interest-earning assets and the cost of average interest-bearing
    liabilities.
(5)  Net earning assets represents total interest-earning assets less total
     interest-bearing liabilities.
(6)  Net interest margin represents net interest income divided by average total
     interest-earning assets.

                                       51
The following table presents the dollar amount of changes in interest income
and interest expense for the major categories of the Bank's interest-earning
assets and interest-bearing liabilities.  Information is provided for each
category of interest-earning assets and interest-bearing liabilities with
respect to (i) changes attributable to changes in volume (i.e., changes in
average balances multiplied by the prior-period average rate) and (ii) changes
attributable to rate (i.e., changes in average rate multiplied by prior-period
average balances).  For purposes of this table, changes attributable to both
rate and volume, which cannot be segregated, have been allocated proportionately
to the change due to volume and the change due to rate.
NINE MONTHS ENDED JUNE 30,                          YEARS ENDED SEPTEMBER 30,
                             --------------------------------  ------------------------------------------------------------------
                                       1998 VS. 1997                    1997 VS. 1996                      1996 VS. 1995
                             --------------------------------  --------------------------------  --------------------------------
                              INCREASE (DECREASE)               INCREASE (DECREASE)               INCREASE (DECREASE)           
                                    DUE TO            TOTAL           DUE TO            TOTAL           DUE TO            TOTAL 
                             --------------------   INCREASE   --------------------   INCREASE   --------------------   INCREASE
                              VOLUME      RATE     (DECREASE)   VOLUME      RATE     (DECREASE)   VOLUME      RATE     (DECREASE)
                             --------  ----------  ----------  --------  ----------  ----------  --------  ----------  ---------- 
                                                                         (IN THOUSANDS)
INTEREST-EARNING ASSETS:
 Loans receivable..........   $2,422     $(709)      $1,713     $3,141       $193      $3,334     $2,216      $254       $2,470
 Mortgage-backed securities     (379)        9         (370)       422        (32)        390      2,318         3        2,321
 Investment securities.....     (327)      (90)        (417)       322         43         365        584       127          711
 Other.....................       38        20           58       (135)        35        (100)        98       (64)          34
                              ------     -----       ------     ------       ----      ------     ------      ----       ------
                                                                                                           
  Total interest-earning                                                                                   
   assets..................    1,754      (770)         984      3,750        239       3,989      5,216       320        5,536
                              ------     -----       ------     ------       ----      ------     ------      ----       ------
                                                                                                           
INTEREST-BEARING                                                                                           
 LIABILITIES:                                                                                              
 Savings deposits..........       17         1           18         78         --          78       (149)       --         (149)
 Money market and NOW                                                                                      
   deposits................       66       (42)          24        244        (49)        195        390       (46)         344
 Certificates of deposit...      119       265          384      1,290         16       1,306      2,159       319        2,478
 Borrowings................      160       (47)         113         66        (51)         15        879       (31)         848
                              ------     -----       ------     ------       ----      ------     ------      ----       ------
                                                                                                           
  Total interest-bearing                                                                                   
   liabilities.............      362       177          539      1,678        (84)      1,594      3,279       242        3,521
                              ------     -----       ------     ------       ----      ------     ------      ----       ------
                                                                                                           
Change in net interest                                                                                     
 income....................   $1,392     $(947)      $  445     $2,072       $323      $2,395     $1,937      $ 78       $2,015
                              ======     =====       ======     ======       ====      ======     ======      ====       ======
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1998 AND SEPTEMBER 30, 1997

     Total assets increased by $30.4 million, or 4.7%, to $679.1 million at 
June 30, 1998 from $648.7 million at September 30, 1997. The growth in assets
was primarily attributable to a $35.9 million increase in loans receivable,
partially offset by a $9.0 million decline in investment and mortgage-backed
securities, as the Bank's asset mix continued to shift from investment and
mortgage-backed securities into loans. Asset growth was funded primarily from
deposit inflows through the Bank's existing branch network. Investment
securities at June 30, 1998 totaled $68.8 million, a decrease of $1.9 million,
from $70.7 million at September 30, 1997. Mortgage-backed securities at June 30,
1998 totaled $133.1 million, a decrease of $7.1 million from September 30, 1997.
One-to four-family residential mortgage loans increased by $29.7 million to
$271.6 million at June 30, 1998 from $241.9 million at September 30, 1997,
reflecting the continuation of the strong market for new mortgage loans and loan
refinancings. Due to the significant increase in loan refinancings, the Bank
reentered the secondary mortgage sales market after an absence of three years by
selling substantially all of its 30 year fixed-rate loans originated between
December 1, 1997 and June 30, 1998. On a combined basis, total outstanding
balances in the Bank's commercial loan categories (commercial mortgages, multi-
family mortgages, construction loans to builders and business loans) increased
by $4.8 million, or 4.6%, to $109.9 million at June 30, 1998 from $105.1 million
at September 30, 1997. Other assets of the Bank decreased to $6.2 million at
June 30, 1998 from $7.2 million at September 30, 1997, primarily due to 
$1.2 million in amortization of core deposit purchase premiums.

     Total deposits at June 30, 1998 were $580.1 million, an increase of 
$33.3 million, or 6.1%, from $546.8 million at September 30, 1997. The increase
was primarily due to growth in the Bank's demand and NOW accounts, which
increased by $13.9 million to $96.1 million at June 30, 1998 from $82.2 million
at September 30, 1997, largely

                                       52
as a result of the Bank's promotion of its "Select" and "Select Plus" checking
account products. The Bank's passbook savings accounts, certificates of deposit
and money market accounts grew to $161.3 million, $243.3 million and 
$79.4 million, respectively, at June 30, 1998, representing increases of 
$8.1 million, $7.2 million and $4.1 million, respectively, over the nine-month
period.

     Total equity increased to $53.9 million at June 30, 1998 from $50.4 million
at September 30, 1997, reflecting net income of $3.4 million and a $36,000
increase in the after-tax net unrealized gain on securities available for sale.

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

     Total assets increased to $648.7 million at September 30, 1997 from 
$634.3 million at September 30, 1996, an increase of $14.4 million, or 2.3%. The
asset growth was primarily attributable to a $35.0 million increase in loans
receivable, partially offset by a $14.1 million decrease in mortgage-backed
securities, as the Bank's demand and now asset mix shifted from mortgage-backed
securities into loans. Other assets of the Bank decreased to $7.2 million at
September 30, 1997 from $8.6 million on September 30, 1996, primarily reflecting
$1.5 million in amortization of core deposit purchase premiums.

     Net loans receivable increased by $35.0 million to $404.5 million at
September 30, 1997 from $369.5 million at September 30, 1996.  One- to four-
family real estate loans increased by $22.0 million to $241.9 million at
September 30, 1997, from $219.9 million at September 30, 1996.  The increase
consisted of a $20.6 million increase in fixed-rate loans and a $1.4 million
increase in ARM loans, as most of the Bank's customers continued to favor fixed-
rate residential loans in the current low interest rate environment.  A
significant part of the Bank's fixed-rate residential loan originations during
this period were bi-weekly loans and loans with 15 and 20 year maturities.

     Multi-family real estate loans decreased to $7.4 million at September 30,
1997 from $7.7 million at September 30, 1996.  Commercial real estate loans
decreased to $55.7 million at September 30, 1997 from $58.6 million  at
September 30, 1996.  Construction and land loans increased to $31.7 million from
$28.0 million during the same period.

     Consumer loans increased $6.0 million to $60.8 million at September 30,
1997 from $54.8 million at September 30, 1996.  This increase was primarily the
result of a $6.1 million increase in the Bank's "homeowner loans," which are
fixed-rate, fixed-term consumer loans secured by a junior lien on the borrower's
primary residence. The Bank's commercial business loans increased by 
$6.4 million to $21.7 million at September 30, 1997 from $15.3 million at
September 30, 1996. The increase in consumer and commercial business lending is
part of a continued emphasis on increasing assets that have higher yields and
are more sensitive to market interest rates, to partially offset the interest
rate risk inherent in the fixed-rate real estate loan portfolio. While
commercial and consumer loans generally entail greater credit risk than one- to
four-family real estate loans, they are also shorter term, higher yielding
assets that help meet the interest rate risk management objectives of the Bank.

     The Bank's total securities portfolio decreased by $12.9 million to 
$210.9 million at September 30, 1997 from $223.8 million at September 30, 1996.
This decrease resulted primarily from a decrease in mortgage-backed securities
to $140.2 million at September 30, 1997 from $154.3 million at September 30,
1996, as the Bank redeployed these funds into loan originations. Investment
securities, consisting primarily of short- and medium-term U.S. Treasury and
agency notes, grew slightly to $70.7 million at September 30, 1997 from $69.5
million at September 30, 1996.

     Asset growth was funded with a $1.6 million increase in deposits and an
$11.0 million increase in FHLB borrowings.  The composition of the Bank's
deposits continued to change during the year ended September 30, 1997, primarily
due to growth in transaction accounts, partially offset by outflows of deposits
acquired in the 1996 branch office purchases, especially in maturing, higher-
rate certificates of deposit which the Bank chose not to retain.  The Bank's
certificates of deposit declined $4.9 million to $236.1 million at September 30,
1997 from $241.0 million at September 30, 1996.  Passbook, club and money market
accounts declined to $228.5 million at September 30, 1997 from $230.7 million at
September 30, 1996.  During the same period, demand and NOW accounts grew by
$8.5 million to $82.2 million at September 30, 1997 from $73.7 million at
September 30, 1996.

                                       53
Total equity increased to $50.4 million at September 30, 1997 from 
$45.5 million at September 30, 1996, reflecting net income of $4.6 million and a
$265,000 increase in the after-tax net unrealized gain on securities available
for sale.

COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 
JUNE 30, 1997

     GENERAL.  The net income of the Bank depends primarily on its net interest
income, which is the difference between interest earned on the Bank's interest-
earning assets, consisting primarily of loans and securities, and the interest
paid on interest-bearing liabilities, consisting primarily of deposits and
borrowings.  Net interest income is a function of the Bank's interest rate
spread, which is the difference between the average yield earned 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 also are affected by its
level of banking service fees and other non-interest income, as well as its
level of non-interest expenses, including salaries and employee benefits,
occupancy and office expenses, amortization of branch purchase premiums,
advertising and promotion expense, data processing expenses and federal deposit
insurance costs.

     Net income for the nine months ended June 30, 1998 was $3.4 million
compared to $3.5 million for the nine months ended June 30, 1997.  The decrease
was due primarily to increases in the provision for loan losses and non-interest
expenses, largely offset by an increase in net interest income and a decrease in
income tax expense.

     INTEREST INCOME.  Interest income increased by $984,000, or 2.8%, to 
$35.7 million for the nine months ended June 30, 1998 from $34.8 million for the
nine months ended June 30, 1997. The increase was due primarily to an increase
in average interest-earning assets. The impact of declining yields and spreads
was partially offset by a change in asset mix. Loan balances increased while
investment and mortgage-backed securities declined. Income from loans increased
$1.7 million, partially offset by a $370,000 decrease in income from mortgage-
backed securities and a $359,000 decrease in income on investment securities and
other earning assets. The increase in income from loans was attributable to a
$39.0 million increase in the average balance of loans to $420.7 million from
$381.7 million, partially offset by a 24 basis point decrease in the average
yield on loans to 8.25% from 8.49%. The increase in average loans resulted
primarily from the origination of one-to four-family mortgage loans in a
continuing low interest rate environment. The decrease in the average yield on
loans resulted from declining market interest rates, as the Bank originated new
one- to four-family loans with yields lower than the average yield on the
existing loan portfolio. The decrease in income from mortgage-backed securities
was attributable almost entirely to a $7.8 million decrease in the average
balance of mortgage-backed securities to $138.3 million from $146.1 million, as
the average yield on mortgage-backed securities remained essentially unchanged.
The decrease in income from investment securities was attributable to a 
$7.3 million decrease in the average balance of investment securities to 
$63.2 million from $70.5 million combined with a 17 basis point decrease in the
average yield on investment securities to 5.94% from 6.11%.

     INTEREST EXPENSE.  Interest expense increased by $539,000, or 3.6%, to
$15.6 million for the nine months ended June 30, 1998 from $15.1 million for the
nine months ended June 30, 1997.  This increase was the result of an 
$11.2 million increase in the average balance of interest-bearing liabilities in
the 1998 period compared to the 1997 period and a 6 basis point increase in the
average rate paid on such liabilities over the same period. The increase in
overall interest expense resulted primarily from a $384,000 increase in interest
expense on certificates of deposit and a $113,000 increase in interest expense
on borrowings. The increase attributable to certificates of deposit resulted
from a $3.0 million increase in the average balance of certificates of deposit
to $240.2 million in 1998 from $237.2 million in 1997, combined with a 15 basis
point increase in the average cost of certificates of deposit to 5.33% from
5.18%. The increase attributable to borrowings resulted from a $3.6 million
increase in the average balance of borrowings to $29.0 million for the nine
months ended June 30, 1998 from $25.4 million for the nine months ended June 30,
1997, which was partially offset by a 24 basis point decrease in the average
cost of borrowings to 5.96% from 6.20%.

     NET INTEREST INCOME.  For the nine months ended June 30, 1998 and 1997, net
interest income was $20.1 million and $19.7 million, respectively.  The $445,000
increase in net interest income was primarily attributable to a $13.4 million
increase in net earning assets (interest-earning assets less interest-bearing
liabilities), partially offset by a 15 basis point decline in the net interest
rate spread to 3.80% from 3.95%.  The Bank's net interest margin decreased to
4.30% in the nine months ended June 30, 1998 from 4.37% in the nine months ended
June 30, 1997.

                                       54
PROVISION FOR LOAN LOSSES.  The Bank records provisions for loan losses,
which are charged to earnings, in order to maintain the allowance for loan
losses at a level which is considered appropriate to absorb probable loan losses
inherent in the existing portfolio.  In determining the appropriate level of the
allowance for loan losses, management considers past and anticipated loss
experience, evaluations of real estate collateral, current and anticipated
economic conditions, volume and type of lending, and the levels of non-
performing and other classified loans.  The amount of the allowance is based on
estimates and the ultimate losses may vary from such estimates.  Management of
the Bank assesses the allowance for loan losses on a quarterly basis and makes
provisions for loan losses in order to maintain the adequacy of the allowance.

     The Bank's provision for loan losses increased by $472,000 to $1.3 million
for the nine months ended June 30, 1998 from $875,000 for the nine months ended
June 30, 1997.  The increased provision reflects several factors including 
(i) continued loan portfolio growth, including commercial real estate and
commercial business loans, (ii) an increase in non-performing loans to $5.7
million at June 30, 1998 from $4.7 million at September 30, 1997, and (iii) an
increase in net loan charge-offs to $578,000 in the nine months ended June 30,
1998 from $355,000 in the nine months ended June 30, 1997, primarily due to a
partial charge-off of $350,000 in the current year on $1.3 million in loans to a
borrower who declared bankruptcy.

     NON-INTEREST INCOME.  Non-interest income primarily consists of fee income
for bank services, but also includes gains and losses from the sale of loans and
securities.  Total non-interest income increased by $86,000, or 3.9%, to 
$2.3 million for the nine months ended June 30, 1998 from $2.2 million for the
nine month period ended June 30, 1997. The primary reason for the improvement
was a $179,000 increase in the gain on sale of loans to $185,000 for the nine
months ended June 30, 1998 from $6,000 for the nine months ended June 30, 1997.
The increase in loan sales in 1998 was the result of the Bank's decision to sell
newly originated, longer term fixed-rate mortgage loans as part of its interest
rate risk management. In addition, deposit- related fees and charges increased
$121,000, or 8.2%, to $1.6 million for the nine months ended June 30, 1998 from
$1.5 million for the nine months ended June 30, 1997. Partially offsetting these
increases was the recognition in the current-year period of a $192,000 loss on
an investment in a limited partnership that generates low-income housing tax
credits, which offset a portion of the Bank's income tax expense.

     NON-INTEREST EXPENSE.  Non-interest expense increased by $454,000, or 3.0%,
to $15.6 million for the nine months ended June 30, 1998 from $15.2 million for
the nine months ended June 30, 1997.  The increase was primarily due to a
$177,000 increase in data processing expenses, a $175,000 increase in foreclosed
real estate expenses and a $173,000 increase in compensation and employee
benefits.  These increases were offset, in part, by decreases in other non-
interest expenses of $188,000 and federal deposit insurance costs of $90,000.

     Data processing expenses increased to $612,000 for the nine months ended
June 30, 1998 from $435,000 for the nine months ended June 30, 1997.
Approximately half of the $177,000 increase in data processing expenses related
to costs associated with the Bank's conversion to a new core data processing
system which is anticipated to occur by December 31, 1998.  Foreclosed real
estate expenses were $66,000 for the nine months ended June 30, 1998 compared to
income of $109,000 for the same period in 1997, primarily due to the recognition
of a gain on the sale of a foreclosed property in the 1997 period.  Compensation
and employee benefits increased to $7.5 million from $7.3 million primarily due
to a $108,000, or 4.0%, increase in salaries for Bank officers and a $78,000
increase in medical and disability insurance.  Other non-interest expenses
decreased to $2.8 million from $3.0 million between the two reporting periods
due to a decrease of $136,000 in miscellaneous non-interest expenses, a decrease
of $52,000 in insurance premiums, and a decrease of $42,000 in net correspondent
bank charges.  These decreases were partially offset by higher legal costs of
$149,000 in the nine months ended June 30, 1998.  Notwithstanding an increase in
total deposits, federal deposit insurance costs decreased to $246,000 for the
nine months ended June 30, 1998 from $336,000 for the nine months ended June 30,
1997, due to lower insurance rates imposed by the FDIC.

     INCOME TAXES.  Income tax expense was $2.0 million for the nine months
ended June 30, 1998 compared to $2.4 million for the same period in 1997,
representing effective tax rates of 36.7% and 40.6%, respectively. The lower
effective tax rate reflected, in part, tax benefits from the recognition of low-
income housing tax credits and state tax bad debt deductions.

                                       55
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND
SEPTEMBER 30, 1996

     GENERAL.  Net income for the fiscal year ended September 30, 1997 was 
$4.6 million, an increase of $2.5 million, or 119.3%, from net income of 
$2.1 million for the fiscal year ended September 30, 1996. The increase was due
primarily to a $3.3 million special assessment during fiscal 1996 to
recapitalize the SAIF. The after-tax impact of this one-time assessment was a
$2.0 million reduction of net income in fiscal 1996. The remaining increase in
net income was due to higher net interest income and non-interest income,
partially offset by increases in non-interest expenses and income tax expense.

     INTEREST INCOME.  Interest income increased by $4.0 million, or 9.4%, to
$46.6 million for the year ended September 30, 1997 from $42.6 million for the
year ended September 30, 1996.  The increase was primarily due to a $3.3 million
increase in income from loans, a $390,000 increase in income from mortgage-
backed securities and a $365,000 increase in income from investment securities.
The increase in income from loans was attributable to a $37.2 million increase
in the average balance of loans to $385.4 million from $348.2 million, and a 
6 basis point increase in the average yield on loans from 8.39% to 8.45%. In
fiscal 1997, the Bank continued its focus on increasing the loan portfolio by
reinvesting the proceeds from branch purchases and from repayments on investment
and mortgage-backed securities into loans.   The increase in income from
investment securities was attributable to a $5.2 million increase in the average
balance of investment securities to $71.8 million from $66.6 million, and a 
7 basis point increase in the average yield on investment securities to 6.11%
from 6.04%. The increase in income from mortgage-backed securities was
attributable to a $6.5 million increase in the average balance of mortgage-
backed securities to $144.3 million from $137.8 million, which was partially
offset by a 2 basis point decrease in the average yield on mortgage-backed
securities to 6.52% from 6.54%. Average balances for securities were higher in
fiscal 1997 than fiscal 1996 because securities purchased during fiscal 1996
were held for the entire 1997 fiscal year.

     INTEREST EXPENSE.  Interest expense increased by $1.6 million, or 8.6%, to
$20.2 million for the year ended September 30, 1997 from $18.6 million for the
fiscal year ended September 30, 1996.  Overall, the average balance of interest-
bearing liabilities increased by $39.3 million in fiscal 1997, and the average
rate paid on these liabilities increased 3 basis points to 3.78% in fiscal 1997
from 3.75% in fiscal 1996.  The increase in interest expense resulted primarily
from a $1.3 million increase in interest expense on certificates of deposit and
a $195,000 increase in interest expense on money market and NOW accounts.  The
increase attributable to certificates of deposit resulted from a $24.8 million
increase in the average balance of certificates of deposit to $237.3 million in
fiscal 1997 from $212.5 million in fiscal 1996.   The increase in interest
expense attributable to money market and NOW accounts was due to a $10.0 million
increase in the average balance of these accounts to $109.3 million in fiscal
year 1997 from $99.3 million in fiscal 1996.  This increase was partially offset
by a 5 basis point decrease in the average cost of money market and NOW accounts
to 2.45% from 2.50%.  The average balance in savings deposits increased by 
$3.5 million to $164.7 million in fiscal 1997 from $161.2 million in fiscal
1996, resulting in a $78,000 increase in interest expense for fiscal 1997.

     NET INTEREST INCOME.  Net interest income increased $2.4 million, or 10.0%,
to $26.4 million in fiscal 1997 from $24.0 million in fiscal 1996.  The increase
was attributable to a $7.5 million increase in net earning assets and a 6 basis
point increase in the net interest margin to 4.36% in fiscal 1997 from 4.30% in
fiscal 1996.  The net interest rate spread increased 4 basis points to 3.92% in
fiscal 1997 from 3.88% in fiscal 1996.

     PROVISION FOR LOAN LOSSES.  The Bank's provision for loan losses increased
by $147,000 to $1.1 million for the year ended September 30, 1997 from $911,000
for the year ended September 30, 1996.  The increase in the provision reflects
management's evaluation of changes in the level of losses inherent in the
portfolio as a result of ongoing portfolio growth and changes in the portfolio
mix.  The allowance for loan losses represented 0.93% of net loans receivable at
September 30, 1997, compared to 0.91% at September 30, 1996.

     NON-INTEREST INCOME.  Non-interest income was $2.7 million for the year
ended September 30, 1997, a $260,000, or 10.6%, increase from $2.5 million for
the year ended September 30, 1996.  Income from bank services and fees on
deposit accounts increased by $325,000 to $2.1 million for the fiscal year ended
September 30, 1997, from $1.8 million in fiscal 1996 primarily reflecting higher
transaction volume.  Income from loan servicing decreased $65,000 for the year
ended September 30, 1997 to $583,000 from $648,000 for fiscal 1996, as the
balance of loans 

                                       56
serviced for others declined due to refinancing trends and the Bank's decision
to retain most loans originated during that period.

     NON-INTEREST EXPENSE. Non-interest expense decreased by $2.1 million, or
9.4%, to $20.6 million for the year ended September 30, 1997 from $22.7 million
for the year ended September 30, 1996. The decrease was due primarily to a non-
recurring $3.3 million special assessment to recapitalize the SAIF during the
year ended September 30, 1996.  This was partially offset by an $852,000
increase in compensation and employee benefits, an $815,000 increase in
amortization of branch purchase premiums, a $621,000 increase in other expenses
and a $231,000 increase in occupancy and office expenses.  Decreases in non-
interest expense for the year ended September 30, 1997 compared to the year
ended September 30, 1996 include a $213,000 decrease in advertising and
promotion expense, and a $481,000 decrease in expenses for foreclosed real
estate.  Increases in compensation  and employee benefits, amortization of
branch purchase premiums, occupancy and other expenses in fiscal 1997 reflect
the first full year of operating costs related to two purchased branches which
were operated by the Bank for only four and six months, respectively, in fiscal
1996.

     INCOME TAXES.  Income tax expense was $2.8 million for the year ended
September 30, 1997 compared to $690,000 for the year ended September 30, 1996,
representing effective tax rates of 38.1% in fiscal 1997 and 24.8% in fiscal
1996.  The lower effective tax rate in fiscal 1996 primarily reflects the
recognition of a deferred tax benefit due to an amendment in New York State tax
law concerning tax bad debt reserves.  See Note 10 of the Notes to Consolidated
Financial Statements.

COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1996
AND SEPTEMBER 30, 1995

     GENERAL.  Net income for the year ended September 30, 1996 was 
$2.1 million, a decrease of $2.7 million, or 56.3%, from net income of 
$4.8 million for the year ended September 30, 1995. The decrease was due
primarily to the one-time $3.3 million special assessment in 1996 to
recapitalize the SAIF. The after-tax impact of this one-time assessment was a
$2.0 million reduction in net income for fiscal 1996. In addition, increases in
net interest income and non-interest income in fiscal 1996 were more than offset
by increases in non-interest expenses other than the special assessment.

     INTEREST INCOME.  Interest income increased by $5.6 million, or 15.0%, to
$42.6 million for the year ended September 30, 1996 from $37.0 million for the
year ended September 30, 1995.  The increase was primarily due to a $2.5 million
increase in income from loans, a $2.3 million increase in income from mortgage-
backed securities, and a $711,000 increase in income from investment securities.
The increase in income from loans was attributable to a $26.5 million increase
in the average balance of loans to $348.2 million from $321.7 million, and an 
8 basis point increase in the average yield on loans to 8.39% from 8.31%. The
increase in income from mortgage-backed securities was attributable to a 
$35.5 million increase in the average balance of mortgage-backed securities to
$137.8 million in fiscal 1996 from $102.3 million in fiscal 1995. The increase
in income from investment securities was partly attributable to a 22 basis point
increase in the average yield on investment securities to 6.04% from 5.82%, and
to a $9.8 million increase in the average balance of investment securities to
$66.6 million in fiscal 1996 from $56.8 million in fiscal 1995. Both investment
securities and mortgage-backed securities increased during fiscal 1996 as the
Bank purchased securities to deploy the funds received in the branch purchase
transactions.

     INTEREST EXPENSE.  Interest expense increased by $3.5 million, or 23.4%, to
$18.6 million for the year ended September 30, 1996 from $15.1 million for the
year ended September 30, 1995.  This increase resulted primarily from a 
$2.5 million increase in interest expense on certificates of deposit, and a
$344,000 increase in interest expense on money market and NOW accounts, as well
as an $848,000 increase in interest paid on borrowings. These increases were
partially offset by a $149,000 decrease in interest expense on savings accounts.
The increase in interest expense on certificates of deposit was the result of a
$41.8 million increase in the average balance of certificates of deposit to
$212.5 million from $170.7 million, and an 18 basis point increase in the
average cost of certificates of deposit to 5.20% from 5.02%. The increase in
interest expense on money market and NOW accounts was the result of a $15.5
million increase in the average balance of these accounts to $99.3 million in
fiscal 1996 from $83.8 million in fiscal 1995, which was partially offset by a 
5 basis point decrease in the average cost of these accounts to 2.50% in fiscal
1996 from 2.55% in fiscal 1995. The decrease in interest expense on savings
accounts was due to a $6.7 million 

                                       57
decrease in the average balance of total savings accounts to $161.2 million from
$167.9 million. The increase in the average balance of certificate of deposit
accounts and the decrease in the average balance of savings accounts were due
primarily to customers shifting funds from lower yielding savings accounts to
higher yielding certificates of deposit. The increase in interest expense on
borrowings was due to an increase in the average balance of borrowings to 
$22.7 million in fiscal 1996 from $9.1 million in fiscal 1995.

     PROVISION FOR LOAN LOSSES.  The Bank's provision for loan losses increased
to $911,000 for the year ended September 30, 1996 from $760,000 for the year
ended September 30, 1995. This increase enabled the Bank to maintain an adequate
ratio of the allowance for loan losses to total loans at the end of each period
commensurate with the loan growth and the changing mix of the portfolio.

     NON-INTEREST INCOME.   Non-interest income was $2.5 million for the year
ended September 30, 1996, a $351,000 increase from $2.1 million for the year
ended September 30, 1995.  Fee income from Bank services and fees on deposit
accounts increased $379,000 to $1.8 million for the year ended September 30,
1996 from $1.4 million for the year ended September 30, 1995.  Loan servicing
income decreased $28,000 to $648,000 for 1996 from $676,000 for 1995.  This
decrease reflected a decline in service fee income collected for servicing loans
sold in the secondary market.  The decrease was related to the decline in the
balance of the loan servicing portfolio, as the Bank retained the loans that it
originated for its own portfolio.

     NON-INTEREST EXPENSE.  Non-interest expense increased by $7.4 million, or
48.9%, to $22.7 million for the year ended September 30, 1996 from $15.3 million
for the year ended September 30, 1995. The increase was primarily due to the
one-time $3.3 million special assessment in 1996 to recapitalize the SAIF.
Other non-interest expense increases related primarily to the initial inclusion
of expenses associated with two branches purchased during fiscal 1996.  These
expenses included a $1.5 million increase in compensation and employee benefits,
a $506,000 increase in occupancy and office operations, a  $551,000 increase in
advertising and promotion, a $341,000 increase in foreclosed real estate
expense, and a $691,000 increase in amortization of branch purchase premiums.

     INCOME TAXES.  Income tax expense was $690,000 for the year ended 
September 30, 1996 compared to $3.2 million for the year ended September 30,
1995. The increase was due to a decrease in the effective tax rate to 24.8% for
fiscal 1996 from 40.3% for fiscal 1995. The lower effective tax rate in fiscal
1996 primarily reflected the recognition of a deferred tax benefit due to an
amendment in New York State tax law concerning tax bad debt reserves. See 
Note 10 of the Notes to Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

     The objective of the Bank's liquidity management is to ensure the
availability of sufficient cash flows to meet all financial commitments and to
capitalize on opportunities for expansion.  Liquidity management addresses the
Bank's ability to meet deposit withdrawals on demand or at contractual maturity,
to repay borrowings as they mature, and to fund new loans and investments as
opportunities arise.

     The Bank's primary sources of funds are deposits, proceeds from principal
and interest payments on loans and securities, and to a lesser extent,
borrowings and proceeds from the sale of fixed-rate mortgage loans in the
secondary mortgage market.  While maturities and scheduled amortization of loans
and securities, and proceeds from borrowings are predictable sources of funds,
other funding sources such as deposit inflows, mortgage prepayments and mortgage
loan sales are greatly influenced by market interest rates, economic conditions
and competition.

     The Bank's primary investing activities are the origination of both
residential one- to four-family and commercial real estate loans, and the
purchase of investment securities and mortgage-backed securities.  During the
nine months ended June 30, 1998 and the years ended September 30, 1997, 1996,
and 1995, the Bank's loan originations totaled $143.6 million, $112.8 million,
$108.8 million and $66.2 million, respectively.  Purchases of mortgage-backed
securities totaled $25.5 million, $12.1 million, $72.3 million and $29.0 million
for the nine months ended June 30, 1998 and the years ended September 30, 1997,
1996 and 1995, respectively.  Purchases of investment securities totaled 
$22.1 million, $13.2 million, $42.4 million and $29.1 million for the nine
months ended June 30, 1998 and the years ended September 30, 1997, 1996 and
1995, respectively. These activities were funded primarily

                                       58
by deposit growth and by principal repayments on loans and securities. Loan
sales totaling $16.9 million provided an additional source of liquidity during
the nine months ended June 30, 1998. Loan origination commitments totaled 
$29.8 million at June 30, 1998, comprised of $20.1 million at adjustable or
variable rates and $9.7 million at fixed rates. The Bank anticipates that it
will have sufficient funds available to meet current loan commitments.

     Deposit flows are generally affected by the level of interest rates, the
interest rates and products offered by local competitors, and other factors.
The net increase in total deposits was $33.2 million, $1.6 million, 
$101.6 million and $23.9 million for the nine months ended June 30, 1998 and the
years ended September 30, 1997, 1996 and 1995, respectively. The deposit
increase in fiscal 1996 was primarily associated with two branch purchase
transactions in which the Bank assumed deposit liabilities totaling 
$104.5 million. Certificates of deposit that are scheduled to mature in one year
or less from June 30, 1998 totaled $180.5 million. Based upon its prior
experience and current pricing strategy, the Bank believes that a significant
portion of such deposits will remain with the Bank.

     The Bank monitors its liquidity position on a daily basis.  Excess short-
term liquidity is usually invested in overnight federal funds sold, which
amounted to $5.0 million at June 30, 1998.  The Bank generally remains fully
invested and utilizes additional sources of funds through FHLB advances, which
amounted to $25.0 million at June 30, 1998.

     At June 30, 1998, the Bank exceeded all of its regulatory capital
requirements with a leverage capital level of $49.4 million, or 7.3% of adjusted
assets (which is above the required level of $20.2 million, or 3.0%) and a risk-
based capital level of $53.9 million, or 14.2% of risk-weighted assets (which is
above the required level of $30.3 million, or 8.0%).  See "Regulatory Capital
Compliance," "Regulation--Regulatory Capital Requirements" and Note 11 of the
Notes to Consolidated Financial Statements.

CAPABILITY OF THE BANK'S DATA PROCESSING TO ACCOMMODATE THE YEAR 2000

     The Bank, like all companies that utilize computer technology, is facing
the significant challenge of ensuring that its computer systems will be able to
process time-sensitive data accurately beyond the Year 1999 (referred to as the
"Year 2000 issue").  The Year 2000 issue has arisen since many existing computer
programs use two digits rather than four in date fields that define the year.
Such computer programs may recognize a date field using "00" as the Year 1900
rather than the Year 2000.  Software, hardware and equipment both within and
outside the Bank's direct control (and with which the Bank interfaces either
electronically or operationally), are likely to be affected by the Year 2000
issue.  If the Bank's computer systems are not adequately changed to properly
identify the Year 2000, computer applications could fail or create erroneous
results.  Calculations that rely on date field information (such as interest,
payment or due dates, and other operating functions) would generate results
which could be significantly misstated, and the Bank could experience a
temporary inability to process transactions and engage in other normal business
activities.  In addition, under certain circumstances, failure to adequately
address the Year 2000 issue could adversely affect the viability of the Bank's
suppliers and creditors and the creditworthiness of its borrowers.  Thus, if not
adequately addressed, the Year 2000 issue could have a significant adverse
impact on the Bank's products, services and competitive condition.

     The Bank has conducted a comprehensive review of its computer systems to
identify systems that could be affected by the Year 2000 issue, and has
developed an implementation plan (including establishing priorities for mission-
critical applications) to modify or replace the affected systems and test them
for Year 2000 compliance.  The Bank's plan includes actions to identify Year
2000 issues attributable to its own systems and, where necessary, to remediate
or replace affected systems and applications.  In addition, the Bank is
assessing the Year 2000 readiness of third parties who supply products and
services to the Bank, or who have material business relationships with the Bank
(including customers), since the failure of such third parties to address their
own Year 2000 issues may have an adverse effect on the Bank.  The actions being
taken by the Bank in response to Year 2000 issues are consistent with the
guidelines set forth in policy statements issued by the bank regulatory
agencies.

     The Bank's most significant mission-critical applications are those that
comprise its "core" data processing system for loans, deposits and the general
ledger.  The Bank plans to convert to a new core system by December 31, 1998,
which it believes will enhance the quality of its information technology and
result in improved customer service. 

                                       59
Like the Bank's present core system, the new system is maintained by a third-
party vendor. The Bank plans to begin Year 2000 testing on the new core system
promptly following the conversion, with a targeted testing completion date of
March 31, 1999.

     The Bank presently believes that, with modifications to existing software
and conversions to new software, the Year 2000 issue will be mitigated without
causing a material adverse impact on its operations.  However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 issue could have a material adverse impact on the Bank's operations.
While the Bank expects to complete its Year 2000 plan on a timely basis, there
can be no assurance that the systems of other companies on which the Bank's
systems may rely also will be completed in a timely fashion.  In addition, the
Bank exchanges data with a number of other entities, such as credit bureaus and
governmental entities.  The failure of these entities to adequately address the
Year 2000 issue could adversely affect the Bank's ability to conduct its
business.

     The Bank is preparing a Year 2000 business resumption contingency plan to
document pre-determined actions to help the Bank resume normal operations in the
event of failure of any mission-critical service and product, as specified in
the Bank's Year 2000 inventory list.  The basic priorities for restoring service
will be based on the essential application processing required to ensure that
the Bank can continue to serve its customers.  As part of its contingency
planning process, the Bank will conduct a business impact analysis to identify
potential disruption and the effect such disruption could have on business
operations should a service provider or software vendor be unable to restore
systems and/or business operations.  The Bank will establish a recovery program
that identifies participants, processes and equipment that might be necessary
for the Bank to function adequately.  The Bank will also institute a resumption
tracking system for critical operations to ensure that appropriate pre-
determined actions are identified. The tracking system will also identify any
required resources (equipment, personnel etc.) needed to restore operations. The
Bank expects to complete the contingency plan by March 31, 1999.

     Monitoring and managing the Year 2000 issue will result in additional
direct and indirect costs for the Bank. Direct costs include potential charges
by third-party software vendors for product enhancements, costs involved in
testing software products for Year 2000 compliance, and any resulting costs for
developing and implementing contingency plans for critical software products
which are not enhanced.  Indirect costs will principally consist of the time
devoted by existing employees in monitoring software vendor progress, testing
enhanced software products, and implementing any necessary contingency plans.
The Bank's direct and indirect costs of addressing the Year 2000 issue are
charged to expense as incurred, except for costs incurred in the purchase of new
software or hardware, which are capitalized.  To date, costs incurred and
expensed primarily relate to the dedication of internal resources employed in
the assessment and development of the Bank's Year 2000 plan, as well as the
testing of hardware and software owned or licensed for its personal computers.
Costs incurred to date have not been material, and management does not expect
that additional costs to be incurred in connection with the Year 2000 issue will
have a material impact on the Bank's financial condition or results of
operations.

IMPACT OF NEW ACCOUNTING STANDARDS

     FASB STATEMENT ON EARNINGS PER SHARE.  In February 1997, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 128.  The Statement establishes standards for computing
and presenting earnings per share and applies to entities with publicly held
common stock or potential common stock.  This Statement simplifies the prior
accounting standards for computing earnings per share, as set forth in
Accounting Principles Board ("APB") Opinion No. 15.  SFAS No. 128 replaces the
presentation of primary earnings per share ("EPS") with basic EPS and requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures.  Basic EPS excludes dilution
and is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period.  Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock (such as stock options) were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity.  This Statement will apply to the
Company's earnings per share disclosures which will be made from the date of
completion of the Reorganization and Offering.

                                       60
FASB STATEMENT ON ACCOUNTING FOR STOCK-BASED COMPENSATION.  In October
1995, the FASB issued SFAS No. 123 which addresses accounting for stock-based
compensation arrangements such as the Stock Option Plan and Recognition Plan
which are expected to be implemented subsequent to the Reorganization.  SFAS 
No. 123 defines a "fair-value-based method" of accounting whereby compensation
cost is measured at the grant date of a stock-based compensation award based on
the fair value of the award; such compensation cost is recognized as expense
over the service (vesting) period. The FASB has encouraged all entities to adopt
the fair-value-based method; however, SFAS No. 123 allows entities to continue
the use of the "intrinsic-value-based method" prescribed by APB Opinion No. 25.
Under the intrinsic-value-based method, compensation cost is measured based on
the award's intrinsic value, or the excess (if any) of the market price of the
stock at the grant date over the exercise price, i.e., the amount (if any) that
the employee must pay to acquire the stock. However, most stock option grants
have no intrinsic value at the grant date and, as such, no compensation cost is
recognized under APB Opinion No. 25. Entities electing to continue to apply APB
Opinion No. 25 must make certain pro forma disclosures of net income and
earnings per share, as if the fair-value-based method had been applied to awards
granted in fiscal years beginning after December 15, 1994. The Company expects
to adopt the "intrinsic-value-based method" as prescribed by APB Opinion No. 25.
Accordingly, no compensation expense will be recognized for the Stock Option
Plan since the exercise price of the options will equal the market price of the
underlying stock at the grant date. The grant date fair value of shares awarded
under the Recognition Plan will be recognized as expense on a straight-line
basis over the vesting period. See "Pro Forma Data."

     FASB STATEMENT ON TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES.  In June 1996, the FASB issued SFAS No. 125
which provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on consistent
application of a financial-components approach that focuses on control.  SFAS
No. 125 applies to transactions such as sales of loans with servicing retained,
loan securitizations, repurchase agreements, securities lending, loan
participations and in-substance deficiencies of debt.  SFAS No. 125
distinguishes transfers of financial assets that are sales from transfers that
are secured borrowings.  Under the financial-components approach, after a
transfer of financial assets, an entity recognizes all financial and servicing
assets it controls and liabilities it has incurred and derecognizes financial
assets it no longer controls and liabilities that have been extinguished.  If a
transfer does not meet the criteria for a sale, the transaction is accounted for
as a secured borrowing with a pledge of collateral.  SFAS No. 125 applies
prospectively to transactions occurring after January 1, 1997, although the
effective date of certain provisions was January 1, 1998. SFAS No. 125 has not
had, and is not expected to have, a material impact on the Bank's financial
statements.

     FASB STATEMENT ON REPORTING COMPREHENSIVE INCOME.  In June 1997, the FASB
issued SFAS No. 130, "Reporting Comprehensive Income," which establishes
standards for the reporting and display of comprehensive income (and its
components) in financial statements.  The standard does not, however, specify
when to recognize or how to measure items that make up comprehensive income.
Comprehensive income represents net income and certain amounts reported directly
in equity, such as the net unrealized gain or loss on available-for-sale
securities.  While SFAS No. 130 does not require a specific reporting format, it
does require that an enterprise display in the financial statements an amount
representing total comprehensive income for the period.  SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997 and, accordingly,
will be adopted by the Company in the fiscal year beginning October 1, 1998.
Management does not anticipate that the adoption of this standard will
significantly affect the Company's financial reporting.

     FASB STATEMENT ON SEGMENT DISCLOSURES AND RELATED INFORMATION.  In June
1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," which changes the way public companies report
information about segments of their business and requires them to report
selected segment information in their quarterly reports issued to shareholders.
Among other things, SFAS No. 131 requires public companies to report (i) certain
financial and descriptive information about its reportable operating segments
(as defined), and (ii) certain enterprise-wide financial information about
products and services, geographic areas and major customers.  The required
segment financial disclosures include a measure of profit or loss, certain
specific revenue and expense items, and total assets.  SFAS No. 131 is effective
for reporting by public companies in fiscal years beginning after December 15,
1997 and, accordingly, would be adopted by the Company upon completion of the
Reorganization and Offering.  SFAS No. 131 is not expected to have a significant
impact on the Company's financial reporting.

                                       61
FASB STATEMENT ON EMPLOYER DISCLOSURES ABOUT PENSIONS AND OTHER
POSTRETIREMENT BENEFITS.  In February 1998, the FASB issued SFAS No. 132 which
standardizes the disclosure requirements for pensions and other postretirement
benefits; requires additional information on changes in the benefit obligations
and fair values of plan assets; and eliminates certain present disclosure
requirements.  SFAS No. 132 does not change the recognition or measurement
requirements for postretirement benefits.  SFAS No. 132 is effective for fiscal
years beginning after December 15, 1997 and, accordingly, will be adopted by the
Company in the fiscal year beginning October 1, 1998. Management does not
anticipate that this standard will significantly affect the Company's financial
reporting.

     FASB STATEMENT ON DERIVATIVES AND HEDGING ACTIVITIES.  In June 1998, the
FASB issued SFAS No. 133 which establishes accounting and reporting standards
for derivative instruments and for hedging activities.  SFAS No. 133 requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial condition at fair value.  If certain conditions are met,
a derivative may be specifically designated as a fair value hedge, a cash flow
hedge, or a foreign currency hedge.  A specific accounting treatment applies to
each type of hedge.  Entities may reclassify securities from the held-to-
maturity category to the available-for-sale category at the time of adopting
SFAS No. 133.  The Bank has not yet determined whether it will reclassify
securities between categories.  SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999 and, accordingly, will be
adopted by the Company in the fiscal year beginning on October 1, 1999.  The
Bank has engaged in limited derivatives and hedging activities covered by the
new standard, and does not expect to significantly increase such activities in
the near term.  Accordingly, SFAS No. 133 is not expected to have a material
impact on the Company's consolidated financial statements.

                      BUSINESS OF PROVIDENT BANCORP, INC.

     Pursuant to the Plan, the Bank will organize the Company as a majority-
owned subsidiary of the Mutual Holding Company.  The Company will own 100% of
the common stock of the Bank.  The Company is not currently an operating
company. Following the Reorganization, in addition to directing, planning and
coordinating the business activities of the Bank, the Company initially will
invest the net proceeds it retains primarily in short and medium-term
investments. The Company also intends to fund the loan to the ESOP to enable the
ESOP to purchase up to 8% of the Common Stock sold in the Offering.  In the
future, the Company may acquire or organize other operating subsidiaries,
including other financial institutions and financial services companies. See
"Use of Proceeds." Presently, there are no agreements or understandings for an
expansion of the Company's operations. Initially, the Company will neither own
nor lease any property from any third party, 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 certain senior officers of the Bank, who
will not be compensated separately by the Company. The Company may use the
support staff of the Bank from time to time, if needed. Additional employees
will be hired as appropriate to the extent the Company expands its business in
the future.

                           BUSINESS OF PROVIDENT BANK

GENERAL

     The Bank has been serving the financial needs of Rockland County residents
since its establishment in 1888. The Bank's principal business consists of
offering savings and other deposit products to individuals and businesses, and
using those deposits together with funds generated from operations and
borrowings, to make one- to  four-family residential and commercial real estate
loans, consumer loans, construction and land loans, commercial business loans,
and multi-family residential loans.  The Bank also invests in mortgage-backed
securities and investment securities. The Bank's income is derived principally
from the interest on its mortgage, consumer and commercial loans and securities,
loan servicing income, and service charges and fees collected on its deposit
accounts.  The Bank's primary sources of funds are deposits, principal and
interest payments on loans and securities, and borrowings from the FHLB.
 
MARKET AREA

     The Bank is an independent community bank offering a broad range of
customer-focused services as an alternative to money center banks in its market
area.  The Bank currently operates eleven full-service banking offices,

                                       62
including one supermarket branch in Rockland County, New York.  The Bank's
primary market for deposits is currently concentrated around the areas where its
full-service banking offices are located.  The Bank's primary lending area also
has been historically concentrated in Rockland and contiguous counties.

     Rockland County is a suburban market with a broad employment base.  The
population of Rockland County was approximately 265,000 as of 1990, and was
estimated to be approximately 279,000 in 1997, an increase of 5.2%. Rockland
County also serves as a bedroom community for nearby New York City and other
suburban areas including Westchester County and northern New Jersey.  The
Rockland County economy has improved significantly since the early 1990s.  The
unemployment rate in Rockland County was approximately 4.7% in 1996 and 3.8% in
1997.  The favorable economic environment in the New York metropolitan area has
led to an increase in residential and commercial construction activity in recent
years.

     The economy of the Bank's primary market areas is based on a mixture of
service, manufacturing and wholesale/retail trade.  Other employment is provided
by a variety of industries and state and local governments.  The diversity of
the employment base is evidenced by the major employers which include the State
of New York, Rockland County, Wyeth Ayerst, Novartis Pharmaceutical Corporation,
NYNEX Mobile Communications, Orange and Rockland Utilities, Nyack and Good
Samaritan Hospitals, Chromalloy, and Helen Hayes Hospital.  Additionally,
Rockland County has numerous small employers.

FUTURE ACQUISITION AND EXPANSION ACTIVITY

     Both nationally and in New York, the banking industry is undergoing a
period of consolidation marked by numerous mergers and acquisitions.  Although
the Bank does not have a formal program to acquire other banking or thrift
institutions, and although there are no current understandings or agreements
(written or oral) regarding any such transactions, the Bank may be presented
with opportunities to acquire institutions or bank branches that could expand
and strengthen its market position.  Acquisitions typically involve the payment
of a premium over book and market values and, therefore, some dilution of the
Company's book value and net income per share may occur in connection with any
future acquisition.

LENDING ACTIVITIES

     GENERAL.  Historically, the principal lending activity of the Bank has been
the origination of fixed-rate and ARM loans collateralized by one- to four-
family residential real estate located within its primary market area.  The Bank
also originates commercial real estate loans, commercial business loans,
construction and land loans and consumer loans such as home equity lines of
credit and homeowner loans.   The Bank retains most of the loans that it
originates, although from time to time it may sell longer-term one- to four-
family residential real estate loans.  See "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Management of Market Risk."

                                       63
LOAN PORTFOLIO COMPOSITION.  The following table sets forth the composition
of the Bank's loan portfolio by type of loan at the dates indicated.
SEPTEMBER 30,           
                                                                 --------------------------------------
                                               JUNE 30, 1998           1997                 1996       
                                            -------------------  ------------------  ------------------
                                             AMOUNT    PERCENT    AMOUNT   PERCENT    AMOUNT   PERCENT 
                                            ---------  --------  --------  --------  --------  --------
                                                               (DOLLARS IN THOUSANDS)
FIRST MORTGAGE LOANS                                                                                   
One- to four-family......................   $271,593      59.4%  $241,895     57.7%  $219,868     57.2%
Multi-family.............................      7,108       1.6      7,358      1.8      7,743      2.0
Commercial real estate...................     63,712      13.9     55,747     13.3     58,640     15.4
Construction and land....................     27,785       6.1     31,740      7.6     28,035      7.3
                                            --------    ------   --------    -----   --------    -----
      Total first mortgage loans.........    370,198      81.0    336,740     80.4    314,286     81.9
                                            --------    ------   --------    -----   --------    -----

OTHER LOANS
 Consumer loans:
 Home equity lines of credit.............     28,362       6.2     31,456      7.4     31,306      8.1
 Homeowner loans.........................     25,418       5.6     18,678      4.5     12,575      3.3
 Other consumer loans....................      8,855       1.9     10,670      2.5     10,916      2.8
                                            --------    ------   --------    -----   --------    -----
       Total consumer loans..............     62,635      13.7     60,804     14.4     54,797     14.2
 Commercial business loans...............     24,036       5.3     21,651      5.2     15,263      3.9
                                            --------    ------   --------    -----   --------    -----
       Total other loans.................     86,671      19.0     82,455     19.6     70,060     18.1
                                            --------    ------   --------    -----   --------    -----

Total loans receivable...................    456,869     100.0%   419,195    100.0%   384,346    100.0%
                                                        ======               =====               =====

 Loans in process........................    (12,732)            (11,424)            (11,775)
 Allowance for loan losses...............     (4,548)             (3,779)             (3,357)
 Deferred loan origination costs, net....        771                 505                 273
                                            --------            --------            --------
 Total loans receivable, net.............   $440,360            $404,497            $369,487
                                            ========            ========            ========
SEPTEMBER 30,
                                            ------------------------------------------------------------
                                                  1995                 1994                 1993
                                            ------------------  -------------------  -------------------
                                             AMOUNT   PERCENT    AMOUNT    PERCENT    AMOUNT    PERCENT
                                            --------  --------  --------  ---------  --------  ---------
                                                              (DOLLARS IN THOUSANDS)
FIRST MORTGAGE LOANS                        
One- to four-family......................   $199,078     59.0%  $194,425      60.8%  $191,168      63.9%
Multi-family.............................      6,903      2.0      7,408       2.3      7,869       2.6
Commercial real estate...................     60,186     17.9     55,053      17.3     44,194      14.8
Construction and land....................      8,553      2.5      8,455       2.6      5,863       1.9
                                            --------    -----   --------  --------   --------  --------
      Total first mortgage loans.........    274,720     81.4    265,341      83.0    249,094      83.2
                                            --------    -----   --------  --------   --------  --------

OTHER LOANS
 Consumer loans:
 Home equity lines of credit.............     31,550      9.4     27,711       8.6     23,498       8.0
 Homeowner loans.........................      9,937      2.9      7,939       2.5      7,739       2.6
 Other consumer loans....................      9,917      2.9      8,124       2.5     10,527       3.5
                                            --------    -----   --------  --------   --------  --------
       Total consumer loans..............     51,404     15.2     43,774      13.6     41,764      14.1
 Commercial business loans...............     11,144      3.4     10,595       3.4      7,949       2.7
                                            --------    -----   --------  --------   --------  --------
       Total other loans.................     62,548     18.6     54,369      17.0     49,713      16.8
                                            --------    -----   --------  --------   --------  --------

Total loans receivable...................    337,268    100.0%   319,710     100.0%   298,807     100.0%
                                                        =====             ========             ========

 Loans in process........................     (2,240)            (2,083)              (1,173)
 Allowance for loan losses...............     (3,472)            (2,837)              (2,565)
 Deferred loan origination costs, net....        391                364                    8
                                            --------           --------             --------
 Total loans receivable, net.............   $331,947           $315,154             $295,077
                                            ========           ========             ========
64
LOAN MATURITY SCHEDULE.  The following table summarizes the contractual
 maturities of the Bank's loan portfolio at June 30, 1998.  Loans with
 adjustable or renegotiable interest rates are shown as maturing at the end of
 the contractual term of the loan. The table reflects the entire unpaid
 principal balance of a loan maturing in the period that includes the final
 payment date and, accordingly, does not give effect to periodic principal
 payments or possible prepayments.
MULTI-FAMILY AND                              
                                ONE- TO FOUR-FAMILY      COMMERCIAL REAL ESTATE      CONSTRUCTION AND LAND 
                             -------------------------  -------------------------  -------------------------  
                                            WEIGHTED                   WEIGHTED                   WEIGHTED    
                                            AVERAGE                    AVERAGE                    AVERAGE     
                                AMOUNT        RATE         AMOUNT        RATE         AMOUNT        RATE      
                             ------------  -----------  ------------  -----------  ------------  -----------  
                                                          (DOLLARS IN THOUSANDS)
Due During the Years
 Ending June 30,
---------------------------
1999 (1)...................    $    236        9.10%       $ 4,047      8.52%       $18,429         9.19%  
2000.......................         366        9.08          3,650      8.77          8,144         8.79   
2001.......................         761        9.15          1,547      8.39            750         8.50   
2002 and 2003..............       3,206        8.25          4,214      8.90             --           --   
2004 to 2008...............      21,917        8.00         17,168      8.80            462         8.00   
2009 to 2023...............     148,115        7.70         39,879      8.51             --           --   
2024 and following.........      96,992        7.57            315      8.67             --           --   
                               --------                    -------                  -------                
     Total.................    $271,593        7.69%       $70,820      8.62%       $27,785         9.04%  
                               ========        ====        =======      ====        =======         ====
CONSUMER               COMMERCIAL  BUSINESS            TOTAL
                             -------------------------  -------------------------  -------------------------  
                                            WEIGHTED                   WEIGHTED                   WEIGHTED    
                                            AVERAGE                    AVERAGE                    AVERAGE     
                                AMOUNT        RATE         AMOUNT        RATE         AMOUNT        RATE      
                             ------------  -----------  ------------  -----------  ------------  -----------  
                                                          (DOLLARS IN THOUSANDS)
Due During the Years                                                                             
 Ending June 30,                                                                                 
---------------------------                                                                      
1999 (1)...................    $ 1,149       10.18%       $14,494       9.04%        $ 38,355       9.09%
2000.......................      3,188       10.78          1,455       9.05           16,803       9.19
2001.......................      4,391       10.49          2,258       8.73            9,707       9.49
2002 and 2003..............     12,043        9.47          2,731       9.31           22,194       9.16
2004 to 2008...............     32,979        9.04          2,234       8.73           74,760       8.67
2009 to 2023...............      8,885        9.32            864       9.72          197,743       7.95
2024 and following.........         --          --             --         --           97,307       7.58
                               -------                    -------                    --------       
     Total.................    $62,635        9.37%       $24,036       9.04%        $456,869       8.22%
                               =======       =====        =======       ====         ========       ====
___________________
(1)    Includes demand loans, loans having no stated maturity, and overdraft
loans.

                                       65
The following table sets forth the dollar amounts of fixed- and adjustable-
rate loans at June 30, 1998 that are contractually due after June 30, 1999.
DUE AFTER JUNE 30, 1999
                                             --------------------------------
                                              FIXED    ADJUSTABLE      TOTAL
                                             --------  ----------    --------
                                                        (IN THOUSANDS)
First mortgage loans:                                             
  One- to four-family......................  $188,543    $ 82,814    $271,357
  Multi-family and commercial real estate..    15,726      51,047      66,773
  Construction and land....................        --       9,356       9,356
                                             --------    --------     -------
     Total first mortgage loans............   204,269     143,217     347,486
                                                                      
  Consumer loans...........................    32,017      29,469      61,486
  Commercial business loans................       316       9,226       9,542
                                             --------    --------     -------
                                                                      
     Total loans...........................  $236,602    $181,912    $418,514
                                             ========    ========    ========
ONE- TO FOUR-FAMILY REAL ESTATE LENDING.  The Bank's primary lending
activity is the origination of one-to four-family residential mortgage loans
secured by properties located in the Bank's primary market area.  The Bank
offers conforming and non-conforming, fixed-rate and adjustable-rate,
residential mortgage loans with maturities of up to 30 years and maximum loan
amounts generally of up to $600,000.

     The Bank currently offers both fixed- and adjustable-rate conventional
mortgage loans with terms of 10 to 30 years that are fully amortizing with
monthly or bi-weekly loan payments.  One- to four-family residential mortgage
loans are generally underwritten according to Fannie Mae and Freddie Mac
guidelines, and loans that conform to such guidelines are referred to as
"conforming loans." The Bank generally originates both fixed-rate and ARM loans
in amounts up to the maximum conforming loan limits as established by Fannie Mae
and Freddie Mac secondary mortgage market standards, which are currently
$227,150 for single-family homes.  Private mortgage insurance is generally
required for loans with loan-to-value ratios in excess of 80%.  Loans in excess
of conforming loan limits, in amounts of up to $600,000, are also underwritten
to both Fannie Mae and Freddie Mac secondary mortgage market standards.  These
loans are eligible for sale to various conduit firms that specialize in the
purchase of such non-conforming loans, although most of these loans are retained
in the Bank's loan portfolio.

     The Bank's bi-weekly one- to four-family residential mortgage loans result
in significantly shorter repayment schedules than conventional monthly mortgage
loans.  The accelerated repayment schedule that accompanies a bi-weekly mortgage
loan results in lower total interest payments and a more rapid increase in home
equity.  Bi-weekly mortgage loans are also repaid through an automatic deduction
from the borrower's savings or checking account, which enables the Bank to avoid
the cost of processing payments.  As of June 30, 1998, bi-weekly loans totaled
$56.5 million or 20.8% of the Bank's residential loan portfolio.

     Fixed-rate mortgage loans originated by the Bank include due-on-sale
clauses which provide that the loan is immediately due and payable in the event
the borrower transfers ownership of the property.  Due-on-sale clauses are an
important means of adjusting the yields on the Bank's fixed-rate residential
loan portfolio, and the Bank generally exercises its rights under these clauses.

     The Bank actively monitors its interest rate risk position to determine the
desirable level of investment in fixed-rate mortgages.  Depending on market
interest rates and the Bank's capital and liquidity position, the Bank may
retain all of its newly originated longer term fixed-rate, fixed-term
residential mortgage loans or may decide to sell all or a portion of such loans
in the secondary mortgage market to government sponsored enterprises such as
Fannie Mae and Freddie Mac.  As a matter of policy, the Bank retains the
servicing rights on all loans sold to generate fee income and reinforce its
commitment to customer service.  For the nine months ended June 30, 1998, the
Bank sold mortgage loans totaling $16.9 million compared with $197,000 for the
nine months ended June 30, 1997.  As of June 30, 1998, the Bank's portfolio of
loans serviced for others totaled $128.5 million.

                                       66
The Bank currently offers several ARM loan products secured by residential
properties with rates that adjust every six months to one year, after an initial
fixed-rate period of from six months to seven years. After the initial term, the
interest rate on these loans is reset based upon a contractual spread or margin
above the average yield on U.S. Treasury securities, adjusted to a constant
maturity of one year (the "U.S. Treasury Constant Maturity Index"), as published
weekly by the Federal Reserve Board.  ARM loans are generally subject to
limitations on interest rate increases of 2% per adjustment period, and an
aggregate adjustment of 6% over the life of the loan.  ARM loans require that
any payment adjustment resulting from a change in the interest rate on the ARM
loan be sufficient to result in full amortization of the loan by the end of the
loan term, and thus, do not permit any of the increased payment to be added to
the principal amount of the loan, commonly referred to as negative amortization.
Although ARM loans are offered with terms of up to 30 years, these loans
generally remain outstanding for substantially shorter periods of time.  At June
30, 1998, the Bank's ARM portfolio included $20.4 million in loans which reprice
every six months, $33.9 million in one-year ARMs and $28.5 million in loans with
an initial fixed-rate period of from three to seven years.

     The retention of ARM loans, as opposed to long term, fixed-rate residential
mortgage loans, in the Bank's portfolio helps reduce its exposure to interest
rate risk.  However, ARM loans generally pose different credit risks than fixed-
rate loans primarily because the underlying debt service payments of the
borrowers rise as interest rates rise, thereby increasing the potential for
default.  In order to minimize this risk, borrowers of one-to four-family one
year ARM loans are qualified at the rate which would be in effect after the
first interest rate adjustment, if that rate is higher than the initial rate.
Management believes that these risks, which have not had a material adverse
effect on the Bank to date, generally are less than the interest rate risks
associated with holding longer-term fixed-rate loans.

     While one- to four-family residential loans typically are originated with
15 to 30 year terms, such loans generally remain outstanding in the Bank's loan
portfolio for substantially shorter periods of time because borrowers must
prepay their loans in full upon sale of the property pledged as security or upon
refinancing the loan.  Thus, average loan maturity is a function of, among other
factors, the level of purchase and sale activity in the Bank's primary lending
market, prevailing market interest rates, and the interest rates payable on
outstanding loans.

     The Bank requires title insurance on all of its one-to four-family mortgage
loans, and also requires that fire and extended coverage casualty insurance
(and, if appropriate, flood insurance) be maintained in an amount at least equal
to the lesser of the loan balance or the replacement cost of the improvements.
Loans with loan-to-value ratios in excess of 80% must have private mortgage
insurance, although occasional exceptions may be made. Nearly all residential
loans must have a mortgage escrow account from which disbursements are made for
real estate taxes and for hazard and flood insurance.

     COMMERCIAL REAL ESTATE AND MULTI-FAMILY REAL ESTATE LENDING.  The Bank
originates real estate loans secured predominantly by first liens on commercial
real estate and apartment buildings.  The commercial real estate properties are
predominantly non-residential properties such as office buildings, shopping
centers, retail strip centers, industrial and warehouse properties and, to a
lesser extent, more specialized properties such as churches, mobile home parks,
restaurants, motel/hotels and auto dealerships.  The Bank may, from time to
time, purchase commercial or multi-family real estate loan participations.
Loans secured by commercial real estate totaled $63.7 million or 13.9% of the
Bank's total loan portfolio as of June 30, 1998, and consisted of 175 loans
outstanding with an average loan balance of approximately $364,000.  Loans
secured by multi-family residential real estate totaled $7.1 million or 1.6% of
the Bank's total loan portfolio as of June 30, 1998, and consisted of 34 loans
outstanding with an average loan balance of approximately $209,000.
Substantially all of the Bank's commercial real estate and multi-family loans
were secured by properties located in its primary market area.

     As part of the Bank's ongoing interest rate risk management, the Bank
offers adjustable-rate commercial and multi-family real estate loans.  The
initial interest rates on these loans adjust after an initial three or five year
period to new market rates that generally range between 200 to 350 basis points
over the then current three or five year U.S. Treasury or FHLB rates.
Commercial real estate loans typically have a term of approximately 10 years,
with an amortization schedule of approximately 20 years, and may be repaid
subject to certain penalties.  Multi-family real estate loans typically have a
term of 10 years, with a 25 year amortization schedule, and also may be prepaid
subject to penalties.

                                       67
In the underwriting of commercial and multi-family real estate loans, the
Bank generally lends up to 70% of the property's appraised value on apartment
buildings, up to 70% of the property's appraised value on commercial properties
that are not owner-occupied, and up to 75% of the property's appraised value on
commercial properties that are owner-occupied. Appraised values are determined
by independent appraisers designated by the Bank.  The Bank generally obtains an
environmental assessment from an independent engineering firm of any
environmental risks that may be associated with a particular building or the
site.  Decisions to lend are based on the economic viability of the property and
the creditworthiness of the borrower.  Creditworthiness is determined by
considering the character, experience, management and financial strength of the
borrower, and the ability of the property to generate adequate funds to cover
both operating expenses and debt service.  In evaluating a commercial real
estate loan, the Bank emphasizes primarily the ratio of net cash flow to debt
service for the property, generally requiring a ratio of at least 110%, computed
after deduction for a vacancy factor and property expenses deemed appropriate by
the Bank. In addition, a personal guarantee of the loan is generally required
from the principal(s) of the borrower.  On all real estate loans, the Bank
requires title insurance insuring the priority of its lien, fire and extended
coverage casualty insurance, and flood insurance, if appropriate, in order to
protect the Bank's security interest in the underlying property.

     Commercial real estate and multi-family loans generally carry higher
interest rates and have shorter terms than those on one- to four-family
residential mortgage loans.  Commercial real estate and multi-family loans,
however, entail significant additional credit risks compared to one- to four-
family residential mortgage loans, as they typically involve large loan balances
concentrated with single borrowers or groups of related borrowers.  In addition,
the payment experience on loans secured by income producing properties typically
depends on the successful operation of the related real estate project and thus
may be subject to a greater extent to adverse conditions in the real estate
market and in the economy generally.

     CONSTRUCTION AND LAND LOANS.  The Bank originates acquisition, development
and construction loans to builders in its market area.  Acquisition loans are
made to help finance the purchase of land intended for further development,
including single-family houses, multi-family housing, and commercial income
property.  In some cases, the Bank may make an acquisition loan before the
borrower has received approval to develop the land as planned. Loans for the
acquisition of land are generally limited to the Bank's most creditworthy
customers.  In general, the maximum loan-to-value ratio for a land acquisition
loan is 50% of the appraised value of the property.  Acquisition loans are often
made in conjunction with development and construction loans.  Acquisition loans
may also be made to borrowers who already own the property, but who require
additional financing to develop the property.

     The Bank also makes development loans to builders in its market area to
finance improvements to real estate, consisting mostly of single-family
subdivisions,  typically to finance the cost of utilities, roads and sewers.
Builders generally rely on the sale of single family homes to repay development
loans, although in some cases the improved building lots may be sold to another
builder.  The maximum loan-to-value ratio for these loans is generally 60% of
the appraised value of the property.  Advances are made in accordance with a
schedule reflecting the cost of improvements.  The Bank's policy is to confirm
prior to each advance that the improvements have been completed properly as
evidenced by an inspection report issued by an appraiser or engineer hired by
the Bank.  In addition, prior to advancing funds, the Bank confirms that its
lien priority remains in effect.

     The Bank also grants construction loans to area builders, often in
conjunction with  development loans.  These loans finance the cost of completing
homes on the improved property.  The loans are generally limited to the lesser
of 70% of the appraised value of the property or the actual cost of
improvements.  In the case of single-family construction, the Bank limits the
number of houses it will finance that are not under contract for sale.  As part
of its underwriting process for construction loans on income producing
properties, such as apartment buildings and commercial rental properties, the
Bank considers the likelihood of leasing the property at the expected rental
amount, and the time to achieve sufficient occupancy levels.  The Bank generally
requires a percentage of the building to be leased prior to granting a
construction loan on income producing property.

     Advances on construction loans are made in accordance with a schedule
reflecting the cost of construction. The Bank's policy is to confirm prior to
each advance that the construction has been completed properly as evidenced by
an inspection report issued by an appraiser or engineer hired by the Bank.  The
Bank also confirms that its lien 

                                       68
priority remains in force before advancing funds. Repayment of construction
loans on residential subdivisions is normally expected from the sale of units to
individual purchasers. In the case of income producing property, repayment is
usually expected from permanent financing upon completion of construction. The
Bank commits to provide the permanent mortgage financing on most of its
construction loans on income-producing property.

     Acquisition, development and construction lending exposes the Bank to
greater credit risk than permanent mortgage financing.  The repayment of
acquisition, development and construction loans depends upon the sale of the
property to third parties or the availability of permanent financing upon
completion of all improvements.  In the event the Bank makes an acquisition loan
on property that is not yet approved for the planned development, there is the
risk that approvals will not be granted or will be delayed.  These events may
adversely affect the borrower and the collateral value of the property.
Development and construction loans also expose the Bank to the risk that
improvements will not be completed on time in accordance with specifications and
projected costs.  In addition, the ultimate sale or rental of the property may
not occur as anticipated.

     As of June 30, 1998, the Bank had $8.8 million in acquisition and
development loans, and $19.0 million in construction loans.

     CONSUMER AND OTHER LOANS.  The Bank originates a variety of consumer and
other loans, including homeowner loans, home equity lines of credit, new and
used automobile loans, and personal unsecured loans, including both fixed-rate
installment loans and prime rate variable lines-of-credit.  As of June 30, 1998,
consumer loans totaled $62.6 million, or 13.7% of the total loan portfolio.

     At June 30, 1998, the largest group of consumer loans consisted of $53.8
million of loans secured by junior liens on residential properties.  The Bank
offers fixed-rate, fixed-term second mortgage loans, referred to as "homeowner
loans," and adjustable-rate home equity lines of credit.  Homeowner loans are
offered in amounts up to 100% of the appraised value of the property (including
prior liens) with a maximum loan amount of $75,000. Home equity loans are
generally offered in amounts up to 75% of the appraised value of the property
including prior liens, with a maximum loan amount of $200,000. As of June 30,
1998, homeowner loans totaled $25.4 million or 5.6% of the Bank's total loan
portfolio.  The disbursed portion of home equity lines of credit totaled $28.4
million, or 6.2% of the Bank's total loan portfolio, with $24.9 million
remaining undisbursed.

     Other consumer loans include personal loans and loans secured by new or
used automobiles. As of June 30, 1998, these loans totaled $8.9 million, or 1.9%
of the Bank's total loan portfolio.  The Bank originates automobile loans
directly to its customers and has no outstanding agreement with automobile
dealerships to generate indirect loans.  The maximum term for an automobile loan
is generally 60 months for a new car, and 36 to 48 months for a used car.  The
Bank will generally lend up to 100% of the purchase price of a new car, and up
to 90% of the lesser of the purchase price or the National Automobile Dealers'
Association book rate for a used car.  The Bank requires all borrowers to
maintain collision insurance on automobiles securing loans in excess of $5,000,
with the Bank listed as loss payee.  Personal loans also include secured and
unsecured installment loans.  Unsecured installment loans generally have shorter
terms than secured consumer loans, and generally have higher interest rates than
rates charged on secured installment loans with comparable terms.

     The Bank's procedures for underwriting consumer loans include an assessment
of an applicant's credit history and the ability to meet existing obligations
and payments on the proposed loan.  Although an applicant's creditworthiness is
a primary consideration, the underwriting process also includes a comparison of
the value of the collateral security, if any, to the proposed loan amount.

     Consumer loans generally entail greater risk than residential mortgage
loans, particularly in the case of consumer loans that are unsecured or secured
by assets that tend to depreciate, such as automobiles.  In such cases,
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment for the outstanding loan and the remaining deficiency often
does not warrant further substantial collection efforts against the borrower.
In addition, the repayment of consumer loans depends on the borrower's continued
financial stability, as their repayment is more likely than a single family
mortgage loan to be adversely affected by job loss, divorce, illness 

                                       69
or personal bankruptcy. Furthermore, the application of various federal and
state laws (including bankruptcy and insolvency laws) may limit the amount that
can be recovered on such loans.

     COMMERCIAL BUSINESS LOANS.  The Bank currently offers commercial business
loans to customers in its market area, some of which are secured in part by
additional real estate collateral.  In an effort to expand its customer account
relationships and develop a broader base of more interest rate sensitive assets,
the Bank makes various types of secured and unsecured commercial loans for the
purpose of financing equipment acquisition, expansion, working capital and other
general business purposes.  The terms of these loans generally range from less
than one year to seven years.  The loans are either negotiated on a fixed-rate
basis or carry adjustable interest rates indexed to a lending rate which is
determined internally, or a short-term market rate index.  The Bank may, from
time to time, purchase commercial business loan participations.  At June 30,
1998, the Bank had 251 commercial business loans outstanding with an aggregate
balance of $24.0 million, or 5.3% of the total loan portfolio.  As of June 30,
1998, the average commercial business loan balance was approximately $96,000.

     Commercial credit decisions are based upon a complete credit assessment of
the loan applicant.  A determination is made as to the applicant's ability to
repay in accordance with the proposed terms as well as an overall assessment of
the risks involved.  An investigation is made of the applicant to determine
character and capacity to manage.  Personal guarantees of the principals are
generally required.  In addition to an evaluation of the loan applicant's
financial statements, a determination is made of the probable adequacy of the
primary and secondary sources of repayment to be relied upon in the transaction.
Credit agency reports of the applicant's credit history as well as bank checks
and trade investigations supplement the analysis of the applicant's
creditworthiness.  Collateral supporting a secured transaction is also analyzed
to determine its marketability and liquidity.  Commercial business loans
generally bear higher interest rates than residential loans, but they also
involve a higher risk of default since their repayment is generally dependent on
the successful operation of the borrower's business.

     LOAN ORIGINATIONS, PURCHASES, SALES AND SERVICING.  While the Bank
originates both fixed-rate and adjustable-rate loans, its ability to generate
each type of loan depends upon borrower demand, market interest rates, borrower
preference for fixed- versus adjustable-rate loans, and the interest rates
offered on each type of loan by other lenders in the Bank's market area.  This
includes competing banks, savings banks, credit unions, and mortgage banking
companies, as well as life insurance companies, and Wall Street conduits that
also actively compete for local commercial real estate loans.  Loan originations
are derived from a number of sources, including branch office personnel,
existing customers, borrowers, builders, attorneys, real estate broker referrals
and walk-in customers.

     The Bank's loan origination and sales activity may be adversely affected by
a rising interest rate environment that typically results in decreased loan
demand.  Accordingly, the volume of loan originations and the profitability of
this activity can vary from period to period.  One- to four-family residential
mortgage loans are generally underwritten to current Fannie Mae and Freddie Mac
seller/servicer guidelines.  One- to four-family loans are also closed on
standard Fannie Mae/Freddie Mac documents and sales are conducted using standard
Fannie Mae/Freddie Mac purchase contracts and master commitments as applicable.
One- to four-family mortgage may be loans sold both to Fannie Mae and Freddie
Mac on a non-recourse basis whereby foreclosure losses are generally the
responsibility of either Fannie Mae or Freddie Mac and not the Bank.  See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Management of Market Risk."

     The Bank is a qualified loan servicer for both Fannie Mae and Freddie Mac.
The Bank's policy has been to retain the servicing rights for all loans sold,
and to continue to collect payments on the loans, maintain tax escrows and
applicable fire and flood insurance coverage, and supervise foreclosure
proceedings if necessary.  The Bank retains a portion of the interest paid by
the borrower on the loans as consideration for its servicing activities.

                                       70
The following table sets forth the loan origination, sale and repayment
activities of the Bank for the periods indicated.  The  Bank has not purchased
any loans in recent years.
NINE MONTHS
                                           ENDED JUNE 30,          YEAR ENDED SEPTEMBER 30,
                                        -------------------   ------------------------------
                                          1998       1997       1997       1996       1995
                                        --------   --------   --------   --------   --------
                                                           (IN THOUSANDS)
Unpaid principal balances at
 beginning of period.................   $419,195   $384,346   $384,346   $337,268   $319,710
                                        --------   --------   --------   --------   --------

Originations by Type
---------------------------
 Adjustable-rate:
  First mortgage loans:
   One- to four-family...............     12,424      7,919     11,299      7,814      9,350
   Multi-family......................        388        325        325        778        225
   Commercial real estate............     11,541      7,825      7,932      5,108      7,528
   Construction and land.............      9,338     12,213     14,240     25,235      7,717
  Other loans:
   Consumer..........................      8,038     10,321     14,166     12,315      4,866
   Commercial business...............     12,329      5,115      8,140      6,595      4,803
                                        --------   --------   --------   --------   --------
     Total adjustable-rate...........     54,058     43,718     56,102     57,845     34,489
                                        --------   --------   --------   --------   --------

 Fixed-rate:
  First mortgage loans:
   One- to four-family...............     65,462     16,122     33,214     41,022     16,974
   Commercial real estate............      3,919        585        710        385        512
   Construction and land.............        563        859      1,002      1,643      1,139
  Other loans:
   Consumer..........................     16,072     12,143     16,954      4,489     10,008
   Commercial business...............      3,512      3,008      4,788      3,397      3,071
                                        --------   --------   --------   --------   --------
     Total fixed-rate................     89,528     32,717     56,668     50,936     31,704
                                        --------   --------   --------   --------   --------

     Total loans originated..........    143,586     76,435    112,770    108,781     66,193
                                        --------   --------   --------   --------   --------

Sales
---------------------------
 First mortgage loans................    (16,932)      (197)      (197)      (433)    (1,605)
                                        --------   --------   --------   --------   --------

Principal Repayments
---------------------------
 First mortgage loans................    (52,067)   (33,833)   (45,021)   (39,146)   (32,034)
 Other loans.........................    (35,738)   (23,561)   (31,352)   (19,736)   (14,616)
                                        --------   --------   --------   --------   --------
  Total principal
   repayments........................    (87,805)   (57,394)   (76,373)   (58,882)   (46,650)
                                        --------   --------   --------   --------   --------

Net charge-offs......................       (578)      (355)      (636)    (1,026)      (125)
Transfers to real estate
 owned...............................       (597)      (694)      (715)    (1,362)      (255)
                                        --------   --------   --------   --------   --------
Unpaid principal balances
 at end of period....................    456,869    402,141    419,195    384,346    337,268

Loans in process.....................    (12,732)    (9,505)   (11,424)   (11,775)    (2,240)
Allowance for loan losses............     (4,548)    (3,877)    (3,779)    (3,357)    (3,472)
Deferred loan origination
 costs, net..........................        771        454        505        273        391
                                        --------   --------   --------   --------   --------
Net loans at end of period...........   $440,360   $389,213   $404,497   $369,487   $331,947
                                        ========   ========   ========   ========   ========
LOAN APPROVAL AUTHORITY AND UNDERWRITING.  The Bank has four levels of
lending authority:  the Board of Directors, the Director Loan Committee, the
Management Loan Committee, and individual loan officers.  The Board grants
lending authority to the Director Loan Committee, the majority of the members of
which are Directors.  The Director Loan Committee in turn may grant authority to
the Management Loan Committee and individual loan officers.  In addition,
designated members of management may grant authority to individual loan officers
up to specified limits.  The lending activities of the Bank are subject to
written policies established by the Board.  These policies are reviewed
periodically.

     The Director Loan Committee may approve loans of up to a maximum of $3.2
million in the aggregate to any one borrower and related entities in accordance
with the Bank's loans-to-one borrower policy.  The Management Loan Committee may
approve loans of up to an aggregate of $650,000 to any one borrower and related
borrowers. 

                                       71
Two loan officers with sufficient loan authority acting together may approve
loans up to $350,000. The maximum individual authority to approve an unsecured
loan is $50,000.

     The Bank has established a risk rating system for its commercial business
loans, commercial and multi-family real estate loans, and construction loans to
builders.  The risk rating system assesses a variety of factors to rank the risk
of default and risk of loss associated with the loan.  These ratings are
performed by commercial credit personnel who do not have responsibility for loan
originations.  The Bank determines its maximum loans to one borrower based upon
the rating of the loan.  The large majority of loans fall into three categories.
The maximum for the best rated borrowers is $7.5 million, for the next group of
borrowers is $5.5 million, and for the third group is $3.5 million. Sublimits
apply based on reliance on any single property, and for commercial loans.

     In connection with its mortgage loans, the Bank requires property
appraisals  performed by independent appraisers who are approved by the Board.
Appraisals are then reviewed by  the appropriate loan underwriting areas of the
Bank.  The Bank also requires title insurance, hazard insurance and, if
indicated, flood insurance on property securing its mortgage loans.  For
consumer loans under $50,000, such as equity lines of credit and homeowner
loans, title insurance is not required.

     LOAN ORIGINATION FEES AND COSTS.  In addition to interest earned on loans,
the Bank also receives loan origination fees.  Such fees vary with the volume
and type of loans and commitments made, and competitive conditions in the
mortgage markets, which in turn respond to the demand and availability of money.
The Bank defers loan origination fees and costs, and amortizes such amounts as
an adjustment to yield over the term of the loan by use of the level-yield
method. Deferred loan origination costs (net of deferred fees) were $771,000 at
June 30, 1998.

     To the extent that originated loans are sold on or after January 1, 1997,
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," requires the Bank to capitalize a mortgage
servicing asset at the time of the sale.  In the nine months ended June 30,
1998, the Bank recognized $169,000 in income upon capitalization of originated
mortgage servicing rights for loans sold on a servicing-retained basis.  The
capitalized amount is amortized thereafter (over the period of estimated net
servicing income) as a reduction of servicing fee income.  The unamortized
amount is fully charged to income when loans are prepaid.  Asset recognition of
servicing rights on sales of originated loans was not permitted under accounting
standards in effect prior to SFAS No. 125, when the Bank sold the majority of
the loans it presently services for others.  Originated mortgage servicing
rights with an amortized cost of $163,000 are included in other assets at June
30, 1998.  See also Notes 1 and 4 of the Notes to Consolidated Financial
Statements.

     LOANS-TO-ONE BORROWER.  Savings associations are subject to the same loans-
to-one borrower limits as those applicable to national banks, which under
current regulations restrict loans to one borrower to an amount equal to 15% of
unimpaired net worth on an unsecured basis, and an additional amount equal to
10% of unimpaired net worth if the loan is secured by readily marketable
collateral (generally, financial instruments and bullion, but not real estate).
The Bank monitors its credit limits by relationship and by total credit
exposure, including the unused portion of credit made available by the Bank,
such as unadvanced amounts on construction loans and unused lines of credit.  At
June 30, 1998, the five largest aggregate amounts loaned to individual borrowers
by the Bank (including any unused lines of credit) were as follows:  $7.4
million, consisting of mortgage-secured and unsecured financing; $4.4 million
secured by a mortgage;  $3.6 million secured by a mortgage;  $3.6 million,
consisting of mortgage-secured and unsecured financing; and $3.5 million,
consisting of mortgage-secured financing.  All of the loans discussed above are
performing in accordance with their terms.

DELINQUENCIES AND CLASSIFIED ASSETS

     COLLECTION PROCEDURES.  A computer generated late notice is sent by the
17th day of the month requesting the payment due plus the late charge that was
assessed.  After the late notices have been mailed, accounts are assigned to a
collector for follow-up to determine reasons for delinquency and to review
payment options.  Additional system-generated collection letters are sent to
customers every 10 days.  Notwithstanding ongoing collection efforts, all
consumer loans are fully charged-off after 120 days.

                                       72
LOANS PAST DUE AND NON-PERFORMING ASSETS.  Loans are reviewed on a regular
basis.  Loans are placed on non-accrual status when either principal or interest
is 90 days or more past due.  In addition, loans are placed on non-accrual
status when, in the opinion of management, there is sufficient reason to
question the borrower's ability to continue to meet contractual principal or
interest payment obligations.  Interest accrued and unpaid at the time a loan is
placed on a non-accrual status is reversed from interest income.  Interest
payments received on non-accrual loans are not recognized as income unless
warranted based on the borrower's financial condition and payment record.  At
June 30, 1998, the Bank had non-accrual loans of $5.7 million, representing
loans of $4.8 million which were 90 days or more delinquent and a current loan
of $962,000 which was on non-accrual status due to concerns about the borrower's
ability to continue making contractual payments.  The ratio of non-performing
loans to total loans was 1.30% at June 30, 1998.

     Real estate acquired as a result of foreclosure or by deed in lieu of
foreclosure is classified as real estate owned ("REO") until such time as it is
sold.  When real estate is acquired through foreclosure or by deed in lieu of
foreclosure, it is recorded at its fair value, less estimated costs of disposal.
If the fair value of the property is less than the loan balance, the difference
is charged against the allowance for loan losses.  At June 30, 1998, the Bank
had REO of $366,000. The Bank had total non-performing assets (non-accrual loans
and REO) of $6.1 million and a ratio of non-performing assets to total assets of
0.90% at June 30, 1998.

                                       73
The following table sets forth certain information with respect to the
Bank's loan portfolio delinquencies at the dates indicated.
LOANS DELINQUENT FOR
                               ------------------------------------
                                  60-89 DAYS       90 DAYS AND OVER           TOTAL
                               ----------------   -----------------     -----------------
                               NUMBER    AMOUNT    NUMBER    AMOUNT     NUMBER     AMOUNT
                               ------    ------    ------    ------     ------     ------
                                                 (DOLLARS IN THOUSANDS)
At June 30, 1998                                                               
----------------
First mortgage loans:                                                          
 One- to four-family.........      16      $1,310      34    $3,323        50      $4,633
 Multi-family................       1         143      --        --         1         143
 Commercial real estate......      --          --       2       848         2         848
 Construction and land.......      --          --       1       180         1         180
                                -----      ------   -----    ------     -----      ------
                                   17       1,453      37     4,351        54       5,804
Other loans:                                                                     
 Consumer....................       5          98      15       230        20         328
 Commercial business.........       1          76       9       194        10         270
                                -----      ------   -----    ------     -----      ------
   Total.....................      23      $1,627      61    $4,775        84      $6,402
                                =====      ======   =====    ------     =====      ======
                                                                                 
At September 30, 1997                                                            
---------------------
First mortgage loans:                                                            
 One- to four-family.........      11      $1,245      28    $2,549        39      $3,794
 Multi-family................       1         146      --        --         1         146
 Commercial real estate......       1          58       4     1,375         5       1,433
 Construction and land.......      --          --       2       276         2         276
                                -----      ------   -----    ------     -----      ------
                 13             1,449          34   4,200        47     5,649     
Other loans:                                                                     
 Consumer....................       5          87      23       234        28         321
 Commercial business.........       4          98       7       243        11         341
                                -----      ------   -----    ------     -----      ------
   Total.....................      22      $1,634      64    $4,677        86      $6,311
                                =====      ======   =====    ======     =====      ======
                                                                                 
At September 30, 1996                                                            
---------------------                                                    
First mortgage loans:                                                            
 One- to four-family.........      15      $  936      37    $2,731        52      $3,667
 Commercial real estate......       2         282      11     2,087        13       2,369
 Construction and land.......      --          --       3       920         3         920
                                -----      ------   -----    ------     -----      ------
                                   17       1,218      51     5,738        68       6,956
Other loans:                                                                     
 Consumer....................       4         109      24       503        28         612
 Commercial business.........       1          65       3       109         4         174
                                -----      ------   -----    ------     -----      ------
   Total                           22      $1,392      78    $6,350       100      $7,742
                                =====      ======   =====    ======     =====      ======
74
NON-PERFORMING ASSETS.  The table below sets forth the amounts and
categories of the Bank's non-performing assets at the dates indicated.  At each
date presented, the Bank had no troubled debt restructurings (loans for which a
portion of interest or principal has been forgiven and loans modified at
interest rates materially less than current market rates).
SEPTEMBER 30,
                                           JUNE 30,  ------------------------------------------------
                                             1998      1997      1996      1995      1994      1993
                                           --------  --------  --------  --------  --------  --------
                                                           (DOLLARS IN THOUSANDS)
Non-accrual loans:
  One- to four-family....................   $3,323    $2,549    $2,731    $1,972    $1,158    $1,416
  Commercial real estate.................      848     1,375     2,087     3,346     1,222     1,465
  Construction and land/(1)/.............    1,142       276       920       209       209        30
  Consumer...............................      230       234       503       421       329       390
  Commercial business....................      194       243       109       654       837     1,011
                                            ------    ------    ------    ------    ------    ------
     Total non-performing loans..........    5,737     4,677     6,350     6,602     3,755     4,312
                                            ------    ------    ------    ------    ------    ------
                                                                                           
Real estate owned:                                                                         
  One- to four-family....................       92       186       347        50       508       773
  Commercial real estate.................      274        --       960       160       242       401
                                            ------    ------    ------    ------    ------    ------
     Total real estate owned.............      366       186     1,307       210       750     1,174
                                            ------    ------    ------    ------    ------    ------
                                                                                           
Total non-performing assets..............   $6,103    $4,863    $7,657    $6,812    $4,505    $5,486
                                            ======    ======    ======    ======    ======    ======
                                                                                           
Ratios:                                                                                    
  Non-performing loans to total loans....     1.30%     1.16%     1.72%     1.99 %    1.19%     1.46%
  Non-performing assets to total assets..     0.90      0.75      1.21      1.29      0.94      1.17
---------------
/(1)/ Non-accrual construction and land loans at June 30, 1998 include a loan
      with a balance of $962,000 which was current in accordance with its
      contractual terms. Management placed this loan on non-accrual status
      during the nine months ended June 30, 1998 due to concerns about the
      borrower's ability to continue making contractual payments.

     For the year ended September 30, 1997 and for the nine months ended 
June 30, 1998, gross interest income that would have been recorded had the non-
accrual loans at the end of the period remained on accrual status throughout the
period amounted to $411,000 and $523,000, respectively. Interest income actually
recognized on such loans totaled $147,000 for the year ended September 30, 1997
and $241,000 for the nine months ended June 30, 1998.

     CLASSIFICATION OF ASSETS.  The Bank's policies, consistent with regulatory
guidelines, provide for the classification of loans and other assets such as
securities that are considered 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 savings institution 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 is not
warranted.  Assets that do not expose the Bank to risk sufficient to warrant
classification in one of the aforementioned categories, but which possess some
weaknesses, are required to be designated as special mention by management.  As
of June 30, 1998, the Bank had $4.6 million of assets designated as special
mention.

     When the Bank classifies assets as either substandard or doubtful, it
allots for analytical purposes a portion of general valuation allowances or loss
reserves to such assets as deemed prudent by management.  General allowances
represent loss allowances that have been established to recognize the inherent
risk associated with lending activities, but which have not been allocated to
particular problem assets.  When the Bank classifies problem assets as loss, it
is required either to establish a specific allowance for losses equal to 100% of
the amount of the assets so classified, or to charge-off such amount.  The
Bank's determination as to the classification of its assets and the amount of
its valuation allowance is subject to review by its regulatory agencies, which
can order the establishment of additional loss allowances.  Management regularly
reviews the Bank's asset portfolio to determine whether any assets require
classification in accordance with applicable regulations.  On the basis of
management's review of the Bank's assets at June 30, 1998, classified assets
consisted of substandard assets of $4.7 million (loans receivable of 

                                       75
$4.3 million and REO of $366,000) and doubtful assets (loans receivable) of
$101,000. There were no assets classified as loss at June 30, 1998.

     ALLOWANCE FOR LOAN LOSSES. The Bank provides for loan losses based on the
allowance method.  Accordingly, all loan losses are charged to the related
allowance and all recoveries are credited to it.  Additions to the allowance for
loan losses are provided by charges to income based on various factors which, in
management's judgment, deserve current recognition in estimating probable
losses.  Management regularly reviews the loan portfolio and makes provisions
for loan losses in order to maintain the adequacy of the allowance for loan
losses.  The allowance for loan losses consists of amounts specifically
allocated to non-performing loans and potential problem loans (if any) as well
as allowances determined for each major loan category.  Loan categories such as
single-family residential mortgages and consumer loans are generally evaluated
on an aggregate or "pool" basis by applying loss factors to the current balances
of the various loan categories.  The loss factors are determined by management
based on an evaluation of historical loss experience, delinquency trends, volume
and type of lending conducted, and the impact of current economic conditions in
the Bank's market area.  While management uses the best information available to
make evaluations, future adjustments to the allowance may be necessary if
conditions differ substantially from the assumptions used in making the
evaluations.

     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 of information available to them at the time of their
examination.

     At June 30, 1998, the allowance for loan losses was $4.5 million, which
equaled 1.03% of net loans and 79.27% of non-performing loans.  For the nine
months ended June 30, 1998 and the years ended September 30, 1997 and 1996, the
Bank recorded net loan charge-offs of $578,000, $636,000 and $1.0 million,
respectively, as a reduction of the allowance for loan losses.  Provisions for
loan losses added to the allowance were $1.3 million, $1.1 million and $911,000
during the respective periods.  The Bank's provisions for loan losses are
described in "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

                                       76
The following table sets forth activity in the Bank's allowance for loan
losses for the periods indicated.
NINE MONTHS
                                                     ENDED JUNE 30,                YEARS ENDED SEPTEMBER 30,
                                                  -------------------  ------------------------------------------------
                                                    1998       1997      1997      1996      1995      1994      1993
                                                  ---------  --------  --------  --------  --------  --------  --------
                                                                           (DOLLARS IN THOUSANDS)
Balance at beginning of period..................   $3,779     $ 3,357   $3,357    $ 3,472   $2,837    $2,565    $1,963
                                                   ------     -------   ------    -------   ------    ------    ------
                                                                                                             
Charge-offs:                                                                                                 
  One- to four-family...........................       (3)        (83)    (114)       (33)     (85)      (86)      (79)
  Commercial real estate........................      (87)        (84)    (301)      (840)       -       (56)      (47)
  Construction and land.........................     (350)          -        -          -        -         -         -
  Consumer......................................     (161)       (136)    (171)      (203)     (67)      (59)      (52)
  Commercial business...........................      (10)        (93)    (173)         -        -         -         -
                                                   ------     -------   ------    -------   ------    ------    ------
        Total charge-offs.......................     (611)       (396)    (759)    (1,076)    (152)     (201)     (178)
                                                   ------     -------   ------    -------   ------    ------    ------
                                                                                                             
Recoveries:                                                                                                  
  One- to four-family...........................        -           -       42          3        -         -         -
  Commercial real estate........................        -           4       32         14        -         -         -
  Consumer......................................       33          37       49         33       27        21        19
  Commercial business...........................        -           -        -          -        -         -         1
                                                   ------     -------   ------    -------   ------    ------    ------
        Total recoveries........................       33          41      123         50       27        21        20
                                                   ------     -------   ------    -------   ------    ------    ------
                                                                                                             
Net charge-offs.................................     (578)       (355)    (636)    (1,026)    (125)     (180)     (158)
Provision for loan losses.......................    1,347         875    1,058        911      760       452       760
                                                   ------     -------   ------    -------   ------    ------    ------
Balance at end of period........................   $4,548     $ 3,877   $3,779    $ 3,357   $3,472    $2,837    $2,565
                                                   ======     =======   ======    =======   ======    ======    ======
 
Ratios:
  Net charge-offs to average loans outstanding..     0.14%       0.09%    0.17%      0.29%    0.04%     0.06%     0.05%
  Allowance for loan losses to non-performing
     loans......................................    79.27      112.08    80.80      52.87    52.59     75.55     59.49
  Allowance for loan losses to total loans
     receivable, net............................     1.03        1.00     0.93       0.91     1.05      0.90      0.87
77
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES.  The following tables set forth
the allowance for loan losses allocated by loan category, the total loan
balances by category, and the percent of loans in each category to total loans
at the dates indicated.  The allowance for loan losses allocated to each
category is not necessarily indicative of future losses in any particular
category and does not restrict the use of the allowance to absorb losses in
other categories.
SEPTEMBER 30,
                                                               ---------------------------------------------------------------
                                       JUNE 30, 1998                        1997                             1996
                              -------------------------------  ------------------------------  -------------------------------
                                                    PERCENT                          PERCENT                          PERCENT
                                                    OF LOANS                         OF LOANS                        OF LOANS
                                           LOAN     IN EACH                 LOAN     IN EACH                 LOAN     IN EACH
                                         BALANCES   CATEGORY              BALANCES   CATEGORY              BALANCES  CATEGORY
                              LOAN LOSS     BY      TO TOTAL   LOAN LOSS     BY      TO TOTAL   LOAN LOSS     BY     TO TOTAL
                              ALLOWANCE  CATEGORY    LOANS     ALLOWANCE  CATEGORY    LOANS     ALLOWANCE  CATEGORY    LOANS
                              ---------  --------  ----------  ---------  --------  ----------  ---------  --------  ---------
                                                                   (DOLLARS IN THOUSANDS)
First mortgage loans:
 One- to four-family........    $1,150   $271,593     59.4%      $  734   $241,895      57.7%     $  756   $219,868     57.2%
 Multi-family...............        47      7,108      1.6           47      7,358       1.8          47      7,743      2.0
 Commercial real estate.....     1,810     63,712     13.9        1,384     55,747      13.3       1,200     58,640     15.4
 Construction and land......       306     27,785      6.1          389     31,740       7.6         389     28,035      7.3
Consumer loans..............       862     62,635     13.7          782     60,804      14.4         429     54,797     14.2
Commercial business loans...       373     24,036      5.3          443     21,651       5.2         536     15,263      3.9
                                ------   --------    -----       ------   --------     -----      ------   --------    -----
  Total.....................    $4,548   $456,869    100.0%      $3,779   $419,195     100.0%     $3,357   $384,346    100.0%
                                ======   ========    =====       ======   ========     =====      ======   ========    =====
SEPTEMBER 30,
                              ------------------------------------------------------------------------------------------------
                                           1995                             1994                             1993
                              -------------------------------  ------------------------------  -------------------------------
                                                    PERCENT                          PERCENT                          PERCENT
                                                    OF LOANS                         OF LOANS                        OF LOANS
                                           LOAN     IN EACH                 LOAN     IN EACH                 LOAN     IN EACH
                                         BALANCES   CATEGORY              BALANCES   CATEGORY              BALANCES  CATEGORY
                              LOAN LOSS     BY      TO TOTAL   LOAN LOSS     BY      TO TOTAL   LOAN LOSS     BY     TO TOTAL
                              ALLOWANCE  CATEGORY    LOANS     ALLOWANCE  CATEGORY    LOANS     ALLOWANCE  CATEGORY    LOANS
                              ---------  --------  ----------  ---------  --------  ----------  ---------  --------  ---------
                                                                   (DOLLARS IN THOUSANDS)
First mortgage loans:
 One- to four-family........   $  696    $199,078     59.0%     $  738    $194,425     60.8%     $  840    $191,168     63.9%
 Multi-family...............       47       6,903      2.0          47       7,408      2.3          41       7,869      2.6
 Commercial real estate.....    1,330      60,186     17.9         673      55,053     17.3         514      44,194     14.8
 Construction and land......      389       8,553      2.5         344       8,455      2.6         284       5,863      1.9
Consumer loans..............      474      51,404     15.2         499      43,774     13.6         625      41,764     14.1
Commercial business loans...      536      11,144      3.4         536      10,595      3.4         261       7,949      2.7
                               ------    --------    -----      ------    --------    -----      ------    --------    -----
  Total.....................   $3,472    $337,268    100.0%     $2,837    $319,710    100.0%     $2,565    $298,807    100.0%
                               ======    ========    =====      ======    ========    =====      ======    ========    =====
SECURITIES ACTIVITIES

     The Bank's securities investment policy is established by the Board of
Directors. This policy dictates that investment decisions will be made based on
the safety of the investment, liquidity requirements, potential returns, cash
flow targets, and consistency with the Bank's interest rate risk management.
The Board's asset/liability committee oversees the Bank's investment program and
evaluates on an ongoing basis the Bank's investment policy and objectives. The
chief financial officer, or the chief financial officer acting with the chief
executive officer, is responsible for making securities portfolio decisions in
accordance with established policies. The Bank's chief financial officer and
chief executive officer have the authority to purchase and sell securities
within specific guidelines established by the investment policy. However, all
transactions are reviewed by the Board's committee on at least a quarterly
basis.

     The Bank's current policies generally limit securities investments to U.S.
Government and agency securities, municipal bonds, and corporate debt
obligations as well as investments in preferred and common stock of government
agencies, such as Fannie Mae, Freddie Mac and the Federal Home Loan Bank
("federal agency securities"). Securities in these categories are classified as
"investment securities" for financial reporting purposes.  The policy also
permits investments in mortgage-backed securities, including pass-through
securities issued and guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae as
well as collateralized mortgage obligations ("CMOs") issued or backed by

                                       78
securities issued by these government agencies. Also permitted are investments
in securities issued or backed by the Small Business Administration and asset-
backed securities collateralized by auto loans, credit card receivables, and
home equity and home improvement loans.  The Bank's current investment strategy
uses a risk management approach of diversified investing in fixed-rate
securities with short- to intermediate-term maturities, as well as adjustable-
rate securities, which may have a longer term to maturity. The emphasis of this
approach is to increase overall investment securities yields while managing
interest rate risk. To accomplish these objectives, the Bank focuses on
investments in mortgage-backed securities and CMOs. In addition, U.S. Government
and other non-amortizing securities are used for call protection and liquidity.

                                       79
The composition and maturities of the investment securities portfolio (debt
securities) and the mortgage-backed securities portfolio at June 30, 1998 are
summarized in the following table.  Maturities are based on the final
contractual payment dates, and do not reflect the impact of prepayments or
redemptions that may occur.
MORE THAN ONE YEAR   MORE THAN THAN FIVE YEARS
                                     ONE YEAR OR LESS     THROUGH FIVE YEARS       THROUGH TEN YEARS    
                                   --------------------  --------------------  -------------------------
                                               WEIGHTED             WEIGHTED                   WEIGHTED      
                                   AMORTIZED   AVERAGE   AMORTIZED   AVERAGE   AMORTIZED        AVERAGE      
                                     COST       YIELD      COST       YIELD       COST           YIELD       
                                   ---------  ---------  ---------  ---------  ----------       --------     
                                                          (DOLLARS IN THOUSANDS)
INVESTMENT SECURITIES:                                                                                       
  U.S. Government                                                                                            
   securities..............          $18,974      5.50%    $17,231      6.15%     $    --            --%     
  Federal agency                                                                                             
   obligations.............            1,030      5.79      26.507      5.86           --            --      
  Corporate debt securities            1,998      5.35          --        --           --            --      
  Municipal and other                                                                                        
   securities..............              285      5.35          26      8.02           --            --      
                                     -------               -------             ----------                    
     Total.................          $22,287      5.49%    $43,764      5.97%     $    --            --%     
                                     =======      ====     =======      ====   ==========       =======      
                                                                                                             
                                                                                                             
MORTGAGE-BACKED SECURITIES:                                                                                  
  Ginnie Mae...............          $    --        --%    $    13      7.50%     $ 1,390          7.61%     
  Fannie Mae...............               --        --       8,786      6.07       13,586          6.15      
  Freddie Mac..............            3,078      5.60       1,287      7.31        8,846          6.62      
  CMOs and REMICs..........               --        --          --        --       12,148          6.24      
  Other....................               --        --          --        --           --            --      
                                     -------               -------             ----------                    
                                                                                                             
    Total..................          $ 3,078      5.60%    $10,086      6.23%     $35,970          6.35%     
                                     =======      ====     =======      ====   ==========       =======
MORE THAN TEN YEARS        TOTAL SECURITIES
                                   -------------------  -----------------------------
                                             WEIGHTED                       WEIGHTED
                                   AMORTIZED  AVERAGE   AMORTIZED    FAIR    AVERAGE
                                     COST      YIELD      COST      VALUE     YIELD
                                   ---------  --------  ---------  --------  --------
                                                (DOLLARS IN THOUSANDS)
INVESTMENT SECURITIES:              
  U.S. Government                   
   securities..............          $    --       --%   $ 36,205  $ 36,348     5.81%
  Federal agency                    
   obligations.............               --       --      27,537    27,495     5.85
  Corporate debt securities               --       --       1,998     1,996     5.35
  Municipal and other               
   securities..............              400     6.75         711       711     6.25
                                     -------             --------  --------
     Total.................          $   400     6.75%   $ 66,451  $ 66,550     5.81%
                                     =======     ====    ========  ========     ====
                                    
                                    
MORTGAGE-BACKED SECURITIES:         
  Ginnie Mae...............          $ 5,498     7.15%   $  6,901  $  6,983     7.25%
  Fannie Mae...............           17,947     6.65      40,319    40,399     6.35
  Freddie Mac..............           30,562     6.96      43,773    44,269     6.81
  CMOs and REMICs..........           23,344     6.23      35,492    35,757     6.23
  Other....................            6,336     6.82       6,336     6,430     6.82
                                     -------             --------  --------
                                    
    Total..................          $83,687     6.69%   $132,821  $133,838     6.49%
                                     =======     ====    ========  ========     ====
80
INVESTMENT SECURITIES.  At June 30, 1998, the Bank held $68.8 million, or
10.1% of total assets, in investment securities, consisting primarily of U.S.
Government and agency obligations with short- to medium-term maturities (one to
five years).  While these securities generally provide lower yields than other
investments such as mortgage-backed securities, the Bank's current investment
strategy is to maintain investments in such instruments to the extent
appropriate for liquidity purposes, as collateral for borrowings, and for
prepayment protection.

     SFAS No. 115 requires the Bank to designate its securities as held to
maturity, available for sale, or trading, depending on the Bank's ability and
intent.  The Bank does not have a trading portfolio.  As of June 30, 1998, $48.6
million of the investment securities portfolio, or 7.2% of total assets, was
classified as available for sale.  At such date, $20.2 million of the investment
securities portfolio, or 3.0% of total assets, was classified as held to
maturity.

     The following table sets forth the composition of the Bank's investment
securities portfolio at the dates indicated.
SEPTEMBER 30,
                                                             --------------------------------------------------------
                                          JUNE 30, 1998            1997                1996                1995
                                         ----------------    ----------------    ----------------    ----------------
                                        AMORTIZED  FAIR     AMORTIZED  FAIR     AMORTIZED  FAIR     AMORTIZED  FAIR
                                           COST    VALUE      COST     VALUE      COST     VALUE       COST    VALUE
                                         -------  -------    -------  -------    -------  -------    -------  -------
                                                                    (DOLLARS IN THOUSANDS)
SECURITIES HELD TO MATURITY:
  U.S. Government securities...........  $ 8,979  $ 8,975    $ 8,952  $ 8,913    $13,888  $13,763    $23,945  $23,774
  Federal agency obligations...........   10,507   10,493     12,521   12,457      7,514    7,307     13,506   13,521
  Municipal and other securities.......      711      711        722      721        736      730        469      469
                                         -------  -------    -------  -------    -------  -------    -------  -------
      Total investment securities held                                                               
           to maturity.................   20,197   20,179     22,195   22,091     22,138   21,800     37,920   37,764
                                         -------  -------    -------  -------    -------  -------    -------  -------
SECURITIES AVAILABLE FOR SALE:                                                                       
  U.S. Government securities...........   27,227   27,372     27,273   27,387     24,185   24,046      7,123    7,144
  Federal agency obligations...........   17,029   17,003     15,993   15,948     16,976   16,814      9,974   10,166
  Corporate debt securities............    1,998    1,996      3,007    3,005      4,037    4,033      4,078    4,045
  Equity securities....................    2,017    2,258      2,017    2,177      2,017    2,420         17      101
                                         -------  -------    -------  -------    -------  -------    -------  -------
      Total investment securities                                                                    
           available for sale..........   48,271   48,629     48,290   48,517     47,215   47,313     21,192   21,456
                                         -------  -------    -------  -------    -------  -------    -------  -------
      Total investment securities......  $68,468  $68,808    $70,485  $70,608    $69,353  $69,113    $59,112  $59,220
                                         -------  -------    -------  -------    -------  -------    -------  -------
                                                                                                     
Weighted average term to maturity......  2 years            2  years            2  years             2 years
U.S. Government and Agency Obligations.  At June 30, 1998, the Bank's U.S.
Treasury securities portfolio totaled $36.4 million, or 5.4% of total assets, of
which $27.3 million was classified as available for sale and $9.0 million was
classified as held to maturity.  All of the Bank's U.S. Treasury securities at
that date had maturities of less than five years, with a weighted average yield
of 5.81%.  At June 30, 1998, the federal agency securities portfolio totaled
$27.5 million, or 4.1% of total assets, of which $17.0 million was classified as
available for sale and $10.5 million was classified as held to maturity.  All of
the Bank's agency securities had maturities of less than five years, with a
weighted average yield of 5.85%.  The agency securities portfolio includes both
non-callable and callable debentures. The agency debentures are callable on a
quarterly basis following an initial holding period of from twelve to twenty-
four months.

     Corporate Bonds and Other Debt Securities. At June 30, 1998, the Bank held
one corporate debt security, in the amount of $2.0 million, which was classified
as available for sale.  This security had a maturity of less than one year and a
yield of 5.35%.  Bank policy limits investments in corporate bonds to securities
with maturities of three years or less and rated "AA" or better by at least one
nationally recognized rating agency, and to a total investment of no more than
$2.0 million per issuer and a total portfolio limit of $10.0 million.  Bank
policy limits investments in floating-rate corporate bonds to securities with
maturities of five years or less and rated "AA" or better, and to a total
investment of no more than $2.0 million per issuer and a total portfolio limit
of $20.0 million.  At June 30, 1998, the Bank held two bonds issued by states
and political subdivisions in the amount of $685,000.  The bonds are not rated
and have an estimated fair value of $685,000.

                                       81
Equity Securities.  At June 30, 1998, the Bank's equity securities
portfolio totaled $2.2 million, all of which was classified as available for
sale, and consisted of preferred stock issued by Freddie Mac and Fannie Mae.
The Bank also held $3.7 million of common stock in the FHLB of New York as a
condition of membership. The Bank benefits from its investment in common and
preferred stock due to a tax deduction the Bank receives with regard to
dividends paid by domestic corporate issuers on equity securities held by other
corporate entities, such as the Bank. The Bank's policy limit for aggregate
equity investments (other than FHLB stock) is $5.0 million and the amount
invested in any single issuer may not exceed $2.5 million.  The Bank's current
policies permit the purchase of preferred stock of U.S. Government-sponsored or
quasi-government agencies such as those described above.

     MORTGAGE-BACKED SECURITIES.  The Bank purchases mortgage-backed securities
in order to: (i) generate positive interest rate spreads with minimal
administrative expense; (ii) lower credit risk as a result of the guarantees
provided by Freddie Mac, Fannie Mae and Ginnie Mae; and (iii) increase
liquidity.  The Bank invests primarily in mortgage-backed securities issued or
sponsored by Fannie Mae, Freddie Mac, and Ginnie Mae.  The Bank also invests to
a lesser extent in securities backed by the Small Business Administration, or
agencies of the U.S. government.

     Mortgage-backed securities are created by pooling mortgages and issuing a
security collateralized by the pool of mortgages with an interest rate that is
less than the interest rate on the underlying mortgages.  Mortgage-backed
securities typically represent a participation interest in a pool of single-
family or multi-family mortgages, although most of the Bank's mortgage-backed
securities investments are collateralized by single-family mortgages. The
issuers of such securities (generally U.S. Government agencies and government
sponsored enterprises, including Fannie Mae, Freddie Mac and Ginnie Mae) pool
and resell the participation interests in the form of securities to investors,
such as the Bank, and guarantee the payment of principal and interest to these
investors. Mortgage-backed securities generally yield less than the loans that
underlie such securities because of the cost of payment guarantees, credit
enhancements and servicing fees.  However, mortgage-backed securities are
usually more liquid than individual mortgage loans and may be used to
collateralize certain liabilities and obligations of the Bank. Investments in
mortgage-backed securities involve a risk that actual prepayments will be
greater than the estimated life of the security, which may require adjustments
to the amortization of any premium or accretion of any discount relating to such
instruments, thereby reducing the net yield on such securities. There is also
reinvestment risk associated with cash flows from and redemptions of such
securities.  In addition, the market value of such securities may be adversely
affected by changes in interest rates. The Bank reviews prepayment estimates for
its mortgage-backed securities at purchase to ensure that prepayment assumptions
are reasonable considering the underlying collateral for the securities at issue
and current interest rates, and to determine the yield and estimated maturity of
the mortgage-backed securities portfolio.

                                       82
The following table sets forth the composition of the Bank's mortgage-
backed securities portfolio at the dates indicated.
SEPTEMBER 30,
                                                        ----------------------------------------------------------------
                                     JUNE 30, 1998              1997                  1996                  1995
                                  --------------------  --------------------  --------------------  --------------------
                                  AMORTIZED     FAIR    AMORTIZED     FAIR    AMORTIZED     FAIR    AMORTIZED     FAIR
                                    COST       VALUE      COST       VALUE      COST       VALUE      COST       VALUE
                                  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
                                                                      (IN THOUSANDS)
SECURITIES HELD TO MATURITY:
 Pass-through securities:
  Ginnie Mae...................    $  6,901   $  6,983   $  7,971   $  8,114   $  3,284   $  3,362   $  3,669   $  3,634
  Fannie Mae...................      28,810     28,784     29,674     29,565     35,604     34,806     28,588     28,007
  Freddie Mac..................      38,050     38,393     49,158     49,497     58,091     57,518     39,263     39,329
  Other........................       2,173      2,279      2,222      2,282      2,257      2,237      2,274      2,344
 CMOs and REMICs...............      13,400     13,624     15,046     15,166     13,627     13,596      6,941      6,992
                                   --------   --------   --------   --------   --------   --------   --------   --------
                                     89,334     90,063    104,071    104,624    112,863    111,519     80,735     80,306
                                   --------   --------   --------   --------   --------   --------   --------   --------
SECURITIES AVAILABLE FOR SALE:
 Pass-through securities:
  Fannie Mae...................      11,514     11,616     13,172     13,335     14,851     14,822     12,001     12,385
  Freddie Mac..................       5,736      5,876      7,364      7,571     12,355     12,489     14,525     14,685
  Other........................       4,145      4,151      4,584      4,567      4,896      4,882      3,151      3,147
 CMOs and REMICs...............      22,092     22,132     10,665     10,680      9,334      9,289        112        112
                                   --------   --------   --------   --------   --------   --------   --------   --------
                                     43,487     43,775     35,785     36,153     41,436     41,482     29,789     30,329
                                   --------   --------   --------   --------   --------   --------   --------   --------
    Total mortgage-backed
     securities................    $132,821   $133,838   $139,856   $140,777   $154,299   $153,001   $110,524   $110,635
                                   ========   ========   ========   ========   ========   ========   ========   ========
The following table summarizes the activity in the mortgage-backed
 securities portfolio for the periods indicated.
NINE MONTHS
                                             ENDED JUNE 30,        YEARS ENDED SEPTEMBER 30,
                                          -------------------   ------------------------------
                                            1998       1997       1997       1996       1995
                                          --------   --------   --------   --------   --------
                                                             (IN THOUSANDS)
Amortized cost at beginning of period...  $139,856   $154,299   $154,299   $110,524   $ 97,780
                                          --------   --------   --------   --------   --------
Purchases:
 Pass-through securities:
   Fixed-rate...........................     9,465      2,920      8,085     27,881     13,105
   Adjustable-rate......................        --         --         --     25,673      7,540
 CMOs and REMICs........................    16,033      1,986      3,986     18,716      8,344
                                          --------   --------   --------   --------   --------
      Total purchases...................    25,498      4,906     12,071     72,270     28,989
                                          --------   --------   --------   --------   --------

Principal repayments....................   (32,421)   (19,401)   (26,397)   (28,450)   (16,152)
Premium amortization and
 discount accretion, net................      (112)       (97)      (117)       (45)       (93)
                                          --------   --------   --------   --------   --------

Amortized cost at end of period.........  $132,821   $139,707   $139,856   $154,299   $110,524
                                          ========   ========   ========   ========   ========
Pass-Through Securities.  At June 30, 1998, $97.6 million of the Bank's
mortgage-backed securities consisted of pass-through securities, which totaled
14.4% of total assets.  In compliance with SFAS No. 115, $21.6 million of these,
or 3.2% of total assets, were classified as available for sale, while $75.9
million, or 11.2% of total assets, were classified as held to maturity.  The
estimated fair value of these held to maturity securities at June 30, 1998 was
$76.4 million, which was $505,000 greater than the amortized cost of $75.9
million.

     On the basis of amortized cost at June 30, 1998, the Bank's mortgage-backed
pass-through securities portfolio totaled $97.3 million, of which $3.1 million
had a weighted average yield of 5.60% and contractual maturities within one
year; $10.1 million had a weighted average yield of 6.23% and contractual
maturities within five years; $23.8 million had a weighted average yield of
6.41% and contractual maturities of five to ten years; and $60.3 million had a
weighted average yield of 6.87% and contractual maturities of over ten years.
However, the actual maturity of a mortgage-backed security may be less than its
stated contractual maturity due to prepayments of the underlying mortgages.
Prepayments that are faster than anticipated may shorten the life of the
security and may result in a loss of any premiums paid and thereby reduce the
net yield on such securities. Although prepayments of underlying mortgages
depend on many factors, the difference between the interest rates on the
underlying mortgages and the
                                       83
prevailing mortgage interest rates generally is the most significant determinant
of the rate of prepayments. During periods of declining mortgage interest rates,
refinancing generally increases and accelerates the prepayment of the underlying
mortgages and the related security. Under such circumstances, the Bank may be
subject to reinvestment risk because, to the extent that the mortgage-backed
securities prepay faster than anticipated, the Bank may not be able to reinvest
the proceeds of such repayments and prepayments at a comparable rate of return.
Conversely, in a rising interest rate environment prepayments may decline,
thereby extending the estimated life of the security and depriving the Bank of
the ability to reinvest cash flows at the increased rates of interest.

     CMOs and REMICs.  In addition to mortgage-backed pass-through securities,
the Bank invests in CMOs or collateralized mortgage obligations, including
REMICs.  This portfolio is limited to CMOs and REMICs backed by Fannie Mae and
Freddie Mac. CMOs are a type of debt security issued by a special-purpose entity
that aggregates pools of mortgages and mortgage-backed securities and creates
different classes of CMO securities with varying maturities and amortization
schedules, as well as a residual interest, with each class possessing different
risk characteristics.  The cash flows from the underlying collateral are
generally divided into "tranches" or classes whereby tranches have descending
priorities with respect to the distribution of principal and interest repayment
of the underlying mortgages and mortgage-backed securities, as opposed to pass-
through mortgage-backed securities where cash flows are distributed pro rata to
all security holders. In contrast to mortgage-backed securities from which cash
flow is received (and hence, prepayment risk is shared) pro rata by all
securities holders, the cash flow from the mortgages or mortgage-backed
securities underlying CMOs is paid in accordance with a predetermined priority
to investors holding various tranches of such securities or obligations.  A
particular tranche of CMOs may, therefore, carry prepayment risk that differs
from that of both the underlying collateral and other tranches.  Investments in
CMOs involve a risk that actual prepayments will differ from those estimated in
pricing the security, which may result in adjustments to the net yield on such
securities.  Additionally, the market value of such securities may be adversely
affected by changes in market interest rates.  Management believes these
securities may represent attractive alternatives relative to other investments
due to the wide variety of maturity, repayment and interest rate options
available.

     At June 30, 1998, the Bank's CMO portfolio totaled $35.5 million, or 5.2%
of total assets, and consisted of CMOs issued by government sponsored agencies
such as Fannie Mae and Freddie Mac.  Overall, the CMO portfolio at June 30, 1998
had a weighted average yield of 6.23%. The Bank owns both fixed-rate and
floating-rate CMOs.  At June 30, 1998, $22.1 million of the CMO portfolio, or
3.3% of total assets, was classified as available for sale and 13.4 million, or
2.0% of total assets, was classified as held-to-maturity.  The estimated fair
value of the Bank's held-to-maturity CMO portfolio at June 30, 1998 was $13.6
million, or $224,000 more than the amortized cost.  The Bank's CMO portfolio at
June 30, 1998 included securities of $23.3 million for which the underlying
mortgage collateral had contractual maturities of over ten years.  However, as
with mortgage-backed pass-through securities, the actual maturity of a CMO may
be less than its stated contractual maturity due to prepayments of the
underlying mortgages.

     The Bank's practice is to limit fixed-rate CMO investments primarily in the
early to intermediate tranches, which have the greatest cash flow stability.
Floating rate CMOs are purchased with emphasis on the relative trade-offs
between life rate caps, prepayment risk, and interest rates.  The Bank's current
policy with respect to CMOs limits investments to non-high risk securities
unless approval is given by the Board of Directors and an analysis is provided
on how a high-risk CMO will improve the overall interest rate risk of the Bank.
High-risk CMOs are defined as those securities exhibiting significantly greater
volatility of estimated average life and price relative to interest rates
compared to 30-year, fixed-rate securities.

SOURCES OF FUNDS

     GENERAL.  Deposits, repayments and prepayments of loans and securities,
proceeds from sales of loans and securities, proceeds from maturing securities
and cash flows from operations, are the primary sources of the Bank's funds for
use in lending, investing and for other general purposes.  To a lesser extent,
the Bank uses borrowed funds (primarily FHLB advances) to fund its operations.

                                       84
DEPOSITS.  The Bank offers a variety of deposit accounts with a range of
interest rates and terms.  Its deposit accounts consist of savings accounts, NOW
accounts, checking accounts, money market accounts, school savings and club
accounts, and certificates of deposit.  It offers certificates of deposit with
balances in excess of $100,000, as well as Individual Retirement Accounts
("IRAs") and other qualified plan accounts.  The Bank provides commercial
checking accounts for small to moderately-sized businesses, as well as low-cost
checking account services for low-income customers.

     At June 30, 1998, the Bank's deposits totaled $580.1 million.  Interest-
bearing deposits totaled $525.0 million, and non-interest bearing demand
deposits totaled $55.1 million.  NOW, savings and money market deposits totaled
$281.7 million at June 30, 1998.  Also at that date, the Bank had a total of
$243.3 million in certificates of deposit, of which $180.5 million had
maturities of one year or less.  Although the Bank has a significant portion of
its deposits in shorter-term certificates of deposit, management monitors
activity on these accounts and, based on historical experience and the Bank's
current pricing strategy, believes it will retain a large portion of such
accounts upon maturity.

     The flow of deposits is influenced significantly by general economic
conditions, changes in money market rates, prevailing interest rates and
competition.  The Bank's deposits are obtained predominantly from the areas in
which its branch offices are located.  It relies primarily on competitive
pricing of its deposit products, customer service and long-standing
relationships with customers to attract and retain these deposits; however,
market interest rates and rates offered by competing financial institutions
significantly affect the Bank's ability to attract and retain deposits. The Bank
uses traditional means of advertising its deposit products, including radio and
print media, and generally does not solicit deposits from outside its market
area.  While certificates of deposit in excess of $100,000 are accepted by the
Bank, and may be subject to preferential rates, it does not actively solicit
such deposits as they are more difficult to retain than core deposits.
Historically, the Bank has not used brokers to obtain deposits.

     The following table summarizes the deposit activity of the Bank for the
periods indicated.
NINE MONTHS
                                                        ENDED JUNE 30,                YEARS ENDED SEPTEMBER 30,
                                                  --------------------------  ---------------------------------------
                                                      1998          1997          1997          1996          1995
                                                  ------------  ------------  ------------  ------------  -----------
(DOLLARS IN THOUSANDS)
 
Balance at beginning of period..................  $   546,846   $   545,286   $   545,286   $   443,667   $   419,808
Deposits........................................    1,397,782     1,194,785     1,621,185     1,303,205     1,010,258
Withdrawals.....................................   (1,378,661)   (1,195,933)   (1,638,170)   (1,323,389)   (1,000,617)
Deposit liabilities assumed in connection with                                                            
 purchase of branch offices.....................           --            --            --       104,477            --
Interest credited...............................       14,108        13,796        18,545        17,326        14,218
                                                  -----------   -----------   -----------   -----------   -----------
Balance at end of period........................  $   580,075   $   557,934   $   546,846   $   545,286   $   443,667
                                                  ===========   ===========   ===========   ===========   ===========
                                                                                                          
Net increase during the period:                                                                           
 Amount.........................................  $    33,229   $    12,648   $     1,560   $   101,619   $    23,859
 Percent........................................          6.1%          2.3%          0.3%         22.9%          5.7%
85
The following table sets forth the distribution of the Bank's deposit
accounts, by account type, at the dates indicated.
SEPTEMBER 30,
                                                             --------------------------
                                      JUNE 30, 1998                    1997            
                             ------------------------------  -------------------------- 
                                                   WEIGHTED                    WEIGHTED 
                                                   AVERAGE                      AVERAGE 
                              AMOUNT    PERCENT     RATE      AMOUNT   PERCENT   RATE   
                             --------  ---------  ---------  --------  --------  ------  
                                                (DOLLARS IN THOUSANDS)
Demand deposits............  $ 55,072       9.5%        --%  $ 49,221      9.0%    --%  
NOW deposits...............    40,969       7.1       1.25     32,985      6.0   1.25   
Savings deposits...........   161,263      27.8       2.25    153,171     28.0   2.25   
Money market deposits......    79,436      13.7       2.96     75,339     13.8   2.96   
                             --------     -----              --------    -----          
                              336,740      58.1       1.93    310,716     56.8   1.96   
Certificates of deposit....   243,335      41.9       5.22    236,130     43.2   5.31   
                             --------     -----              --------    -----          
                                                                                        
Total deposits.............  $580,075     100.0%      3.31%  $546,846    100.0%  3.40%  
                             ========     =====       ====   ========    =====   ====
SEPTEMBER 30,
                             -----------------------------------------------------
                                        1996                         1995
                             -------------------------  -------------------------- 
                                               WEIGHTED                   WEIGHTED
                                                AVERAGE                   AVERAGE
                              AMOUNT   PERCENT   RATE    AMOUNT   PERCENT   RATE
                             --------  --------  -----  --------  --------  ------
                                              (DOLLARS IN THOUSANDS)
Demand deposits............  $ 42,700      7.8%    --%  $ 28,153      6.3%    --%
NOW deposits...............    30,950      5.7   1.25     25,664      5.9   1.25
Savings deposits...........   153,565     28.2   2.25    143,722     32.4   2.25
Money market deposits......    77,111     14.1   2.97     59,149     13.3   3.20
                             --------    -----          --------    -----
                              304,326     55.8   2.02    256,688     57.9   2.12
Certificates of deposit....   240,960     44.2   5.10    186,979     42.1   5.37
                             --------    -----          --------    -----
                             
Total deposits.............  $545,286    100.0%  3.38%  $443,667    100.0%  3.49%
                             ========    =====   ====   ========    =====   ====
86
The following table sets forth, by interest rate ranges, information
concerning the Bank's certificates of deposit at the dates indicated.
AT JUNE 30, 1998                                                        
                      -------------------------------------------------------------------         TOTAL AT      
                                  PERIOD TO MATURITY                                            SEPTEMBER 30,
                      -------------------------------------------------------------------  -----------------------
                      LESS THAN   ONE TO       TWO TO     MORE THAN              PERCENT
 INTEREST RATE RANGE   ONE YEAR  TWO YEARS  THREE YEARS  THREE YEARS   TOTAL    OF TOTAL     1997        1996
--------------------  ---------  ---------  -----------  -----------  --------  ---------  --------  -------------
                                                  (DOLLARS IN THOUSANDS)
4.00% and below......  $    719    $    --       $   --       $   --  $    719       0.3%  $    716       $    925
4.01% to 5.00%.......    79,264      7,728        1,590            7    88,589      36.4     68,707        136,272
5.01% to 6.00%.......    90,720     31,519        5,340        5,116   132,695      54.5    151,729         74,627
6.01% to 7.00%.......     9,715      6,705           12          400    16,832       6.9      9,557         24,819
7.01% and above......        97      4,051          146          206     4,500       1.9      5,421          4,317
                       --------    -------       ------       ------  --------     -----   --------       --------
 
      Total..........  $180,515    $50,003       $7,088       $5,729  $243,335     100.0%  $236,130       $240,960
                       ========    =======       ======       ======  ========     =====   ========       ========
The following table sets forth the amount of the Bank's certificates of
deposit by time remaining until maturity as of June 30, 1998.
MATURITY
                                                    --------------------------------------------
                                                    3 MONTHS  OVER 3 TO 6  OVER 6 TO 12  OVER 12
                                                    OR LESS     MONTHS        MONTHS     MONTHS    TOTAL
                                                    --------  -----------  ------------  -------  --------
                                                                        (IN THOUSANDS)
Certificates of deposit less than $100,000........   $59,149      $39,836       $64,074  $54,496  $217,555
Certificates of deposit of $100,000 or more/(1)/..     7,692        3,215         6,549    8,324    25,780
                                                     -------      -------       -------  -------  --------
 Total of certificates of deposit.................   $66,841      $43,051       $70,623  $62,820  $243,335
                                                     =======      =======       =======  =======  ========
-----------------------
/(1)/ The weighted average interest rates for these accounts, by maturity
      period, are 4.90% for 3 months or less; 4.88% for 3 to 6 months; 5.38% for
      6 to 12 months; and 5.76% for over 12 months. The overall weighted average
      interest rate for accounts of $100,000 or more was 5.30%.

     BORROWINGS.  At June 30, 1998, the Bank had $25.0 million of borrowings,
all of which consisted of FHLB advances.  FHLB advances were $24.0 million as of
September 30, 1997 and $13.0 million as of September 30, 1996. At June 30, 1998,
the Bank had access to additional FHLB borrowings of up to $178.7 million.

     The following table sets forth information concerning balances and interest
rates on the Bank's FHLB advances at the dates and for the periods indicated.
AT OR FOR THE
                                                      NINE MONTHS                AT OR FOR THE
                                                     ENDED JUNE 30,         YEARS ENDED SEPTEMBER 30,
                                                    ----------------      -----------------------------
                                                     1998     1997         1997       1996       1995             
                                                   -------   -------      -------   -------    --------
                                           (DOLLARS IN THOUSANDS)
Balance at end of period.......................... $25,048   $13,000      $24,000   $13,000    $ 13,900
Average balance during period.                      29,009    25,451       23,730    22,686       9,139
Maximum outstanding at any  month end.............  33,000    38,000       38,000    56,400      20,300
Weighted average interest rate at end of period...    6.13%     6.88%        6.69%     6.61%       7.15%
Average interest rate during period...............    5.96%     6.20%        6.27%     6.49%       6.83%
SUBSIDIARY ACTIVITIES

     Provest Services Corp. I is a wholly-owned subsidiary of the Bank holding
an investment in a limited partnership which operates an assisted-living
facility.  A percentage of the units in the facility are for low-income
individuals.  Provest Services Corp. II is a wholly-owned subsidiary of the Bank
which has engaged a third-party 

                                       87
provider to sell annuities and mutual funds to the Bank's customers. Through
June 30, 1998, the activities of these subsidiaries have had an insignificant
effect on the Bank's consolidated financial condition and results of operations.

COMPETITION

     The Bank faces significant competition in both originating loans and
attracting deposits.  The New York metropolitan area has a high concentration of
financial institutions, most of whom are significantly larger institutions that
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, mortgage banking companies,
credit unions and insurance companies and other financial service companies.
Its most direct competition for deposits has historically come from commercial
banks, savings banks and credit unions.  The Bank faces additional competition
for deposits from non-depository competitors such as the mutual fund industry,
securities and brokerage firms and insurance companies.  Further competition may
arise as restrictions on the interstate operations of financial institutions are
removed.

                                       88
PROPERTIES

     The Bank currently conducts its business through eleven full-service
banking offices.  The following table sets forth information concerning each of
the Bank's offices as of June 30, 1998.
NET BOOK VALUE
                                          ORIGINAL                OF PROPERTY OR
                                LEASED      YEAR      DATE OF       LEASEHOLD
                                  OR      LEASED OR    LEASE     IMPROVEMENTS AT
          LOCATION               OWNED    ACQUIRED   EXPIRATION   JUNE 30, 1998
-----------------------------  ---------  ---------  ----------  ---------------
                                                                 (IN THOUSANDS)
ADMINISTRATIVE/HOME OFFICE:
 
Corporate Office                Leased      1994        2009           $398
400 Rella Boulevard                                     
Montebello, NY  10901                                   
                                                        
BRANCH OFFICES:                                         
                                                        
Haverstraw Office               Leased      1995        2014             52
38-40 New Main Street                                   
Haverstraw, NY  10927                                   
                                                        
Orangeburg Office                Owned      1972        N/A             173
Route 303 at Kings Highway                              
Orangeburg, NY  10962                                   
                                                        
Stony Point Office               Owned      1973        N/A             179
Route 9W                                                
Stony Point, NY  10980                                  
                                                        
New City Office                  Owned      1966        N/A             915
179 South Main Street                                   
New City, NY  10956                                     
                                                        
Nanuet Office (1)               Leased      1996        2025            966
Route 59                                                
Nanuet, NY  10954                                       
                                                        
Spring Valley Office             Owned      1996        N/A              85
72 West Eckerson Road                                   
Spring Valley, NY  10977                                
                                                        
Congers Office                  Leased      1984        1999            202
1 Lake Road West                                        
Congers, NY  10920                                      
                                                        
Mount Ivy Office                Leased      1988        2009            144
120 Route 202                                           
Mount Ivy, NY  10970                                    
                                                        
Suffern Office                   Owned      1981        N/A             263
71 Lafayette Avenue                                                     
Suffern, NY  10901                                                      
                                                                        
Airmont Office                   Owned      1975        N/A             202
196 Route 59                                            
Airmont, NY  10901                                      
                                                        
Pearl River Office              Leased      1994        1999             66
Shop-Rite Supermarket
26 North Middletown Road
Pearl River, NY  10965
______________________________
(1) The Bank owns the building and leases the land.

                                       89
LEGAL PROCEEDINGS

     The Bank is a defendant in a lawsuit, Patrick Gawrysiak a/k/a Patrick Gray
                                           ------------------------------------
v. Provident Bank, brought by a prospective purchaser of REO property, alleging
-----------------                                                              
breach of contract, negligence, consumer fraud and civil conspiracy.  The
plaintiff brought the lawsuit in the Superior Court of New Jersey, Bergen County
Law Division, and is seeking compensatory damages of $500,000, exemplary damages
of $1.0 million, "nominal" damages of $1.0 million and punitive damages of $1.0
million.  Although there can be no certainty as to the outcome of this matter,
management believes the claim is baseless and has retained counsel to vigorously
contest the claim.

     The Bank is not involved in any other pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business which, in
the aggregate, involved amounts which are believed by management to be
immaterial to the financial condition and operations of the Bank.

PERSONNEL

     As of June 30, 1998, the Bank had 167 full-time employees and 46 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.

                                    TAXATION

FEDERAL TAXATION

     GENERAL.  The following is a discussion of material federal income tax
matters and does not purport to be a comprehensive description of the federal
income tax rules applicable to the Bank or the Company.  For federal income tax
purposes, after the Reorganization, the Company and the Bank will file
consolidated income tax returns and report their income on a fiscal 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 tax reserve for bad debts, discussed below.

     Historically, savings associations, such as the Bank, were permitted to
compute bad debt deductions using either the experience method or the percentage
of taxable income method. However, for years beginning after December 31, 1995,
no savings association may use the percentage of taxable income method of
computing its allowable bad debt deduction for tax purposes. Instead, all
savings associations are required to compute their allowable deduction using
either the experience method or the specific charge-off method. As a result of
the repeal of the percentage of taxable income method, reserve additions (tax
bad debt deductions) made after 1987 using the percentage of taxable income
method generally must be included in future taxable income (or "recaptured")
over a six-year period, although a two-year delay may be permitted for
associations meeting a residential mortgage loan origination test.  The Bank has
established a deferred tax liability for the amount of taxes to be paid under
this recapture rule.  In addition, the pre-1988 reserve, for which a deferred
tax liability has not been recorded, need not be recaptured into income unless:
(i) the Bank's retained earnings represented by the pre-1988 reserve are used
for purposes other than to absorb losses from bad debts, including excess
dividend distributions or distributions in liquidation; (ii) the Bank redeems
its stock; (iii) the Bank fails to meet the definition provided by the Code for
a bank; or (iv) there is a change in the federal tax law.  See Note 10 of the
Notes to Consolidated Financial Statements for a discussion of the Bank's tax
bad debt reserves.

     DISTRIBUTIONS.  If the Bank makes "non-dividend distributions" to the
Company, such distribution will be considered to have been made from the Bank's
unrecaptured tax bad debt reserves (including the balance of its reserves as of
December 31, 1987) and then from the Bank's supplemental reserve for losses on
loans, to the extent thereof, and an amount based on the amount distributed (but
not in excess of the amount of such reserves) will be included in the Bank's
income.  Non-dividend distributions include distributions in excess of the
Bank's current and accumulated earnings and profits, as calculated for federal
income tax purposes, distributions in redemption of stock, 

                                       90
and distribution in partial or complete liquidation. Dividends paid out of the
Bank's current or accumulated earnings and profits will not be so included in
the Bank's income.

     The amount of additional taxable income created from a non-dividend
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
Reorganization, the Bank makes a non-dividend distribution to the Company,
approximately one and one-half times the amount of such distribution (but not in
excess of the amount of such reserves) would be includable in income for federal
income tax purposes, assuming a 34% federal corporate income tax rate.  See
"Regulation" and "Dividend Limitations" for limits on the payment of dividends
by the Bank.  The Bank does not intend to pay dividends that would result in a
recapture of any portion of its tax bad debt reserves.

     Depending on the composition of its items of income and expense, a savings
association may be subject to the alternative minimum tax. A savings association
must pay an alternative minimum tax on the amount (if any) by which 20% of
alternative minimum taxable income ("AMTI"), as reduced by an exemption varying
with AMTI, exceeds the regular tax due. AMTI equals regular taxable income
increased or decreased by certain tax preferences and adjustments, including
depreciation deductions in excess of that allowable for alternative minimum tax
purposes, tax-exempt interest on most private activity bonds issued after August
7, 1986 (reduced by any related interest expense disallowed for regular tax
purposes), and 75% of the excess of adjusted current earnings over AMTI (before
this adjustment and before any alternative tax net operating loss). AMTI may be
reduced only up to 90% by net operating loss carryovers, but alternative minimum
tax paid can be credited against regular tax due in later years.  Under pending
legislative proposals, for taxable years beginning after December 31, 1997 and
before January 1, 2009, an environmental tax of 0.12% of the excess of AMTI
(with certain modification) over $2 million would be imposed on corporations,
including the Bank, whether or not an AMT is paid.
 
     For federal income tax purposes, the Bank files fiscal year tax returns and
reports its income and expenses on the accrual method. The Bank's federal income
tax returns have been audited for tax years through fiscal 1995, and all tax
deficiencies have been satisfied.

NEW YORK STATE TAXATION

     The Company and the Bank will report income on a combined fiscal year basis
to New York State.  The New York State Franchise Tax on corporations is imposed
in an amount equal to the greater of (a) 9% of "entire net income" allocable to
New York State, (b) 3% of "alternative entire net income" allocable to New York
State, (c) 0.01% of the average value of assets allocable to New York State or
(d) a nominal minimum tax.  Entire net income is based on federal taxable
income, subject to certain modifications.  Alternative entire net income is
equal to entire net income without certain modifications.

     A temporary Metropolitan Transportation Business Tax Surcharge on banking
corporations doing business in the Metropolitan District has been applied since
1982.  The Bank transacts a significant portion of its business within this
District and is subject to this surcharge.  The current surcharge rate is 17% of
the State franchise tax liability.

     In July 1996, New York State enacted legislation to preserve the use of the
percentage of taxable income bad debt deduction for state tax purposes.  In
general, the legislation provides for a deduction equal to 32% of the Bank's New
York State taxable income, which is comparable to the deductions permitted under
the prior tax law.  The legislation also provides for a floating base year,
which allows the Bank to change from the percentage of taxable income method to
the experience method without recapture of any reserve.  Previously, the Bank
had established a deferred New York State tax liability for the excess of its
New York State tax bad debt reserves over the amount of its base-year New York
State reserves.  Since the new legislation effectively eliminated the reserves
in excess of the base-year balances, the Bank reduced its deferred tax liability
by $500,000 (with a corresponding reduction in income tax expense) during the
year ended September 30, 1996.

     Generally, New York State tax law has requirements similar to federal
requirements regarding the recapture of base-year tax bad debt reserves.  One
notable exception is that, after the 1996 legislation, New York continues to

                                       91
require that at least 60% of the Bank's assets consist of specified assets
(generally, loans secured by residential real estate or deposits, educational
loans, cash and certain government obligations).  The Bank expects to continue
to meet the 60% requirement and does not anticipate engaging in any of the
transactions which would require recapture of its base-year reserves (such as
changing to a commercial bank charter).  Accordingly, under SFAS No. 109, it has
not provided any deferred tax liability on such reserves.  See also Note 10 of
the Notes to Consolidated Financial Statements.

     For further information relating to the tax consequences of the
Reorganization, see "The Reorganization--Principal Effects of Reorganization--
Tax Effects."

                                   REGULATION

GENERAL

     As a federally chartered, SAIF-insured savings bank, the Bank is subject to
examination, supervision and extensive regulation by the OTS and the FDIC.  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 Bank also is subject to regulation by
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board") governing reserves to be maintained against deposits and certain other
matters.  The OTS examines the Bank and prepares reports for the consideration
of the Bank's Board of Directors.  The FDIC also has examination authority over
the Bank in its role as the administrator of the SAIF.  The Bank's relationship
with its depositors and borrowers also is regulated to a great extent by both
federal and state laws, especially in such matters as the ownership of savings
accounts and the form and content of the Bank's mortgage documents.  Any change
in such regulation, whether by the FDIC, OTS, or Congress, could have a material
adverse impact on the Company and the Bank and their operations.

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 (the "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 association may engage.
The description of statutory provisions and regulations applicable to savings
associations set forth herein does not purport to be a complete description of
such statutes and regulations and their effect on the Bank.

     LOANS TO ONE BORROWER.  Under the HOLA, savings institutions are generally
subject to the national bank limits on loans to a single or related group of
borrowers.  Generally, this limit is 15% of the Bank's unimpaired capital and
surplus, and 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.  The OTS by regulation has amended the loans
to one borrower rule to permit savings associations meeting certain requirements
to extend loans to one borrower in additional amounts under circumstances
limited essentially to loans to develop or complete residential housing units.

     QUALIFIED THRIFT LENDER TEST.  In general, savings associations are
required to maintain at least 65% of their portfolio assets in certain qualified
thrift investments (which consist primarily of loans and other investments
related to residential real estate and certain other assets).  A savings
association that fails the qualified thrift lender test is subject to
substantial restrictions on activities and to other significant penalties.

     Recent legislation also expands the QTL test to provide savings
associations with greater authority to lend and diversify their portfolios.  In
particular, credit card and education loans may now be made by savings
associations without regard to any percentage-of-assets limit, and commercial
loans may be made in an amount up to 10% of total assets, plus an additional 10%
for small business loans.  Loans for personal, family and household purposes
(other than credit card, small business and educational loans) are now included
without limit with other assets that, in the 

                                       92
aggregate, may account for up to 20% of total assets. The Bank exceeded the
applicable requirements at June 30, 1998.

     A savings association that fails to meet the QTL test must either convert
to a bank (but its deposit insurance assessments and payments will be those of
and paid to the SAIF) or be subject to the following penalties: (i) it may not
enter into any new activity except for those permissible for a national bank and
for a savings association; (ii) its branching activities will be limited to
those of a national bank; (iii) it will not be eligible for any new FHLB
advances; and (iv) it will be bound by regulations applicable to national banks
regarding the payment of dividends. Three years after failing the QTL test, the
association must (i) dispose of any investment or activity not permissible for a
national bank and a savings association, and (ii) repay all outstanding FHLB
advances. If such a savings association is controlled by a savings and loan
holding company, then such holding company must, within a prescribed time
period, become registered as a bank holding company and become subject to all
rules and regulations applicable to bank holding companies (including
restrictions as to the scope of permissible business activities).

     LIMITATIONS ON CAPITAL DISTRIBUTIONS.  OTS regulations impose limitations
upon all capital distributions by savings institutions, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to stockholders
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.  An institution that exceeds
all fully phased-in 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 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; provided that the institution would not be undercapitalized, as that
term is defined in the OTS Prompt Corrective Action regulations, following the
capital distribution.  Any additional capital distributions would require prior
regulatory approval.  In the event the savings institution's capital fell below
its fully-phased in requirement or the OTS notified it that it was in need of
more than normal supervision, the institution'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
borrowings payable in one year or less.  Monetary penalties may be imposed for
failure to meet these liquidity requirements.  The Bank's average liquidity
ratio at June 30, 1998 exceeded the then applicable requirements.

     COMMUNITY REINVESTMENT ACT AND FAIR LENDING LAWS.  Savings association
share a responsibility under the Community Reinvestment Act ("CRA") and related
regulations of the OTS to help meet the credit needs of their communities,
including low- and moderate-income neighborhoods.  In addition, the Equal Credit
Opportunity Act and the Fair Housing Act (together, the "Fair Lending Laws")
prohibit lenders from discriminating in their lending practices on the basis of
characteristics specified in those statutes.  An institution's failure to comply
with the provisions of CRA could, at a minimum, result in regulatory
restrictions on its activities, and failure to complete with the Fair Lending
Laws could result in enforcement actions by the OTS, as well as other federal
regulatory agencies and the Department of Justice.  The Bank received an
outstanding CRA rating under the current CRA regulations in its most recent
federal examination by the OTS.

     TRANSACTIONS WITH AFFILIATES.  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 nonsavings institution subsidiaries) or to make loans to certain
insiders, is limited by Sections 23A and 23B of the Federal Reserve Act ("FRA").
Section 23A limits the aggregate amount of 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 is generally
prohibited.  Section 23B provides that certain transactions with affiliates,

                                       93
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 nonaffiliated companies.

     ENFORCEMENT.  Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring
enforcement action against all "institution-related parties," including
stockholders, and 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 and/or
directors of the institutions, receivership, conservatorship or the termination
of deposit insurance.  Civil penalties cover a wide range of violations and
actions, and range up to $25,000 per day, unless a finding of reckless disregard
is made, in which case penalties may be as high as $1 million per day.  Under
the FDI Act, the FDIC has the authority to recommend to the Director of 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.

     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, compensation, and such other operational and managerial
standards as the agency deems appropriate.  The federal banking agencies adopted
Interagency Guidelines Prescribing Standards for Safety and Soundness
("Guidelines") to implement the safety and soundness standards required under
the FDI Act.  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 systems; credit
underwriting; loan documentation; interest rate risk exposure; asset growth; 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.  If an institution fails to meet these standards, the appropriate federal
banking agency may require the institution to submit a compliance plan.

     CAPITAL REQUIREMENTS.  The OTS capital regulations require savings
institutions to meet three capital standards: a 1.5% tangible capital standard,
a 3.0% leverage (core capital) standard, and an 8.0% risk-based capital
standard.  Core capital is defined as common stockholders' equity (including
retained earnings), certain noncumulative perpetual preferred stock and related
surplus, minority interests in equity accounts of consolidated subsidiaries less
intangibles other than certain mortgage servicing rights ("MSRs") and purchased
credit card relationships.  The OTS regulations require that, in meeting the
tangible, core 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 provides that a savings institution that has a leverage capital ratio
of less than 4.0% (3.0% for institutions receiving the highest CAMELS
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 8.0%.  In determining the amount of risk-
weighted assets, assets and certain off-balance sheet assets items 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 3.0% 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 losses.  Overall, the
amount of supplementary capital included as part of total capital cannot exceed
100% of core capital.

     The OTS has incorporated an interest rate risk component into its
regulatory capital rule.  The final interest rate risk rule also adjusts the
risk-weighting for certain mortgage derivative securities.  Under the rule,
savings associations with "above normal" interest rate risk exposure would be
subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements.  A savings association's interest rate risk is
measured 

                                       94
by the decline in the net portfolio value of its assets (i.e., the
difference between incoming and outgoing discounted cash flows from assets,
liabilities and off-balance sheet contracts) that would result from a
hypothetical 200-basis point increase or decrease in market interest rates
divided by the estimated economic value of the association's assets, as
calculated in accordance with guidelines set forth by the OTS.  A savings
association whose measured interest rate risk exposure exceeds 2% must deduct an
interest rate component in calculating its total capital under the risk-based
capital rule.  The interest rate risk component is an amount equal to one-half
of the difference between the institution's measured interest rate risk and 2%,
multiplied by the estimated economic value of the association's assets.  That
dollar amount is deducted from an association's total capital in calculating
compliance with its risk-based capital requirement. Under the rule, there is a
two quarter lag between the reporting date of an institution's financial data
and the effective date for the new capital requirement based on that data.  The
rule also provides that the Director of the OTS may waive or defer an
association's interest rate risk component on a case-by-case basis.  The OTS has
postponed the effective date of the capital component in order to provide it
with an opportunity to review the interest rate risk approaches taken by the
other federal banking agencies.

     At June 30, 1998, 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 (i) the OTS tangible,
core and risk-based capital requirements, compared to the Bank's historical
amounts and percentages at June 30, 1998 and (ii) pro forma amounts and
percentages based upon the issuance of the shares within the Offering Range and
assuming that a portion of the net proceeds are retained by the Company.

     THRIFT CHARTER.  Congress has been considering legislation in various forms
that would require federal thrifts, such as the Bank, to convert their charters
to national or state bank charters.  Legislation enacted in 1996 required the
Treasury Department to prepare for Congress a comprehensive study on development
of a common charter for federal savings associations and commercial banks; and
provided for the merger of the BIF and the SAIF into a single deposit insurance
fund on January 1, 1999 provided the thrift charter was eliminated.  The Bank
cannot determine whether, or in what form, such legislation may eventually be
enacted and there can be no assurance that any legislation that is enacted would
not adversely affect the Bank and the Company.

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 total risk-based capital of less than
8.0% or a leverage ratio or a Tier 1 core capital ratio that is less than 4.0%
is considered to be undercapitalized.  A savings institution that has total
risk-based capital of less than 6.0%, a Tier 1 core 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
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
institution receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized."  In addition, numerous
mandatory supervisory actions become immediately applicable to the institution,
including, but not limited to, restrictions on growth, investment activities,
capital distributions, and affiliate transactions.  The OTS may 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.

     At June 30, 1998, the Bank was categorized as "well capitalized," meaning
that the Bank's total risk-based capital ratio exceeded 10.0%, Tier I risk-based
capital ratio exceeded 6.0%,  leverage capital ratio exceeded 5.0%, and the Bank
was not subject to a regulatory order, agreement or directive to meet and
maintain a specific capital level for any capital measure.

INSURANCE OF DEPOSIT ACCOUNTS

     The FDIC has adopted a risk-based deposit 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 

                                       95
seven months before the assessment period, consisting of (1) well capitalized,
(2) adequately capitalized or (3) undercapitalized, and 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 which 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. 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.

FEDERAL HOME LOAN BANK SYSTEM

     The Bank, as a federal association, is required to be 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
of New York, is required to acquire and hold shares of capital stock in that
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.  As of June 30, 1998, the Bank was in compliance with this requirement.
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.

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).  At June 30, 1998, the Bank was
in compliance with these reserve requirements.  The balances maintained to meet
the reserve requirements imposed by the FRB may be used to satisfy liquidity
requirements imposed by the OTS.

HOLDING COMPANY REGULATION

     GENERAL.  The Mutual Holding Company and the Company are nondiversified
mutual savings and loan holding companies within the meaning of the HOLA.  As
such, the Mutual Holding Company and the Company are registered with the OTS and
are subject to OTS regulations, examinations, supervision and reporting
requirements. In addition, the OTS has enforcement authority over the Mutual
Holding Company and the Company and any nonsavings 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.  As federal corporations, the Company and the Mutual Holding
Company are generally not subject to state business organizations law.

     PERMITTED ACTIVITIES.  Pursuant to Section 10(o) of the HOLA and OTS
regulations and policy, a Mutual Holding Company and a federally chartered mid-
tier holding company such as the Company may engage in the following activities:
(i) investing in the stock of a savings association; (ii) acquiring a mutual
association through the merger of such association into a savings association
subsidiary of such holding company or an interim savings association subsidiary
of such holding company; (iii) merging with or acquiring another holding
company, one of whose subsidiaries is a savings association; (iv) investing in a
corporation, the capital stock of which is available for purchase by a savings
association under federal law or under the law of any state where the subsidiary
savings association or associations share their home offices; (v) furnishing or
performing management services for a savings association subsidiary of such
company; (vi) holding, managing or liquidating assets owned or acquired from a
savings subsidiary of such company; (vii) holding or managing properties used or
occupied by a savings association subsidiary of such company properties used or
occupied by a savings association subsidiary of such company; (viii) acting as
trustee under deeds of trust; (ix) any other activity (A) that the Federal
Reserve Board, by regulation, has determined to be permissible for bank holding
companies under Section 4(c) of the Bank Holding Company Act of 1956, unless the
Director, by regulation, prohibits or limits any such activity for savings and
loan holding companies; or (B) in which multiple savings and loan holding
companies were authorized (by regulation) to directly engage on March 5, 1987;

                                       96
and (x) purchasing, holding, or disposing of stock acquired in connection with a
qualified stock issuance if the purchase of such stock by such savings and loan
holding company is approved by the Director.  If a Mutual Holding Company
acquires or merges with another holding company, the holding company acquired or
the holding company resulting from such merger or acquisition may only invest in
assets and engage in activities listed in (i) through (x) above, and has a
period of two years to cease any nonconforming activities and divest of any
nonconforming investments.

     The HOLA prohibits a savings and loan holding company, including the
Company and the Mutual Holding Company, directly or indirectly, or through one
or more subsidiaries, from acquiring another savings institution or holding
company thereof, without prior written approval of the OTS.  It also prohibits
the acquisition or retention of, with certain exceptions, more than 5% of a
nonsubsidiary savings institution, a nonsubsidiary holding company, or a
nonsubsidiary company engaged in activities other than those permitted by the
HOLA; or acquiring or retaining control of an institution that is not federally
insured.  In evaluating applications by holding companies to acquire savings
institutions, the OTS must consider the financial and managerial resources,
future prospects of the company and institution involved, the effect of the
acquisition on the risk to the insurance fund, 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, subject to two exceptions: (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.

     WAIVERS OF DIVIDENDS BY THE MUTUAL HOLDING COMPANY.  OTS regulations
require the Mutual Holding Company to notify the OTS of any proposed waiver of
its right to receive dividends.  The OTS reviews dividend waiver notices on a
case-by-case basis, and, in general, does not object to any such waiver if: (i)
the Mutual Holding Company's board of directors determines that such waiver is
consistent with such directors' fiduciary duties to the Mutual Holding Company's
members; (ii) for as long as the savings association subsidiary is controlled by
the Mutual Holding Company, the dollar amount of dividends waived by the Mutual
Holding Company are considered as a restriction to the retained earnings of the
savings association, which restriction, if material, is disclosed in the public
financial statements of the savings association as a note to the financial
statements; (iii) the amount of any dividend waived by the Mutual Holding
Company is available for declaration as a dividend solely to the Mutual Holding
Company, and, in accordance with SFAS No. 5, where the savings association
determines that the payment of such dividend to the Mutual Holding Company is
probable, an appropriate dollar amount is recorded as a liability; (iv) the
amount of any waived dividend is considered as having been paid by the savings
association in evaluating any proposed dividend under OTS capital distribution
regulations; and (v) in the event the Mutual Holding Company converts to stock
form, the appraisal submitted to the OTS in connection with the conversion
application takes into account the aggregate amount of the dividends waived by
the Mutual Holding Company.

     CONVERSION OF THE MUTUAL HOLDING COMPANY TO STOCK FORM.  OTS regulations
and the Plan permit the Mutual Holding Company to undertake a Conversion
Transaction.  There can be no assurance when, if ever, a Conversion Transaction
will occur, and the Board of Directors has no current intention or plan to
undertake a Conversion Transaction.  In a Conversion Transaction a new holding
company would be formed as the successor to the Company (the "New Holding
Company"), the Mutual Holding Company's corporate existence would end, and
certain depositors of the Bank would receive the right to subscribe for
additional shares of the New Holding Company. In a Conversion Transaction, each
share of Common Stock held by Minority Stockholders would be automatically
converted into a number of shares of common stock of the New Holding Company
determined pursuant an exchange ratio that ensures that after the Conversion
Transaction, subject to the Dividend Waiver Adjustment described below and any
adjustment to reflect the receipt of cash in lieu of fractional shares, the
percentage of the to-be outstanding shares of the New Holding Company issued to
Minority Stockholders in exchange for their Common Stock would be equal to the
percentage of the outstanding shares of Common Stock held by Minority
Stockholders immediately prior to the Conversion Transaction.  The total number
of shares held by Minority Stockholders after the Conversion Transaction would
also be affected by any purchases by such persons in the offering that would be
conducted as part of the Conversion Transaction.

                                       97
The Dividend Waiver Adjustment would decrease the percentage of the to-be
outstanding shares of common stock of the New Holding Company issued to Minority
Stockholders in exchange for their shares of Common Stock to reflect (i) the
aggregate amount of dividends waived by the Mutual Holding Company and (ii)
assets other than Common Stock held by the Mutual Holding Company.  Pursuant to
the Dividend Waiver Adjustment, the percentage of the to-be outstanding shares
of the New Holding Company issued to Minority Stockholders in exchange for their
shares of Common Stock would be equal to the percentage of the outstanding
shares of Common Stock held by Minority Stockholders multiplied by the Dividend
Waiver Fraction.  The Dividend Waiver Fraction is equal to the product of (a) a
fraction, of which the numerator is equal to the Company's stockholders' equity
at the time of the Conversion Transaction less the aggregate amount of dividends
waived by the Mutual Holding Company and the denominator is equal to the
Company's stockholders' equity at the time of the Conversion Transaction, and
(b) a fraction, of which the numerator is equal to the appraised pro forma
market value of the New Holding Company minus the value of the Mutual Holding
Company's assets other than Common Stock and the denominator is equal to the pro
forma market value of the New Holding Company.

FEDERAL SECURITIES LAW

     The Common Stock to be issued in the Offering will be registered with the
SEC under the Securities Exchange Act of 1934 (the "Exchange Act").  The Company
will be subject to the information, proxy solicitation, insider trading
restrictions and other requirements of the SEC under the Exchange Act.  Common
Stock held by persons who are affiliates (generally officers, directors and
principal stockholders) of the Company may not be resold without registration or
unless sold in accordance with certain resale restrictions.  If the Company
meets specified current public information requirements, each affiliate of the
Company is able to sell in the public market, without registration, a limited
number of shares in any three-month period.

                           MANAGEMENT OF THE COMPANY

DIRECTORS OF THE COMPANY

     The Board of Directors of the Company will initially consist of the nine
persons who are currently directors of the Bank.  Directors of the Company will
serve three-year staggered terms so that approximately one third of the
Directors will be elected at each annual meeting of stockholders.  The class of
directors whose term of office expires at the first annual meeting of
shareholders following completion of the Reorganization consists of Directors
Helmer, Strayton, Coyle and Ward.  The class of directors whose term expires at
the second annual meeting of shareholders following completion of the
Reorganization consists of Directors Korn, McNelis and Nozell.  The class of
directors whose term of office expires at the third annual meeting of
shareholders following the completion of the Reorganization consists of
Directors Sichol and Zeh.

                                       98
EXECUTIVE OFFICERS OF THE COMPANY

     The following individuals will be executive officers of the Company and
hold the offices set forth below opposite their names.  The biographical
information for each executive officer is set forth under "Management of the
Bank--Directors and Executive Officers of the Bank."
NAME  AGE*                         POSITION
--------------------------  ----  -------------------------------------------------------
George Strayton               54  President, Chief Executive Officer and Director
 
Daniel G. Rothstein           51  Executive Vice  President, Chief Credit Officer
                                  and Regulatory Counsel
 
Robert J. Sansky              51  Executive Vice President and Director of Human
                                  Resources
 
Katherine A. Dering           50  Senior Vice President and Chief Financial Officer
 
Stephen G. Dormer             47  Senior Vice President and Director of Business Activity
 
John F. Fitzpatrick           46  Senior Vice President and Director of Support Services
 ________________________
*As of June 30, 1998
None of the executive officers has received remuneration from the Company.
It is not anticipated that the executive officers of the Company will initially
receive any remuneration in his capacity as an executive officer.  For
information concerning compensation of executive officers of the Bank, see
"Management of the Bank."

BOARD OF DIRECTORS AND COMMITTEES OF THE COMPANY AFTER THE REORGANIZATION

     Following the Reorganization, the Board of Directors of the Company is
expected to meet quarterly, or more often as may be necessary.  The directors of
the Company will not initially receive fees for serving on the Company's Board
of Directors.

     The Board of Directors initially is expected to have, among others, a
standing Executive Committee and Audit Committee.  The Company's full Board of
Directors will act as the Nominating Committee, or may appoint a Nominating
Committee.  The Company does not intend initially to have a compensation
committee, as it is not anticipated that the officers of the Company will
initially be compensated as such.

     The Executive Committee initially will consist of Chairman Helmer (who will
serve as Chairman), President and Chief Executive Officer Strayton, and
Directors Coyle, McNelis and Sichol.  The Executive Committee is expected to
meet as necessary when the Board is not in session to exercise general control
and supervision in all matters pertaining to the interests of the Company,
subject at all times to the direction of the Board of Directors.

     The Audit Committee initially will consist of Directors Korn (who will
serve as Chairman), Ward and Nozell. The Audit Committee is expected to meet at
least quarterly.  Activities of the Audit Committee will include reviewing and
approving audit reports prepared by the internal auditors and independent
auditors; reviewing and recommending the independent auditors to be engaged by
the Company; and reviewing and approving internal audit policies and programs.

                                       99
MANAGEMENT OF THE BANK

DIRECTORS AND EXECUTIVE OFFICERS OF THE BANK

     Upon completion of the Reorganization, the directors of the Bank will
consist of those persons who currently serve on the Board of Directors of the
Bank.  The directors of the Bank will have three year terms which will be
staggered to provide for the election of approximately one-third of the board
members each year.  Directors of the Bank will be elected by the Company as sole
stockholder of the Bank.  The directors and executive officers of the Bank as of
June 30, 1998 are as follows:
AGE AT                CURRENT
                                       NAME  JUNE 30, 1998            POSITION            DIRECTOR SINCE  TERM EXPIRES
-------------------------------------------  -------------  ----------------------------  --------------  ------------
DIRECTORS:
 
William F. Helmer                                  64          Chairman of the Board                1974          1999
George Strayton                                    54        President, Chief Executive             1991          1999
                                                                Officer and Director                                    
Dennis L. Coyle                                    62              Vice Chairman                    1984          1999
Murray L. Korn                                     73                 Director                      1966          2000
Dr. Donald T. McNelis                              65                 Director                      1987          2000
Richard A. Nozell                                  64                 Director                      1990          2000
William R. Sichol, Jr.                             58                 Director                      1990          2001
Wilbur C. Ward                                     72                 Director                      1990          1999
F. Gary Zeh                                        60                 Director                      1979          2001
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS:
Daniel G. Rothstein                                51          Executive Vice President,
                                                                  Chief Credit Officer                                      
                                                                and Regulatory Counsel                                    
Robert J. Sansky                                   51         Executive Vice President and
                                                              Director of Human Resources                               
Katherine A. Dering                                50          Senior Vice President and
                                                                Chief Financial Officer                                   
Stephen G. Dormer                                  47          Senior Vice President and
                                                             Director of Business Activity                             
John F. Fitzpatrick                                46          Senior Vice President and
                                                             Director of Support Services
The business experience for the past five years for each of the Bank's
directors and executive officers is as follows:

     WILLIAM F. HELMER has served as the Chairman of the Board of Directors
since 1994, and is the President of Helmer-Cronin Construction, Inc., a
construction company.

     GEORGE STRAYTON has been employed by the Bank since 1982, and was named
President and Chief Executive Officer of the Bank in 1986.

     DENNIS L. COYLE has served as Vice Chairman of the Board of Directors since
1994.  Mr. Coyle is the owner of the Coyle Insurance Agency, the owner and
President of Delco Realty and the owner of Dennis L. Coyle Rental Properties.

     MURRAY L. KORN was the Senior and Managing Partner of Korn, Rosenbaum,
Phillips and Jauntig, an accounting firm, prior to his retirement in 1986.  Mr.
Korn also served as Chairman of the Board of Directors of the Bank from 1984
until his retirement from that position in 1994.

     DR. DONALD T. MCNELIS served as President of St. Thomas Aquinas College in
Sparkill, New York from 1974 until his retirement in 1995.

                                      100
RICHARD A. NOZELL is the owner of Richard Nozell Building Construction, and
serves as a general building contractor.

     WILLIAM R. SICHOL, JR. is a principal of Sichol & Hicks, P.C., a private
law firm.

     WILBUR C. WARD is currently retired.  Prior to his retirement, Mr. Ward was
the President of Ward Bulldozers.

     F. GARY ZEH is the President of Haverstraw Transit Inc., a bus contracting
company, and President and Owner of Quality Bus Sales and Service.

     DANIEL G. ROTHSTEIN has been employed by the Bank since 1983, and was named
Executive Vice President of the Bank in 1989.  Mr. Rothstein has served as the
Bank's Chief Credit Officer and Regulatory Counsel since 1996.

     ROBERT J. SANSKY has been employed by the Bank since 1985, and was named
Executive Vice President in 1989.  Mr. Sansky has served as the Bank's Director
of Human Resources since 1995.

     KATHERINE A. DERING has served as the Bank's Chief Financial Officer since
1994.  Ms. Dering previously served as the Chief Financial Officer of a
community bank located in Connecticut.

     STEPHEN G. DORMER has served as Senior Vice President and Director of
Business Development of the Bank since 1996, and was previously Senior Vice
President and Manager of the Bank's Commercial Loan Department from 1994 until
1996.  Prior to joining the Bank in 1994, Mr. Dormer was Senior Vice President
of a commercial bank located in Connecticut.

     JOHN F. FITZPATRICK has been employed by the Bank since 1986, and was named
Senior Vice President and Director of Support Services in 1997.

MEETINGS OF THE BOARD OF THE BANK

     The Board of Directors of the Bank meets monthly and may have additional
special meetings as may be called by the Chairman or as otherwise provided by
law.  During the fiscal year ended September 30, 1997, the Board held 16
meetings.  No director attended fewer than 75% in the aggregate of the total
number of meetings of the Board or Board Committees on which such Director
served during fiscal 1997.

COMPENSATION OF DIRECTORS

     FEES.  During the fiscal year ended September 30, 1997, non-employee
Directors of the Bank received a retainer fee of $12,000, plus a fee of $700 per
Board meeting attended, and $400 per month for other committee meetings.  The
Chairman of each committee received an additional $2,000 per year.  The Chairman
of the Board received a retainer fee of $47,600 for the fiscal year ended
September 30, 1997.

     DEFERRED COMPENSATION AGREEMENTS.  The Bank has entered into nonqualified
deferred compensation agreements ("DCA") for the benefit of all of the Bank's
Directors.  The DCAs comprise a non-qualified deferred compensation plan into
which a non-employee director can defer up to 100% of his board fees earned
during the calendar year.  In connection with the Reorganization and Offering,
the DCA has been amended to permit each Director to determine whether to invest
all or a portion of his account in Common Stock, in accordance with the tax law
limitations.  Prior to the amendment, amounts credited to a Director's deferral
account earn interest at a rate equal to the ten-year FHLB of New York advance
rate determined on December 1st of the previous calendar year.  Upon a
Director's attainment of the board's mandatary retirement age, the Director's
account will be paid to him in generally equal quarterly installments beginning
on the first day of the first calendar quarter after the director becomes
entitled to such payments and continuing for 5 years.  If a Director files a
timely election, the Director's distributions from the plan may commence prior
to a director's attainment of mandatory retirement age and may be paid over a

                                      101
longer period of time.  In the event of the Director's death, the balance of the
Director's account will be paid to the Director's designated beneficiary on the
first day of the first calendar quarter after the Director's death.  A Director
may also request a distribution from his account in the event the Director
suffers a hardship, defined as a sudden or unexpected illness, accident or
similar event affecting the Director, his beneficiary or family member.  Whether
to grant a hardship distribution is within the sole discretion of the Board.

     If a Director elects to invest all or a portion of his account in Common
Stock, the amount so invested will be credited with earnings and appreciation
(or depreciation) equivalent to that which would be earned on such investment
and the amount not so invested in Common Stock will continue to earn interest at
the rate set forth above, or at another rate established by the committee which
administers the DCAs.  The DCA is an unfunded plan for tax purposes and for
purposes of ERISA.  All obligations arising under the DCAs are payable from the
general assets of the Bank, however, the Bank has established a trust to ensure
that sufficient assets will be available to pay the benefits under the DCAs and
to hold any stock purchased under the DCAs.

EXECUTIVE COMPENSATION

     SUMMARY COMPENSATION TABLE.  The following table sets forth for the year
ended September 30, 1997, certain information as to the total remuneration paid
by the Bank to the Chief Executive Officer of the Bank, as well as to the four
most highly compensated executive officers of the Bank at September 30, 1997,
other than the Chief Executive Officer, who received total annual compensation
in excess of $100,000 (together, "Named Executive Officers").
ANNUAL COMPENSATION/(1)/                   LONG-TERM COMPENSATION
                                                       ------------------------                   ----------------------
                                                                 AWARDS                           PAYOUTS           
                                                                 ------------------------------  ---------          
                                                                   OTHER
                                   YEAR                            ANNUAL     RESTRICTED                     ALL OTHER   
 NAME AND                         ENDED                         COMPENSATION     STOCK   OPTIONS/   LTIP    COMPENSATION
 PRINCIPAL POSITION             9/30/(1)/  SALARY      BONUS        /(2)/       AWARDS     SARS   PAYOUTS      /(3)/
------------------------------  ---------  ----------  ------------------------  -----  --------  ------  --------------  -------
George Strayton, President,          1997    $259,665  $83,125            --      --      --       --         $32,655
Chief Executive Officer                                                                                     
and Director                                                                                                
                                                                                                            
Daniel G. Rothstein,                 1997    $157,425  $41,316            --      --      --       --         $18,155
Executive Vice  President,                                                                                  
Chief Credit Officer                                                                                        
and Regulatory Counsel                                                                                      
                                                                                                            
Robert J. Sansky                     1997    $141,473  $41,219            --      --      --       --         $17,387
Executive Vice President and                                                                                
Director of Human Resources                                                                                 
                                                                                                            
Katherine A. Dering                  1997    $120,731  $37,641            --      --      --       --         $10,224
Senior Vice President and                                                                                   
Chief Financial Officer                                                                                     
                                                                                                            
Stephen G. Dormer                    1997    $127,868  $32,259     --             --      --       --         $ 2,887
Senior Vice President and
Director of Business Activity

-----------------------------------------------
/(1)/ In accordance with the rules on executive officer and director
     compensation disclosure adopted by the SEC, Summary Compensation
     information is excluded for the fiscal years ended September 30, 1996 and
     1995, as the Bank was not a public company during such periods.
/(2)/ The Bank provides certain members of senior management with certain other
     personal benefits, the aggregate value of which did not exceed the lesser
     of $50,000 or 10% of the total annual salary and bonus reported for each
     officer.  The value of such persons/benefits is not included in this table.
/(3)/ Includes employer contributions to the Bank's 401(k) Plan on behalf of
     Named Executive Officers, as well as the payment of premiums for life
     insurance policies.

     EMPLOYMENT AGREEMENTS. In January 1996, the Bank entered into an employment
agreement with George Strayton, the President and Chief Executive Officer of the
Bank which agreement was amended in 1998 (as amended, the "agreement").  

                                      102
On each day during the term of the agreement, the term of the agreement
automatically renews so that the agreement shall continually be for a three-year
term unless notice of non-renewal is provided within ___ days prior to any
anniversary of the date on which the agreement was entered into (the
"Anniversary Date"). In the event that notice of non-renewal is given, the
agreement will expire at the end of its then three-year term. Under the
agreement, Mr. Strayton will be paid $262,000 (the current annual rate of
salary). For each calendar year beginning after a change in control (as defined
in the agreement) of the Bank or Company, Mr. Strayton's annual rate of salary
shall be increased by the greater of (i) 1.06 percent, (ii) the quotient of (A)
the U.S. City Average All Items Consumer Price Index for All Urban Consumers for
October of the immediately preceding calendar year divided by the same economic
indicator, as determined for the second preceding calendar year; and (iii) the
quotient of the average annual rate of salary determined as of the first day of
the calendar quarter of the officers of the Bank (other than Mr. Strayton) who
are assistant vice presidents or above over the average annual rate of salary of
such persons for the immediately preceding calendar year. In addition to his
annual rate of salary, Mr. Strayton shall be entitled to participate in all tax-
qualified plans and other incentive programs of the Bank, and the group life,
health, dental and short and long term disability plans maintained by the Bank
from time to time.

     In the event of Mr. Strayton's termination of employment by the Bank for
any reason other than for cause (as defined in the agreement) or in the event of
his voluntary resignation within one year following (i) his failure to be re-
appointed or re-elected as President or Chief Executive Officer of the Bank,
(ii) the failure to re-elect him as a director of the Bank, (iii) a material
adverse change in his functions, duties or responsibilities which is not cured
within 30 days of notice thereof from Mr. Strayton, (iv) a change in control of
the Bank or the Company, or in the event of termination of his employment due to
total and permanent disability, then Mr. Strayton shall be entitled to certain
benefits payable by the Bank.  First, Mr. Strayton shall be entitled to his
earned but unpaid salary, any benefits to which he would become entitled as a
former employee, and continuation of his group life, health, prescription drug,
dental, short and long term disability insurance benefits for the remaining
unexpired employment period under the agreement.  In addition, Mr. Strayton and
his spouse shall be entitled to continued health coverage for their remaining
lifetimes.  Mr. Strayton shall also be entitled to certain lump sum payments
under the agreement.  For example, Mr. Strayton shall be entitled to a lump sum
payment equal to the present value of any salary that he would have earned for
the remaining unexpired employment period under the agreement and the present
value of any fees that he would have earned as a director during that period.
Within  60 days of his termination of employment, Mr. Strayton shall also be
entitled to payments equal to the present value of (i) the additional amount to
which he would have been entitled as a participant in the Bank's defined benefit
pension plan, (ii) the additional amount to which he would have been entitled
under the Bank's 401(k) Plan and ESOP, and (iii) the additional amount to which
he would have been entitled under the SERP, in each case, assuming he had
continued in the employment of the Bank for the remaining unexpired employment
period under the agreement, and making certain assumptions (regarding salary
increases, etc.) as set forth in the agreement.  The amounts provided to Mr.
Strayton under "(i)" and "(ii)" of the preceding sentence shall be increased by
a factor which takes into consideration the fact that such payments will be
currently taxable to Mr. Strayton.  Mr Strayton will also be entitled to
immediate vesting of any unearned options or shares of restricted stock awarded
to him under any stock benefit plan maintained by the Company. Finally, Mr.
Strayton shall be entitled to the payments that would have been made to him
under all incentive compensation plans and programs adopted by the Bank,
including the Management Incentive Program as if he had continued to work for
the Bank during the remaining unexpired employment period under the agreement
and had earned an incentive award in each such calendar year equal to an amount
determined by formula set forth in the agreement.  In the event that the Bank
gives Mr. Strayton a notice of non-renewal or if the Bank does not extend the
employment period at least 60 days prior to any renewal date set forth under the
agreement, Mr. Strayton may resign from the Bank at any time and shall receive a
lump sum cash benefit within 30 days equal to the amounts set forth above.
Also, in such event the Bank shall provide the continuing group life, health,
prescription drug, dental, short and long term disability insurance benefits set
forth above.  In the event that Mr. Strayton becomes subject to an excise tax on
payments made under the agreement in connection with a change in control, the
agreement provides that Mr. Strayton shall be reimbursed an amount for payment
of such excise taxes by the Bank (determined pursuant to a formula set forth in
the agreement), so long as during the six-month period prior to such change in
control the Bank was in compliance with all applicable minimum capital
requirements imposed under federal or state regulatory authority.  The
employment agreement provides that for a period of one year following the date
of his termination with the Bank for reasons other than for cause, Mr. Strayton
shall not compete with the Bank.

                                      103
The Bank intends to enter into employment agreements with Messrs.
Rothstein, Sansky, Dormer, and Ms. Dering. The new employment agreements shall
be for terms of up to two years and shall renew on a daily basis so that the
remaining term under said agreements shall be for up to two years unless notice
of non-renewal is given. Each executive covered by an employment agreement will
receive an annual rate of salary, as specified in the employment agreement, and
will be entitled to participate in all tax-qualified plans and other incentive
programs of the Bank, and any group life, health, dental and short and long term
disability plans maintained by the Bank from time to time.  In the event of a
covered executive's termination of employment by the Bank for any reason other
than for cause (as defined) or in the event of  his or her voluntary resignation
within one year following (i)  his or her failure to be re-appointed to  his or
her current position, (ii) a material adverse change in  his or her functions,
duties or responsibilities which is not cured within 30 days of notice thereof
from the executive, (iii) a change in control of the Bank or the Company, (iv) a
liquidation or dissolution of the Bank or the Company other than one that does
not affect the status of the executive, or in the event of termination of  his
or her employment due to total and permanent disability, then the executive
shall be entitled to the certain benefits payable by the Bank.  First, the
executive shall be entitled to  his or her earned but unpaid salary, any
benefits to which he or she would become entitled as a former employee, and
continuation of  his or her group life, health, prescription drug, dental, short
and long term disability insurance benefits for the remaining unexpired
employment period under the agreement at a coverage level that he or she would
have been entitled to during such period.  In addition, the executive shall also
be entitled to certain lump sum payments under the agreement.  For example, the
executive shall be entitled to a lump sum payment equal to the present value of
any salary that he or she would have earned for the remaining unexpired
employment period under the agreement.  Within  60 days of  his or her
termination of employment, the executive shall also be entitled to payments
equal to the present value of (i) the additional amount to which he or she would
have been entitled as a participant in the Bank's defined benefit pension plan,
(ii) the additional amount to which he or she would have been entitled under the
Bank's 401(k) Plan and ESOP, and (iii) the additional amount to which he or she
would have been entitled under the SERP, in each case assuming he or she had
continued in the employment of the Bank for the remaining unexpired employment
period under the agreement and making certain assumptions (regarding salary
increases, etc.) as set forth in the agreement.  The amounts provided to the
executive under "(i)" and "(ii)" of the preceding sentence shall be increased by
a factor which takes into consideration the fact that such payments will be
currently taxable to the executive.  The executive will also be entitled to
immediate vesting of any unearned options on shares of restricted stock awarded
to him or her under any stock benefit plan maintained by the Company which would
have vested in the executive during the remaining unexpired term of the
agreement.  Finally, the executive shall be entitled to the payments that would
have been made to him under all incentive compensation plans and programs
adopted by the Bank as if he or she had continued to work for the Bank during
the remaining unexpired employment period under the agreement and had earned an
incentive award in each such calendar year equal to an amount determined by
formula set forth in the agreement.  Also, in such event the Bank shall provide
the continuing group life, health, prescription drug, dental, short and long
term disability insurance benefits set forth above.  In the event the
executive's termination of employment occurs in connection with a change in
control of the Bank or Company, the payments made to or on behalf of the
executive shall be made as if the remaining unexpired term of the agreement
includes one additional year.  In the event that the Bank gives an executive
covered by an agreement a notice of non-renewal or if the Bank does not extend
the employment period at least 60 days prior to any renewal date set forth under
the agreement, the executive may resign from the Bank at any time and shall
receive a lump sum cash payment within 30 days equal to the amounts set forth
above.  The employment agreement provides that for a period of one year
following the date of  his or her termination with the Bank for reasons other
than for cause, the executive shall not compete with the Bank.

     MANAGEMENT INCENTIVE PROGRAM.  The Bank sponsors a management incentive
program for certain officers at the vice president level and higher.  In 1998,
the management incentive program provides current compensation to participating
officers upon the attainment of certain earnings goals set by the Bank.
Department heads and other managers at the level of vice president will be
entitled to receive incentive compensation of up to 15% of base salary if
earnings goals are attained, increased to up to 22-1/2% of base salary if
earnings goals are exceeded. Persons at the senior vice president and executive
vice president levels will be entitled to incentive compensation of up to 25% of
base salary if earnings goals are attained, increased to up to 37-1/2% of base
salary if earnings goals are exceeded. The Bank's President will be entitled to
receive incentive compensation of up to 30% of base salary if earnings goals are
attained and up to 45% of base salary if earnings goals are exceeded.  Under the
program, incentive awards may also be given to persons below the level of vice
president in the event of extraordinary performance.  Participants normally

                                      104
receive their incentive award within three months of the Bank's fiscal year end.
For the fiscal year ended September 30, 1997, approximately $468,000 was
distributed to persons participating in the management incentive program.

     1996 LONG TERM INCENTIVE PLAN FOR OFFICERS AND DIRECTORS.  In 1996, the
Bank adopted a long-term incentive plan ("Long-Term Plan") for the benefit of
certain senior officers and all non-employee directors of the Bank. Six
officers, including Messrs. Strayton, Rothstein, Sansky and Dormer and Ms.
Dering are participating under the Long-Term Plan. The Long-Term Plan has an
initial cycle of three years commencing October 1996 and running through
September 1999.  The ability to earn incentive compensation under the Long-Term
Plan is based on the Bank's attainment of certain return on equity ("ROE")
ratios.  It is intended that equal payment pools will be available for officers
and directors under the Long-Term Plan, however, the maximum amount that may be
credited to any officer participant is 30% of  his or her average base salary
during the initial cycle and the maximum amount that may be credited to any non-
employee director is 100% of  his or her annual retainer fee (up to a maximum of
$12,000 per year) for each year of the cycle.  Amounts credited shall be
allocated in direct proportion to officers relative compensation levels and in
equal amounts to all non-employee directors. A participant may earn one-third of
his or her incentive compensation in each year of the cycle.  At the end of each
such year, one half of the amount earned during the year will be paid to the
participant, the other half will be deferred until the end of the cycle and
shall be paid upon the successful completion of the three year goal.  In the
event that a participant dies during the earnings cycle, a pro-rata share of the
amount the participant would have earned shall be paid to his or her estate.  In
the event of (i) a sale of shares in an offering registered with the SEC, (ii)
the consolidation or merger of the Bank with another Bank, (iii) the sale of all
or substantially all of the assets of the Bank or any of its significant
subsidiaries, or (iv) the acquisition by more than 50% of the total combined
voting power of all classes of stock of the Bank entitled to vote for directors,
the Long-Term Plan states the current cycle shall be prematurely closed.  In
such event, each participant will receive the maximum benefit to which the
participant would have been entitled if the Bank had attained the ROE goal for
the year in which the cycle closed. [It is expected that the Bank will achieve
its ROE goal for each of the first two years.  Therefore, assuming the cycle is
prematurely closed in 1998 or early 1999 as a result of the Reorganization,
participants will receive the maximum benefit to which  they would be entitled
under the Long-Term Plan (i.e., 30% of base salary for employees and $36,000 for
directors, minus amounts previously paid to such persons under the Long-Term
Plan).]

     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN.  The Bank maintains a non-qualified
supplemental executive retirement plan ("SERP") for certain executives of the
Bank to compensate those executive participants in the Bank's tax-qualified
benefit plans whose benefits are limited by any of Sections 401(a)(17), 401(k),
401(m) 402(g) or 415 of the Code (the "Applicable Limitations").  The SERP
provides executives with retirement benefits generally equal to the difference
between (i) the annual benefit the executive would have received under the
Bank's Retirement Plan if such benefits were computed without giving effect to
the limitations on benefits imposed by application of Section 401(a)(17) and
Section 415 of the Internal Revenue Code and (ii) the amounts actually payable
to the executive under the terms of the Retirement Plan.  In addition, the
executive is entitled to a 401(k) benefit under the SERP equal to the product of
(i) Bank contributions that could not be credited to  his or her account in the
401(k) Plan due to the Applicable Limitations plus earnings deemed to accrue
each year at the one-year Treasury rate for the first auction in January
multiplied by (ii)  his or her vested percentage in the 401(k) Plan. For these
purposes, the executive will be deemed to have made the maximum salary deferrals
possible without regard to sections 401(k), 401(m) or 402(g) of the Code. The
SERP has been amended in connection with the adoption of the ESOP so that an
executive who does not receive the maximum contribution under the ESOP due to
one of the Applicable Limitations will be entitled to an ESOP benefit under the
SERP, credited in units of the Company's Common Stock, equal to the difference
between the fair market value of the number of shares of common stock of the
Company that would have been allocated to the account of the executive under the
ESOP had the limitations of Section 401(a)(17) and 415 of the Internal Revenue
Code not been applicable, and the fair market value of the number of shares of
Common Stock actually allocated to the account of the executive.  The Retirement
Plan and ESOP benefits under the SERP are payable in the same form as benefits
in the Retirement Plan and ESOP, respectively. See the descriptions of
Retirement Plan  and ESOP for timing and form of payment for benefits under the
Retirement Plan and ESOP.  The 401(k) Plan benefits under the SERP are payable
in 10 annual installments commencing on the first business day of the year
following the year in which the executive's employment is terminated.

                                      105
The SERP is considered an unfunded plan for tax and ERISA purposes.  All
obligations arising under the SERP are payable from the general assets of the
Bank, however, the Bank has set up a trust, to ensure that sufficient assets
will be available to pay the benefits under the SERP.   The trust shall be
entitled to purchase Common Stock in order to fund the ESOP benefit under the
SERP.

     DEFINED BENEFIT PENSION PLAN.  The Bank maintains the Provident Savings
Bank, F.A. Defined Benefit Pension Plan (the "Retirement Plan") which is a
qualified, tax-exempt defined benefit plan.  Employees age 21 or older who have
worked at the Bank for a period of one year and have been credited with 1,000 or
more hours of service with the Bank during the year are eligible to accrue
benefits under the Retirement Plan.  The Bank contributes each year, if
necessary, an amount to the Retirement Plan to satisfy the actuarially
determined minimum funding requirements in accordance with the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").  For the plan year
ended September 30, 1997, a contribution of approximately $651,000 was made to
the Retirement Plan.  At September 30, 1997, the total market value of the
Retirement Plan trust fund assets was approximately $4.9 million.

     In the event of retirement at normal retirement age (i.e., the later of age
65 or the 5th anniversary of participation in the Retirement Plan), the plan is
designed to provide a single life annuity.  For a married participant, the
normal form of benefit is an actuarially reduced joint and survivor annuity
where, upon the participant's death, the participant's spouse is entitled to
receive a benefit equal to 50% of that paid during the participant's lifetime.
Alternatively, a participant may elect (with proper spousal consent, if
necessary) a joint and 100% survivor annuity, a joint and 75% survivor annuity,
a different form of annuity, or installments payable over a period of nor more
than the life of the participant (and spouse, if applicable).  Payment may be
made in a lump sum in cash, provided the participant has completed 20 years of
service and attained age 55 or has attained normal retirement age.  All forms in
which a participant's benefit may be paid will be actuarially equivalent to the
single life annuity.  The retirement benefit provided is an amount equal to the
greater of a participant's frozen accrued benefit (as provided for in the
Retirement Plan) or 1.6% of a participant's average monthly compensation
multiplied by the participant's years of service (up to a maximum of 35 years)
plus 0.5% of the participant's average monthly compensation in excess of one-
twelfth of the participant's Covered Compensation (as defined in the Retirement
Plan) multiplied by the participant's months of service (up to a maximum of 35
years), computed to the nearest dollar.  Retirement benefits are also payable
upon retirement due to early and late retirement or death and disability.  A
reduced benefit is payable upon early retirement at or after age 55 and the
completion of 10 years of vested service with the Bank.  No reduction in benefit
will occur as a result of special early retirement on or after age 62 and the
completion of 20 years of vested service, if payment is made at the time of
retirement.  Upon termination of employment other than as specified above, a
participant who has five years of vested service after age 18 is eligible to
receive  his or her accrued benefit commencing on such participant's retirement
date, death or disability.

     The following table indicates the annual retirement benefit that would be
payable under the Retirement Plan upon retirement at age 65 in calendar year
1998, expressed in the form of a single life annuity for the average monthly
salary and benefit service classifications specified below.
AVERAGE
     MONTHLY        YEARS OF SERVICE AND ANNUAL BENEFIT PAYABLE AT RETIREMENT
                    ---------------------------------------------------------
   COMPENSATION                15             20             25            30
------------------        -------        -------        -------       -------
$4,167              $13,416        $17,892        $22,356       $26,832
      6,250                21,288         28,392         35,484        42,576
      8,333                29,160         38,880         48,612        58,332
      10,417               37,044         49,392         61,740        74,088
 13,333 and above          48,060         64,080         80,112        96,132
As of October 1, 1997, Messrs. Strayton, Rothstein, Sansky, and Dormer, and
Ms. Dering had 15, 15, 12, 3 and 3 years of credited service (i.e., benefit
service) under the Retirement Plan, respectively.

                                      106
401(K) PLAN.  The Bank maintains the Provident Savings Bank 401(k) Plan
(the "401(k) Plan") which is a qualified, tax-exempt profit sharing plan with a
salary deferral feature under Section 401(k) of the Code.  All employees who
have completed six months of employment are eligible to participate.  Eligible
employees are entitled to enter the 401(k) Plan the first day of January or July
coincident with or following completion of the eligibility requirements.

     Under the 401(k) Plan, participants are permitted to make salary reduction
contributions (in whole percentages) of not less than 2% or more than 10% of
compensation, up to $10,000 (as indexed annually).  For these purposes,
"compensation" means a participant's total compensation received from the Bank,
including salary reduction contributions, but does not include compensation in
excess of the Code Section 401(a)(17) limits (i.e., $160,000 in 1998).  The Bank
may match up to the first 6% of salary that a participant contributes to the
401(k) Plan.  All employee salary reduction contributions and earnings are fully
and immediately vested. A participant is vested in all other contributions as
follows: 50% after 2 years of service, 75% after 3 years of service and 100%
after 4 years of service.  A participant may withdraw salary reduction
contributions (and earnings), or may take a loan of up to 50% of the
participant's vested account balance, in the event the participant suffers a
financial hardship.

     The 401(k) Plan permits employees to direct the investment of his or her
own accounts into various investment options.  In connection with the Offering,
the 401(k) Plan intends to offer participants the opportunity to invest in an
employer stock fund which intends to purchase Common Stock in the Offering.
Each participant who directs the trustee to invest all or part of his or her
account in the employer stock fund will have assets in his or her account
applied to the purchase of shares of Common Stock.  Participants will be
entitled to direct the trustee as to how to vote his or her allocated shares of
Common Stock.

     Plan benefits will become 100% vested and will be paid in a lump sum to
each participant or beneficiary upon retirement, death or disability.   Normal
retirement age under the plan is age 65.  If a participant terminates employment
for reasons other than retirement, disability or death, the participant will be
entitled to receive only the vested portion of his or her account balance and
the remainder will be forfeited.

       At December 31, 1997, the total market value of the assets in the 401(k)
Plan was approximately $3.3 million.  The Bank's matching contributions to the
401(k) Plan for the plan year ended December 31, 1997 were approximately
$267,000.

     EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST.  The Bank intends to implement the
ESOP in connection with the Reorganization.  Employees with at least one year of
employment with the Bank and who have attained age 21 are eligible to
participate. As part of the Reorganization, the ESOP intends to borrow funds
from the Company and use those funds to purchase a number of shares equal to up
to 8% of the Common Stock to be sold in the Offering. Collateral for the loan
will be the Common Stock purchased by the ESOP. The loan will be repaid
principally from the Bank's discretionary contributions to the ESOP over a
period of not more than ten years. It is anticipated that the interest rate for
the loan will be a floating rate equal to the Prime Rate.  Shares purchased by
the ESOP will be held in a suspense account for allocation among participants as
the loan is repaid.

     Contributions to the ESOP and shares released from the suspense account in
an amount proportional to the repayment of the ESOP loan will be allocated among
ESOP participants on the basis of compensation in the year of allocation.
Participants in the ESOP will receive credit for service with the Bank prior to
the effective date of the ESOP.  A participant is 100% vested in his benefits
after five years of service or upon normal retirement (as defined in the  ESOP),
early retirement, disability or death.  A participant who terminates employment
for reasons other than death, retirement, or disability prior to five years of
credited service will forfeit his or her benefits under the ESOP. Benefits will
be payable in the form of Common Stock and cash or, at the election of the
participant, in Common Stock only, upon death, retirement, early retirement,
disability or separation from service. The Bank's contributions to the ESOP are
discretionary, subject to the loan terms and tax law limits, and, therefore,
benefits payable under the ESOP cannot be estimated. Pursuant to SOP No. 93-6,
the Bank is required to record compensation expense in an amount equal to the
fair market value of the shares committed to be released to participants from
the suspense account.

                                      107
In connection with the establishment of the ESOP, the Bank will establish a
committee of non-employee directors to administer the ESOP.  The Bank will
appoint an independent financial institution to serve as trustee of 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 participating employees.
Under the ESOP, nondirected shares, and shares held in the suspense account,
will be voted in a manner calculated to most accurately reflect the instructions
it has received from participants regarding the allocated stock so long as such
vote is in accordance with the provisions of ERISA.

     STOCK OPTION PLAN. At a meeting of the Company's shareholders to be held no
earlier than six months after the completion of the Offering, the Board of
Directors intends to submit for shareholder approval a stock option plan for
directors, officers and employees of the Bank and of the Company (the "Stock
Option Plan"). If approved by the shareholders, Common Stock in an aggregate
amount equal to 10% of the shares sold in the Offering would be reserved for
issuance by the Company upon the exercise of the stock options granted under the
Stock Option Plan. Ten percent of the shares issued in the Offering would amount
to 257,500 shares, 303,000 shares, 348,450 shares or 400,718 shares at the
minimum, midpoint, maximum and adjusted maximum of the Offering Range,
respectively. No options would be granted under the Stock Option Plan until the
date on which shareholder approval is received.

     It is anticipated that options would be granted for terms of 10 years (in
the case of incentive options) or 10 years and one day (in the case of non-
qualified options).  The exercise price of the options granted under the Stock
Option Plan will be equal to the fair market value of the shares on the date of
grant of the stock options. If the Stock Option Plan is adopted within one year
following the Offering, options will become exercisable at a rate of 20% at the
end of each 12 months of service with the Bank after the date of grant, subject
to early vesting in the event of death or disability. Options granted under the
Stock Option Plan would be adjusted for capital changes such as stock splits and
stock dividends. Notwithstanding the foregoing, awards will be 100% vested upon
termination of employment due to death or disability, and if the Stock Option
Plan is adopted more than 12 months after the Offering, awards would be 100%
vested upon normal retirement or a change in control of the Bank or the Company.
Under OTS rules, if the Stock Option Plan is adopted within the first 12 months
after the Offering, no individual officer can receive more than 25% of the
awards under the plan, no outside director can receive more than 5% of the
awards under the plan, and all outside directors as a group can receive no more
than 30% of the awards under the plan in the aggregate.  No determination has
been made as to the specific terms of the Stock Option Plan or as to the awards
thereunder.

     The Stock Option Plan would be administered by a Committee of nonemployee
members of the Company's Board of Directors. Options granted under the Stock
Option Plan to employees could be "incentive" stock options designed to result
in a beneficial tax treatment to the employee but no tax deduction to the
Company.  Nonqualified stock options could also be granted under the Stock
Option Plan, and will be granted to the nonemployee directors who receive grants
of stock options. In the event an option recipient terminated his or her
employment or service as an employee or director, the options would terminate
during certain specified periods.

     RECOGNITION PLAN.  At a meeting of the Company's shareholders to be held no
earlier than six months after the completion of the Offering, the Board of
Directors also intends to submit a restricted stock plan (the "Recognition
Plan") for shareholder approval. The Recognition Plan will provide the
directors, officers and employees of the Company and the Bank with an ownership
interest in the Company in a manner designed to encourage them to continue their
service with the Bank or the Company, as the case may be.  The Bank will
contribute funds to the Recognition Plan from time to time to enable it to
acquire an aggregate amount of Common Stock equal to up to 4% of the shares of
Common Stock sold in the Offering (or 5% if the Recognition Plan is adopted more
than 12 months after the Offering), either directly from the Company or in open
market purchases. Four percent of the shares issued in the Offering would amount
to 103,020 shares, 121,200 shares, 139,380 shares or 160,287 shares at the
minimum, midpoint, maximum and adjusted maximum of the Offering Range,
respectively. In the event that additional authorized but unissued shares would
be acquired by the Recognition Plan after the Offering, the interests of
existing shareholders would be diluted. The executive officers and directors
will be awarded Common Stock under the Recognition Plan without having to pay
cash for the shares.  No awards under the Recognition Plan would be made until
the date the Recognition Plan is approved by the Company's shareholders.

                                      108
Awards under the Recognition Plan would be nontransferable, nonassignable
and, during the lifetime of the recipient, could only be earned by him or her.
If the Recognition Plan is adopted within one year following the Offering, the
shares which are subject to an award would vest and be earned by the recipient
at a rate of 20% of the shares awarded at the end of each full 12 months of
service with the Bank after the date of grant of the award. Awards would be
adjusted for capital changes such as stock dividends and stock splits.
Notwithstanding the foregoing, awards would be 100% vested upon termination of
employment or service due to death or disability, and if the Recognition Plan is
adopted more than 12 months after the Offering, awards would be 100% vested upon
normal retirement or a change in control of the Bank or the Company. If
employment or service were to terminate for other reasons, the award recipient
would forfeit any nonvested award. If employment or service is terminated for
cause (as would be defined in the Recognition Plan), shares not already
delivered under the Recognition Plan would be forfeited. Under OTS rules, if the
Recognition Plan is adopted within the first 12 months after the Offering, no
individual officer can receive more than 25% of the awards under the plan, no
outside director can receive more than 5% of the awards under the plan, and all
outside directors as a group can receive no more than 30% of the awards under
the plan in the aggregate.  No determination has been made as to the specific
terms of the plan or as to the awards thereunder.  The Recognition Plan would be
administered by a committee of non-employee members of the Company's board of
directors.

     When shares become vested under the Recognition Plan, the participant will
recognize income equal to the fair market value of the Common Stock earned,
determined as of the date of vesting, unless the recipient makes an election
under (S) 83(b) of the Code to be taxed earlier. The amount of income recognized
by the participant would be a deductible expense for tax purposes for the
Company.  If the Recognition Plan is adopted within one year following the
Offering, dividends and other earnings will accrue and be payable to the award
recipient when the shares vest. If the Recognition Plan is adopted within one
year following the Offering, shares not yet vested under the Recognition Plan
will be voted by the trustee of the Recognition Plan, taking into account the
best interests of the recipients of the Recognition Plan awards.  If the
Recognition Plan is adopted more than one year following the Offering, dividends
declared on nonvested shares will be distributed to the participant when paid,
and the participant will be entitled to vote the nonvested shares.

TRANSACTIONS WITH CERTAIN RELATED PERSONS

     The Bank offers to directors, officers, and employees real estate mortgage
loans secured by their principal residence. All loans to the Bank's directors,
officers and employees have been made on substantially the same terms, including
interest rates and collateral as those prevailing at the time for comparable
transactions, and do not involve more than minimal risk of collectibility.

                   RESTRICTIONS ON ACQUISITION OF THE COMPANY

     The following discussion is a general summary of certain regulatory
restrictions on the acquisition of the Common Stock.  In addition, the following
discussion generally summarizes certain provisions of the charter and bylaws of
the Company and the Bank and certain regulatory provisions that may be deemed to
have an "anti-takeover" effect.

THE MUTUAL HOLDING COMPANY STRUCTURE

     Under OTS regulations, the Plan, and the charter of the Company, at least a
majority of the Company's voting shares must be owned by the Mutual Holding
Company.  The Mutual Holding Company will be controlled by its Board of
Directors, which will initially consist of the same persons who are members of
the Board of Directors of the Bank and the Company. The Mutual Holding Company
will be able to elect all members of the Board of Directors of the Company, and
as a general matter, will be able to control the outcome of all matters
presented to the stockholders of the Company for resolution by vote, except for
matters that require a vote greater than a majority. The Mutual Holding Company,
acting through its Board of Directors, will be able to control the business, and
operations of the Company and the Bank, and will be able to prevent any
challenge to the ownership or control of the Company by Minority Stockholders.
Accordingly, a change in control of the Company and the Bank cannot occur unless
the Mutual Holding Company first converts to the stock form of organization.

                                      109
Although OTS regulations and policy and the Plan permit the Mutual Holding
Company to convert from the mutual to the capital stock form of organization,
the Board of Directors has no current plan to do so.

PROVISIONS OF THE COMPANY'S CHARTER AND BYLAWS

     In addition to the anti-takeover aspects of the mutual holding company
structure, the following discussion is a general summary of certain provisions
of the Company's charter and bylaws and certain other regulatory provisions
which will restrict the ability of stockholders to influence management
policies, and which may be deemed to have an "anti-takeover" effect.  The
following description of certain of these provisions is necessarily general and,
with respect to provisions contained in the Company's and the Bank's proposed
charter and bylaws and the Bank's proposed stock charter and bylaws, reference
should be made in each case to the document in question, each of which is part
of the Bank's application to the OTS and the Company's Registration Statement
filed with the SEC.  See "Additional Information."

     CLASSIFIED BOARD OF DIRECTORS AND RELATED PROVISIONS.  The Company's
Charter provides that the Board of Directors is to be divided into three classes
which shall be as nearly equal in number as possible.  The directors in each
class hold office for terms of three years and until their successors are
elected and qualified.  One class is elected annually.  Management of the
Company believes that the staggered election of directors tends to promote
continuity and stability of management but makes it more difficult for
stockholders to change a majority of the directors because it generally takes at
least two annual elections of directors for this to occur.

     ABSENCE OF CUMULATIVE VOTING.  The Company's Charter provides that there
shall be no cumulative voting rights in the election of directors.

     AUTHORIZATION OF PREFERRED STOCK.  The Company's Charter authorizes shares
of serial preferred stock, without par value.  The Company is authorized to
issue preferred stock from time to time in one or more series subject to
applicable provisions of law; and the Board of Directors is authorized to fix
the designations, and relative preferences, limitations, voting rights, if any,
including without limitation, conversion rights of such shares (which could be
multiple or as a separate class).  In the event of a proposed merger, tender
offer or other attempt to gain control of the Company that the Board of
Directors does not approve, it might be possible for the Board of Directors to
authorize the issuance of a series of preferred stock with rights and
preferences that would impede the completion of such a transaction.  An effect
of the possible issuance of preferred stock, therefore, may be to deter a future
takeover attempt.  The Board of Directors has no present plans or understandings
for the issuance of any preferred stock but it may issue any preferred stock on
terms which the Board deems to be in the best interests of the Company and its
stockholders.

     RESTRICTIONS ON ACQUISITIONS OF SECURITIES.  The Company's Charter provides
that for a period of five years from the effective date of the charter, no
person other than the Mutual Holding Company, may directly or indirectly offer
to acquire or acquire the beneficial ownership of more than 10% of any class of
equity security of the Company. In addition, for a period of five years
following the effective date of the Charter each share beneficially owned in
violation of the foregoing percentage limitation shall not be counted as shares
entitled to vote, shall not be voted by any person or counted as voting shares
in connection with any matter submitted to stockholders for a vote, and shall
not be counted as outstanding for purposes of determining a quorum or the
affirmative vote necessary to approve any matter submitted to the stockholders
for a vote.

     SPECIAL MEETING OF STOCKHOLDERS.  The Company's Charter provides that for
five years after the effective date of the Charter, special meetings of
stockholders relating to changes in control of the Company or amendments to the
Charter may be called only by the Board of Directors.

CHANGE IN BANK CONTROL ACT AND SAVINGS AND LOAN HOLDING COMPANY PROVISIONS OF
THE HOLA

     The Change in Bank Control Act provides that no person, acting directly or
indirectly or through or in concert with one or more other persons, may acquire
control of a savings and loan holding company unless the OTS has been given 60
days' prior written notice.  The Home Owners' Loan Act provides that no company

                                      110
may acquire "control" of a savings and loan holding company without the prior
approval of the OTS.  Any company that acquires such control becomes a "savings
and loan holding company" subject to registration, examination, and regulation
by the OTS.  Pursuant to federal regulations, control of a savings and loan
holding company is conclusively deemed to have been acquired by, among other
things, the acquisition of more than 25% of any class of voting stock of the
institution or the ability to control the election of a majority of the
directors of the institution.  Moreover, control is presumed to have been
acquired, subject to rebuttal, upon the acquisition of more than 10% of any
class of voting stock, or of more than 25% of any class of stock, of a savings
and loan holding company, where certain enumerated "control factors" are also
present in the acquisition.  The OTS may prohibit an acquisition of control if
(i) it would result in a  monopoly or substantially lessen competition, (ii) the
financial condition of the acquiring person might jeopardize the financial
stability of the institution, or (iii) the competence, experience, or integrity
of the acquiring person indicates that it would not be in the interest of the
depositors or of the public to permit the acquisition of control by such person.
The foregoing restrictions do not apply to the acquisition of the Company's
capital stock by one or more tax-qualified employee stock benefit plans,
provided that the plan or plans do not have beneficial ownership in the
aggregate of more than 25% of any class of equity security of the Company.

                  DESCRIPTION OF CAPITAL STOCK OF THE COMPANY

     The 30,000,000 shares of capital stock authorized by the Company's Charter
are divided into two classes, consisting of 20,000,000 shares of common stock
($0.10 par value) and 10,000,000 shares of serial preferred stock. The aggregate
stated value of the issued shares will constitute the capital account of the
Company on a consolidated basis.  The balance of the Subscription Price of
Common Stock, less expenses of the Reorganization and Offering, will be
reflected as paid-in capital on a consolidated basis.  See "Capitalization."
Upon payment of the Subscription Price for the Common Stock, in accordance with
the Plan, all such stock will be duly authorized, fully paid, validly issued and
nonassessable.

     COMMON STOCK.  Each share of the Common Stock will have the same relative
rights and will be identical in all respects with each other share of the Common
Stock.  THE COMMON STOCK OF THE COMPANY WILL REPRESENT NON-WITHDRAWABLE CAPITAL,
WILL NOT BE OF AN INSURABLE TYPE AND WILL NOT BE INSURED BY THE FDIC.  The
holders of the Common Stock will possess exclusive voting power in the Company.
Each stockholder will be entitled to one vote for each share held on all matters
voted upon by stockholders, subject to the limitation discussed under
"Restrictions on Acquisition of the Company--Provisions of the Company's Charter
and Bylaws."  If the Company issues preferred stock subsequent to the
Reorganization, holders of the preferred stock may also possess voting powers.

     NO PREEMPTIVE RIGHTS.  Holders of the Common Stock will not be entitled to
preemptive rights with respect to any shares which may be issued.  The Common
Stock will not be subject to call for redemption, and, upon receipt by the
Company of the full purchase price therefor, each share of the Common Stock will
be fully paid and nonassessable.

     PREFERRED STOCK.  After the Reorganization, the Board of Directors of the
Company will be authorized to issue preferred stock in series and to fix and
state the voting powers, designations, preferences and relative, participating,
optional or other special rights of the shares of each such series and the
qualifications, limitations and restrictions thereof.  Preferred stock may rank
prior to the Common Stock as to dividend rights, liquidation preferences, or
both, and may have full or limited voting rights.  The holders of preferred
stock will be entitled to vote as a separate class or series under certain
circumstances, regardless of any other voting rights which such holders may
have.

     Except as discussed herein, the Company has no present plans for the
issuance of the additional authorized shares of Common Stock or for the issuance
of any shares of preferred stock.  In the future, the authorized but unissued
and unreserved shares of Common Stock will be available for general corporate
purposes including but not limited to possible issuance as stock dividends or
stock splits, in future mergers or acquisitions, under a cash dividend
reinvestment and stock purchase plan, in a future underwritten or other public
offering or under an employee stock ownership plan, stock option or restricted
stock plan.  The authorized but unissued shares of preferred stock will
similarly be available for issuance in future mergers or acquisitions, in a

                                      111
future underwritten public offering or private placement or for other general
corporate purposes.  Except as described above or as otherwise required to
approve the transaction in which the additional authorized shares of Common
Stock or authorized shares of preferred stock would be issued, no stockholder
approval will be required for the issuance of these shares.  Accordingly, the
Board of Directors of the Company, without stockholder approval, can issue
preferred stock with voting and conversion rights which could adversely affect
the voting power of the holders of Common Stock.

     DIVIDENDS.  Upon consummation of the formation of the Company, the
Company's only assets will be the Bank's common stock and up to 50% of the net
proceeds of the Offering.  Although it is anticipated that the Company will
retain up to 50% of the net proceeds of the Offering, dividends from the Bank
will be an important source of income for the Company.  Should the Bank elect to
retain its income, the ability of the Company to pay dividends to its own
shareholders may be adversely affected.  Furthermore, if at any time in the
future the Company owns less than 100% of the outstanding stock of the Bank,
certain tax benefits under the Code as to inter-company distributions will not
be fully available to the Company and it will be required to pay federal income
tax on a portion of the dividends received from the Bank, thereby reducing the
amount of income available for distribution to the shareholders of the Company.

                          TRANSFER AGENT AND REGISTRAR

     __________________________ will act as the transfer agent and registrar for
the Common Stock.

                             LEGAL AND TAX MATTERS

     The legality of the Common Stock and the federal income tax consequences of
the Reorganization and Offering will be passed upon for the Bank and the Company
by the firm of Luse Lehman Gorman Pomerenk & Schick, P.C., Washington, D.C.
KPMG Peat Marwick LLP has issued an opinion concerning certain state income tax
aspects of the Reorganization.  Luse Lehman Gorman Pomerenk & Schick, P.C. and
KPMG Peat Marwick LLP have consented to the references herein to their opinions.
Certain legal matters relating to the Offering may be passed upon for Ryan Beck
by Thacher Proffitt & Wood, Washington, D.C.

                                    EXPERTS

     The Bank's consolidated financial statements as of September 30, 1997 and
1996 and for the years then ended, included in this Prospectus, have been
audited by KPMG Peat Marwick LLP, independent auditors, as stated in their
report appearing herein, and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.

     The Bank's consolidated financial statements for the year ended September
30, 1995, included in this Prospectus, have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report appearing herein, and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.

     RP Financial has consented to the publication herein of the summary of its
report to the Bank and the Company setting forth its opinion as to the estimated
pro forma market value of the Common Stock upon Reorganization and its valuation
with respect to Subscription Rights.

                             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 can
be examined without charge at the public reference facilities of the SEC located
at 450 Fifth Street, NW, Washington, D.C.  20549, and copies of such material
can be obtained from the SEC at prescribed rates. The SEC maintains a web site
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC. The address of this web
site is http://www.sec.gov. The statements contained herein as to the contents

                                      112
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 but do contain all material information regarding such documents.  Each
such statement is qualified by reference to such contract or document.

     In connection with the Offering, the Company will register the Common Stock
with the SEC under Section 12(g) of the Exchange Act; and, upon such
registration, the Company and the holders of its Common 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 Reorganization.

     A copy of the charter and bylaws of the Company are available without
charge from the Bank.

                                      113
GLOSSARY
Associate                 "Associate" of a person means: (i) any corporation or
                          organization (other than the Bank or its subsidiaries
                          or the Company) of which such person is a director,
                          officer, partner or 10% shareholder; (ii) any trust or
                          other estate in which such person has a substantial
                          beneficial interest or serves as trustee or in a
                          similar fiduciary capacity; provided, however that such
                          term shall not include any employee stock benefit plan
                          of the Company or the Bank in which such a person has a
                          substantial beneficial interest or as a trustee or in a
                          similar fiduciary capacity; and (iii) any relative or
                          spouse of such person, or relative of such spouse, who
                          either has the same home as such person or who is a
                          director or officer of the Bank or its subsidiaries or
                          the Company

Bank                      Provident Bank prior to completion of the
                          Reorganization, or after the conclusion of the
                          Reorganization, as indicated by the context

BIF                       The Bank Insurance Fund of the FDIC

Code                      The Internal Revenue Code of 1986, as amended

Common Stock              Common Stock, par value of $0.10 per share, of
                          Provident Bancorp, Inc.

Community Offering        The offering for sale to the general public of shares
                          of Common Stock not subscribed for in the Subscription
                          Offering, with preference given to natural persons
                          residing in Rockland County, New York

Company                   Provident Bancorp, Inc., the parent holding company for
                          Provident Bank, and the issuer of the shares of Common
                          Stock in the Offering

Conversion Transaction    A mutual-to-stock conversion of the Mutual Holding Company

Eligible Account Holders  Depositors of the Bank with aggregate account balances
                          of at least $50 as of the close of business on December
                          31, 1996

ERISA                     Employee Retirement Income Security Act of 1974, as
                          amended

ESOP                      The Provident Bancorp, Inc. Employee Stock Ownership
                          Plan and Trust

Estimated Valuation Range The estimated pro forma market value of the Common
                          Stock to be issued in the Reorganization, or
                          $55,250,000 to $74,750,000. The maximum of the
                          Estimated Valuation Range may be increased to
                          $85,962,500 without a resolicitation of subscribers

Exchange Act              Securities Exchange Act of 1934, as amended

Expiration Date           10:00 a.m., New York time, on December __, 1998

FASB                      Financial Accounting Standards Board

FDIC                      Federal Deposit Insurance Corporation

FDICIA                    Federal Deposit Insurance Corporation Improvement Act
                          of 1991, as amended
G-1
FHLB                      The Federal Home Loan Bank

FNMA                      Federal National Mortgage Association

Independent Valuation     The appraisal of the pro forma market value of the
                          Common Stock to be issued in the Reorganization, as
                          determined by RP Financial, LC., Arlington, VA.

IRA                       Individual retirement account or arrangement

IRS                       Internal Revenue Service

Minority Stockholders     Stockholders of the Company other than the Mutual
                          Holding Company

MMDA                      Money market demand account

Mutual Holding Company    Provident Bancorp, MHC, a federal mutual holding
                          company

NASD                      National Association of Securities Dealers, Inc.

NOW account               Negotiable order of withdrawal account

NPV                       Net portfolio value

Offering                  The offer and sale of between 2,575,000 and 3,484,500
                          shares of Common Stock, subject to adjustment to
                          4,007,175 shares of Common Stock to depositors and
                          others in the Subscription Offering and the Community
                          Offering pursuant to the Prospectus

Offering Range            The offer and sale by the Company of between 2,575,500
                          and 3,484,500 shares (subject to adjustment to
                          4,007,175 shares) of Common Stock in the Offering
                          pursuant to the Prospectus

Order Form                The form for ordering Common Stock accompanied by a
                          certification concerning certain matters

Other Members             Depositors of the Bank as of _________, 1998, who are
                          not Eligible Account Holders or Supplemental Eligible
                          Account Holders

OTS                       Office of Thrift Supervision

Plan of Reorganization    Provident Bank Plan of Reorganization from a Mutual
                          Savings Bank to a Mutual Holding Company and Stock
                          Issuance Plan

Qualifying Deposits       Deposit accounts with aggregate balances of $50.00 or
                          more as of specified dates

Recognition Plan          The restricted stock plan to be submitted for approval
                          at a meeting of the Company's shareholders to be held
                          no earlier than six months after the completion of the
                          Offering

REO                       Real estate owned
G-2
Reorganization            The reorganization of the Bank from the mutual to the
                          stock form of organization, the organization of the
                          Company, the issuance of all of the Bank's common
                          stock to the Company, the issuance of a majority of
                          the Common Stock to the Mutual Holding Company, and
                          the offer and sale of a minority of the Common Stock
                          in the Offering pursuant to the Prospectus

SAIF                      The Savings Association Insurance Fund of the FDIC

SEC                       Securities and Exchange Commission

Special Meeting           The Special Meeting of members of the Bank called for
                          the purpose of approving the Plan

Stock Option Plan         The stock option plan for directors, officers and
                          employees to be submitted for approval at a meeting of
                          the Company's shareholders to be held no earlier than
                          six months after the completion of the Offering

Subscription Offering     The offering of non-transferable rights to subscribe
                          for the Common Stock, in order of priority, to
                          Eligible Account Holders, the ESOP, Supplemental
                          Eligible Account Holders and Other Member s

Subscription Price        The $10.00 price per share at which the Common Stock
                          will be sold in the Offering

Supplemental Eligible     Depositors of the Bank with aggregate account balances
Account Holders           of at least $50 on September 30, 1998, who are not
                          Eligible Account Holders

Voting Record Date        The close of business on _________, 1998, the date for
                          determining depositors entitled to vote at the Special
                          Meeting
G-3
PROVIDENT BANK
                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
                                                                                 ----
Independent Auditors' Reports..................................................  F-2

Consolidated Statements of Financial Condition at September 30, 1997 and
  1996 (audited) and at June 30, 1998 (unaudited)..............................  F-4
 
Consolidated Statements of Income for the Years Ended September 30, 1997,
  1996 and 1995 (audited) and for the nine-month periods ended
  June 30, 1998 and 1997 (unaudited)...........................................   46
 
Consolidated Statements of Changes in Equity for the Years Ended
  September 30, 1997, 1996 and 1995 (audited) and for the nine months
  ended June 30, 1998 (unaudited)..............................................  F-5
 
Consolidated Statements of Cash Flows for the Years Ended September 30, 1997,
  1996 and 1995 (audited) and for the nine-month periods ended
  June 30, 1998 and 1997 (unaudited)...........................................  F-6
 
Notes to Consolidated Financial Statements.....................................  F-8
All schedules are omitted because the required information is not applicable or
is included in the Consolidated Financial Statements and related Notes.

                                      F-1
INDEPENDENT AUDITORS' REPORT
                                        

The Board of Directors
Provident Bank:

We have audited the accompanying consolidated statements of financial condition
of Provident Bank and subsidiaries as of September 30, 1997 and 1996, and the
related consolidated statements of income (page 46), changes in equity, and cash
flows for the years then ended. 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 Provident Bank and
subsidiaries as of September 30, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.

                                    /s/ KPMG PEAT MARWICK LLP

                                    KPMG PEAT MARWICK LLP

Stamford, Connecticut
October 31, 1997, except
  as to Note 18 which is
  as of April 23, 1998

                                      F-2
[LETTERHEAD OF DELOITTE & TOUCHE LLP]

                          INDEPENDENT AUDITORS' REPORT
                                        

The Board of Directors
Provident Bank:

We have audited the accompanying consolidated statement of income (page 46) and
consolidated statements of changes in equity and cash flows of Provident Bank
and subsidiaries for the year ended September 30, 1995. 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 audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and the cash flows
of Provident Bank and subsidiaries for the year ended September 30, 1995 in
conformity with generally accepted accounting principles.

                                    /s/ Deloitte & Touche LLP
                                    -------------------------
                                    DELOITTE & TOUCHE LLP

Parsippany, New Jersey
November 17, 1995

                                      F-3
PROVIDENT BANK

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                        
                                 (In thousands)
AT SEPTEMBER 30,
                                                                     AT JUNE 30,      -------------------
                                                                         1998          1997        1996
                                                                     ------------     -------     -------
                                                                     (UNAUDITED)
ASSETS
Cash and cash equivalents:
 Cash and due from banks........................................  $        7,785   $    9,191  $    8,669
 Federal funds sold.............................................           5,000          --        5,000
                                                                         -------      -------     -------
     Total cash and cash equivalents............................          12,785        9,191      13,669
                                                                         -------      -------     -------
Investment securities (Note 2):
 Held to maturity, at amortized cost (fair value of $20,179,
   $22,091 and $21,800 at the respective dates).................          20,197       22,195      22,138
 Available for sale, at fair value (amortized cost of $48,271,
   $48,290 and $47,215 at the respective dates).................          48,629       48,517      47,313
                                                                         -------      -------     -------
     Total investment securities................................          68,826       70,712      69,451
                                                                         -------      -------     -------
Mortgage-backed securities (Note 3):
 Held to maturity, at amortized cost (fair value of $90,063,
   $104,624 and $111,519 at the respective dates)...............          89,334      104,071     112,863
 Available for sale, at fair value (amortized cost of $43,487,
   $35,785 and $41,436 at the respective dates).................          43,775       36,153      41,482
                                                                         -------      -------     -------
     Total mortgage-backed securities...........................         133,109      140,224     154,345
                                                                         -------      -------     -------
Loans receivable, net of allowance for loan losses of $4,548,
 $3,779 and $3,357 at the respective dates (Note 4).............         440,360      404,497     369,487
Accrued interest receivable, net (Note 5).......................           4,625        4,262       4,096
Federal Home Loan Bank stock, at cost (Note 9)..................           3,690        3,641       3,211
Premises and equipment, net (Note 6)............................           6,762        7,047       7,594
Real estate owned, net (Note 7).................................             366          186       1,307
Deferred income taxes (Note 10).................................           2,353        1,783       2,459
Other assets (Note 8)...........................................           6,228        7,199       8,631
                                                                         -------      -------     -------
     Total assets...............................................  $      679,104   $  648,742  $  634,250
                                                                         =======      =======     =======
          LIABILITIES AND EQUITY
Liabilities:
 Deposits (Note 8)..............................................  $      580,075   $  546,846  $  545,286
 Borrowings (Note 9)............................................          25,048       24,000      13,000
 Bank overdraft.................................................             147       17,623      17,157
 Mortgage escrow funds (Note 4).................................          14,471        4,559       4,996
 Other liabilities..............................................           5,484        5,315       8,275
                                                                         -------      -------     -------
     Total liabilities..........................................         625,225      598,343     588,714
                                                                         -------      -------     -------
Commitments and contingencies (Notes 13 and 14)
Equity (Note 11):
 Retained earnings..............................................          53,493       50,049      45,451
 Net unrealized gain on securities available for sale,
   net of income taxes of $260, $245 and $59
   at the respective dates......................................             386          350          85
                                                                         -------      -------     -------
     Total equity...............................................          53,879       50,399      45,536
                                                                         -------      -------     -------
     Total liabilities and equity...............................  $      679,104   $  648,742  $  634,250
                                                                         =======      =======     =======
See accompanying notes to consolidated financial statements.

                                      F-4
PROVIDENT BANK

                  CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
                                        
                                 (In thousands)
NET
                                                                       UNREALIZED
                                                             RETAINED    GAIN ON        TOTAL
                                                             EARNINGS  SECURITIES      EQUITY
                                                             --------  -----------     -------
Balance at September 30, 1994...........................   $   38,551     $   --     $ 38,551
 Net income for the year................................        4,803         --        4,803
 Cumulative effect of accounting change
   at October 1, 1994 for net unrealized
   gain on securities available for sale, net
   of income taxes of $27...............................          --           39          39
 Change in net unrealized gain on securities
   available for sale, net of income taxes
   of $303..............................................          --          435         435
                                                               ------       -----      ------
Balance at September 30, 1995...........................       43,354         474      43,828
 Net income for the year................................        2,097         --        2,097
 Change in net unrealized gain on securities available
   for sale, net of income taxes of $271................          --         (389)       (389)
                                                               ------       -----      ------
Balance at September 30, 1996...........................       45,451          85      45,536
 Net income for the year................................        4,598         --        4,598
 Change in net unrealized gain on securities available
   for sale, net of income taxes of $185................          --          265         265
                                                               ------       -----      ------
Balance at September 30, 1997...........................       50,049         350      50,399
 Net income for the period (unaudited)..................        3,444         --        3,444
 Change in net unrealized gain on securities
   available for sale, net of income taxes of
   $15 (unaudited)......................................          --           36          36
                                                               ------       -----      ------
 
Balance at June 30, 1998 (unaudited)....................   $   53,493     $   386    $ 53,879
                                                               ======       =====      ======
See accompanying notes to consolidated financial statements.

                                      F-5
PROVIDENT BANK

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                        
                                 (In thousands)
NINE
                                                                  MONTHS ENDED                     YEARS ENDED
                                                                    JUNE 30,                      SEPTEMBER 30,
                                                               -------------------     -----------------------------------
                                                                 1998      1997          1997         1996          1995
                                                               --------  ---------     --------     ---------     --------
                                                                  (UNAUDITED)
Cash flows from operating activities:
 Net income...............................................   $   3,444   $  3,464    $   4,598    $    2,097    $   4,803
 Adjustments to reconcile net income to net cash
   provided by operating activities:
     Net amortization of premiums and discounts
       on securities......................................         193        132          177           184          433
     Depreciation and amortization of premises and
      equipment...........................................       1,044      1,084        1,462         1,297          975
     Provision for loan losses............................       1,347        875        1,058           911          760
     Amortization of branch purchase premiums.............       1,200      1,129        1,506           691          --  
     Originations of loans held for sale..................     (14,619)      (197)        (197)         (433)      (1,605)
     Proceeds from sales of loans held for sale...........      17,163        197          197           433        1,605
     Deferred income tax (benefit) expense................        (586)       485          496        (2,551)         163
     Net changes in accrued interest receivable
      and payable.........................................        (241)      (751)        (245)           13         (658)
     Net increase (decrease) in other liabilities.........          47     (2,397)      (2,881)        4,947         (510)
     Other adjustments, net...............................        (459)       280         (175)         (790)          19
                                                               -------   --------      -------      --------      -------
       Net cash provided by operating activities..........       8,533      4,301        5,996         6,799        5,985
                                                               -------   --------      -------      --------      -------
 
Cash flows from investing activities:
 Purchases of securities:
   Investment securities held to maturity.................      (2,977)    (4,999)      (4,999)      (13,277)     (10,939)
   Investment securities available for sale...............     (19,093)    (8,204)      (8,204)      (29,122)     (18,165)
   Mortgage-backed securities held to maturity............     (12,398)    (4,906)     (10,071)      (56,666)     (23,109)
   Mortgage-backed securities available for sale..........     (13,100)       --        (2,000)      (15,604)      (5,880)
 Proceeds from maturities, calls and principal payments:
   Investment securities held to maturity.................       5,010         10        5,012        29,021       15,008
   Investment securities available for sale...............      13,000      6,000        7,000         3,000
   Mortgage-backed securities held to maturity............      26,979     13,426       18,667        17,933        4,066
   Mortgage-backed securities available for sale..........       5,442      5,975        7,730        10,517       12,086
 Proceeds from sales of investment securities
   available for sale.....................................       6,007        --           --            --         2,014
 Loan originations, net of principal repayments...........     (40,165)   (20,936)     (36,829)      (39,814)     (17,799)
 Branch purchase premiums paid............................         --         --           --         (7,532)         --
 (Redemption) purchase of Federal Home Loan
   Bank stock.............................................         (49)      (430)        (430)         (242)          21
 Proceeds from sales of real estate owned.................         451      1,406        2,029           200          754
 Purchases of premises and equipment......................        (761)      (805)      (1,260)       (3,775)      (1,593)
 Proceeds from sales of premises and equipment............           2        292          292           192          842
                                                               -------   --------      -------      --------      -------
      Net cash used in investing activities...............     (31,652)   (13,171)     (23,063)     (105,169)     (42,694)
                                                               -------   --------      -------      --------      -------
(Continued)

                                      F-6
PROVIDENT BANK

                CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

                                 (In thousands)
NINE
                                                                     MONTHS ENDED                    YEARS ENDED
                                                                       JUNE 30,                     SEPTEMBER 30,
                                                                 ---------------------      ------------------------------
                                                                   1998         1997        1997         1996        1995
                                                                 --------     --------     -------     --------     ------
                                                                     (UNAUDITED)
Cash flows from financing activities:
 Net increase in deposits, including an increase of
   $104,477 in 1996 from branch purchases...................   $  33,229    $  12,648    $  1,560    $ 101,619    $ 23,859
 Net increase (decrease) in borrowings......................       1,048          --       11,000         (900)      3,733
 Net (decrease) increase in bank overdraft..................     (17,476)     (14,653)        466        1,970      13,090
 Net increase (decrease) in mortgage escrow funds...........       9,912        8,166        (437)      (1,497)        254
                                                                 -------      -------      ------      -------      ------
     Net cash provided by financing activities..............      26,713        6,161      12,589      101,192      40,936
                                                                 -------      -------      ------      -------      ------
 
Net increase (decrease) in cash and cash equivalents........       3,594       (2,709)     (4,478)       2,822       4,227
 
Cash and cash equivalents at beginning of period............       9,191       13,669      13,669       10,847       6,620
                                                                 -------      -------      ------      -------      ------
 
Cash and cash equivalents at end of period..................   $  12,785    $  10,960    $  9,191    $  13,669    $ 10,847
                                                                 =======      =======      ======      =======      ======
 
Supplemental information:
 Interest paid..............................................   $  15,487    $  15,106    $ 20,100    $  18,758    $ 15,082
 Income taxes paid..........................................       3,122          389       1,808        3,140       3,277
 Non-cash investing activities:
   Transfers of loans receivable to real estate owned.......         597          694         715        1,362         255
       Transfer of mortgage-backed securities from held to
    maturity to available for sale..........................         --           --          --         6,519         --
                                                                 =======      =======      ======      =======      ======
See accompanying notes to consolidated financial statements.
                                        

                                      F-7
PROVIDENT BANK
                                        
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                        
         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
               PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
                                        
                             (Dollars in thousands)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    ------------------------------------------

    Provident Bank (the "Bank") is a community bank that offers financial
    services to individuals and businesses primarily in Rockland County, New
    York and its contiguous communities.  The Bank's  principal business is
    accepting deposits and, together with funds generated from operations and
    borrowings, investing in various types of loans and securities.  The Bank's
    deposits are insured up to applicable limits by the Savings Association
    Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation
    ("FDIC") and, as a federally-chartered savings bank, its primary regulator
    is the Office of Thrift Supervision ("OTS").  As discussed in Note 18, the
    Bank's Board of Directors has adopted a Plan of Reorganization and Stock
    Issuance Plan pursuant to which the Bank will convert from mutual to stock
    form of ownership under a two-tier mutual holding company structure and
    shares of common stock will be sold in an initial public offering.

    BASIS OF FINANCIAL STATEMENT PRESENTATION

    The consolidated financial statements include the accounts of the Bank and
    its wholly-owned subsidiaries -- Provest Services Corp. I which became
    active in fiscal 1996 and invests in an affordable housing partnership, and
    Provest Services Corp. II which became active in fiscal 1997 and has engaged
    a third-party provider to sell mutual funds and annuities to the Bank's
    customers.  Financial statement amounts for these subsidiaries have been
    insignificant.  Intercompany transactions and balances are eliminated in
    consolidation.

    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, liabilities, income
    and expense.  A material estimate that is particularly susceptible to near-
    term change is the allowance for loan losses, which is discussed below.

    The consolidated statement of financial condition as of June 30, 1998, and
    the related consolidated statements of income and cash flows for the nine-
    month periods ended June 30, 1998 and 1997 and the consolidated statement of
    changes in equity for the nine-month period ended June 30, 1998 are
    unaudited but, in the opinion of management, reflect all adjustments
    (consisting only of normal recurring accruals) necessary for a fair
    presentation of financial condition and results of operations.

    For purposes of reporting cash flows, cash equivalents consist of overnight
    Federal funds sold.

    SECURITIES

    Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting
    for Certain Investments in Debt and Equity Securities," requires entities to
    classify securities among three categories -- held to maturity, trading, and
    available for sale.  Management determines the appropriate classification of
    the Bank's securities at the time of purchase.

    Held-to-maturity securities are limited to those debt securities for which
    management has the intent and the Bank has the ability to hold to maturity.
    These securities are reported at amortized cost.

                                      F-8
PROVIDENT BANK
                                        
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                                        
         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
               PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
                                        
                             (Dollars in thousands)

    Trading securities are those debt and equity securities bought and held
    principally for the purpose of selling them in the near term.  These
    securities are reported at fair value, with unrealized gains and losses
    included in earnings.  The Bank does not engage in security trading
    activities.

    All other debt and equity securities are classified as available for sale.
    These securities are reported at fair value, with unrealized gains and
    losses (net of the related income tax effect) excluded from earnings and
    reported in a separate component of equity.  Available-for-sale securities
    include securities that management intends to hold for an indefinite period
    of time, such as securities to be used as part of the Bank's asset/liability
    management strategy or securities that may be sold in response to changes in
    interest rates, changes in prepayment risks, the need to increase capital,
    or similar factors.

    Federal Home Loan Bank stock is a non-marketable security held in accordance
    with regulatory requirements and, accordingly, is carried at cost.

    Premiums and discounts on debt securities are recognized in interest income
    on a level-yield basis over the period to maturity. The cost of securities
    sold is determined using the specific identification method. Unrealized
    losses are charged to earnings when the decline in fair value of a security
    is judged to be other than temporary.

    LOANS AND ALLOWANCE FOR LOAN LOSSES

    Loans, other than those classified as held for sale, are carried at
    amortized cost less the allowance for loan losses.  Mortgage loans
    originated and held for sale in the secondary market are carried at the
    lower of aggregate cost or estimated market value.  Net unrealized losses,
    if any, are recognized in a valuation allowance by a charge to earnings.

    Effective October 1, 1995, the Bank prospectively adopted SFAS No. 114,
    "Accounting by Creditors for Impairment of a Loan," as amended by SFAS No.
    118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition
    and Disclosures."  Under SFAS No. 114, a loan is considered impaired when,
    based on current information and events, it is probable that a creditor will
    be unable to collect all principal and interest due according to the
    contractual terms of the loan.  Impaired loans are measured and reported
    based on one of three approaches -- the present value of expected future
    cash flows discounted at the loan's effective interest rate; the loan's
    observable market price; or the fair value of the collateral if the loan is
    collateral dependent.  If the approach used results in a measurement that is
    less than the recorded investment in an impaired loan, an impairment loss is
    recognized as part of the allowance for loan losses.  SFAS No. 118 allows
    creditors to continue to use existing methods for recognizing interest
    income on impaired loans.  The adoption of these statements did not affect
    the Bank's overall allowance for loan losses or income recognition policies.

                                      F-9
PROVIDENT BANK
                                        
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                                        
         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
               PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
                                        
                             (Dollars in thousands)

    The allowance for loan losses is established through provisions for losses
    charged to earnings.  Loan losses are charged against the allowance when
    management believes that the collection of principal is unlikely.
    Recoveries of loans previously charged-off are credited to the allowance
    when realized.

    The allowance for loan losses is an amount that management believes will be
    adequate to absorb probable losses on existing loans that may become
    uncollectible, based on evaluations of the collectibility of the loans.
    Management's evaluations, which are subject to periodic review by the Bank's
    regulators, take into consideration such factors as the Bank's past loan
    loss experience, changes in the nature and volume of the loan portfolio,
    overall portfolio quality, review of specific problem loans and collateral
    values, and current economic conditions that may affect the borrowers'
    ability to pay.  Future adjustments to the allowance for loan losses may be
    necessary based on changes in economic and real estate market conditions,
    further information obtained regarding known problem loans, regulatory
    examinations, the identification of additional problem loans, and other
    factors.

    INTEREST AND FEES ON LOANS

    A loan is placed on non-accrual status when management has determined that
    the borrower may be unable to meet contractual principal or interest
    obligations, or when interest and principal is 90 days or more past due.
    Accrual of interest ceases and, in general, uncollected past due interest
    (including interest applicable to prior years, if any) is reversed and
    charged against current income.  Interest payments received on non-accrual
    loans (including impaired loans under SFAS No. 114) are not recognized as
    income unless warranted based on the borrower's financial condition and
    payment record.  Interest on loans that have been restructured is accrued in
    accordance with the renegotiated terms.

    The Bank defers non-refundable loan origination and commitment fees and
    certain direct loan origination costs, and amortizes the net amount as an
    adjustment of the yield over the contractual term of the loan.  If a loan is
    prepaid or sold, the net deferred amount is recognized in income at that
    time.

    REAL ESTATE OWNED

    Real estate properties acquired through loan foreclosure are recorded
    initially at estimated fair value less expected sales costs, with any
    resulting writedown charged against the allowance for loan losses.
    Subsequent valuations are periodically performed by management, and the
    carrying value of a real estate owned property is adjusted by a charge to
    expense to reflect any subsequent declines in estimated fair value.  Fair
    value estimates are based on recent appraisals and other available
    information.  Routine holding costs are charged to expense as incurred,
    while significant improvements are capitalized.  Gains and losses on sales
    of real estate owned are recognized upon disposition.

                                      F-10
PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED

         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
              PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)
                              

PREMISES AND EQUIPMENT

Premises and equipment are carried at cost, less accumulated depreciation
and amortization. Depreciation is computed using the straight-line method
over the estimated useful lives of the related assets ranging from 3 to 40
years.  Leasehold improvements are amortized on a straight-line basis over
the terms of the respective leases or the estimated useful lives of the
improvements, whichever is shorter.  Routine holding costs are charged to
expense as incurred, while significant improvements are capitalized.

BRANCH PURCHASE PREMIUMS

Premiums attributable to the acquisition of core deposits in branch purchase
transactions are amortized using the straight-line method over periods not
exceeding the estimated average remaining life of the acquired customer base
(initial five-year periods for the Bank's 1996 branch purchases).  The
weighted average remaining amortization period for these premiums was
approximately 2.5 years at June 30, 1998.  The unamortized premiums are
reviewed for impairment if events or changes in circumstances indicate that
the carrying amount may not be fully recoverable.

TRANSFERS AND SERVICING OF FINANCIAL ASSETS

SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," establishes financial reporting
standards for a broad range of transactions including sales of loans with
servicing retained, loan securitizations, loan participations, repurchase
agreements, securities lending and in-substance defeasances of debt.  Among
other things, the standard requires recognition of servicing rights as an
asset when loans are sold with servicing retained.  SFAS No. 125 is
generally effective for transactions entered into on or after January 1,
1997 and superseded SFAS No. 122, "Accounting for Mortgage Servicing
Rights," which became effective for the Bank on October 1, 1996.

In accordance with these standards, the Bank recognizes mortgage servicing
rights as an asset when loans are sold with servicing retained, by
allocating the cost of an originated mortgage loan between the loan and the
servicing right based on estimated relative fair values.  The cost allocated
to the servicing right is capitalized as a separate asset which is amortized
thereafter in proportion to, and over the period of, estimated net servicing
income.  Asset recognition of servicing rights on sales of originated loans
was not permitted under previous accounting standards.  Capitalized mortgage
servicing rights are assessed for impairment based on the fair value of
those rights, and any impairment loss is recognized in a valuation allowance
by charges to income. SFAS No. 125 has not had a significant impact on the
Bank's consolidated financial statements through June 30, 1998. 

                                      F-11
PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED

         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
              PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)

INCOME TAXES

In accordance with SFAS No. 109, "Accounting for Income Taxes", deferred
taxes are recognized for the estimated future tax effects attributable to
"temporary differences" between the financial statement carrying amounts and
the tax bases of existing assets and liabilities.  A deferred tax liability
is recognized for all temporary differences that will result in future
taxable income.  A deferred tax asset is recognized for all temporary
differences that will result in future tax deductions, subject to reduction
of the asset by a valuation allowance in certain circumstances.  This
valuation allowance is recognized if,  based on an analysis of available
evidence, management determines that it is more likely than not that some
portion or all of the deferred tax asset will not be realized.  The
valuation allowance is subject to ongoing adjustment based on changes in
circumstances that affect management's judgment about the realizability of
the deferred tax asset.  Adjustments to increase or decrease the valuation
allowance are charged or credited, respectively, to income tax expense.

Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which the temporary
differences are expected to be recovered or settled.  The effect on deferred
tax assets and liabilities of a change in tax laws or rates is recognized in
income tax expense in the period that includes the enactment date of the
change.

INTEREST RATE CAP AGREEMENTS

The Bank uses the accrual method of accounting for interest rate cap
agreements entered into for interest rate risk management purposes.
Interest payments (if any) due from the counterparties are recognized in the
consolidated statements of income as an adjustment to interest income or
expense on the assets or liabilities designated in the Bank's interest rate
risk management strategy.  Premiums paid by the Bank at inception of the
agreements are included in other assets and amortized on a straight-line
basis as an adjustment to interest income or expense over the term of the
agreements.

                                      F-12
PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED

         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
              PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)

(2) INVESTMENT SECURITIES
    ---------------------

    The following are summaries of investment securities:
JUNE 30, 1998
                                                            --------------------------------------------------------      
                                                                              GROSS          GROSS
                                                             AMORTIZED      UNREALIZED      UNREALIZED        FAIR
                                                                COST          GAINS          LOSSES           VALUE
                                                            ---------       ---------       ---------      ---------
SECURITIES HELD TO MATURITY
U.S. Government and Agency securities due:
 Within one year.....................................        $10,009        $      -       $    (4)         $ 10,005
 After one year, but within five years...............          9,477               7           (21)            9,463
Municipal and other securities.......................            711               -             _               711
                                                             -------         -------       -------           -------
                                                              20,197               7           (25)           20,179
                                                             -------         -------       -------           -------
SECURITIES AVAILABLE FOR SALE
U.S. Government and Agency securities due:
 Within one year.....................................          9,995               4             (7)           9,992
 After one year, but within five years...............         34,261             170            (48)          34,383
Corporate debt securities............................          1,998               _             (2)           1,996
Equity securities....................................          2,017             241              _            2,258
                                                             -------         -------        -------          -------
                                                              48,271             415            (57)          48,629
                                                             -------         -------        -------          -------
 
  Total investment securities........................        $68,468         $   422        $   (82)         $68,808
                                                             =======         =======        =======          =======
SEPTEMBER 30, 1997
                                                             ---------------------------------------------------------
                                                                              GROSS         GROSS
                                                             AMORTIZED     UNREALIZED     UNREALIZED          FAIR
                                                                COST           GAINS        LOSSES           VALUE
                                                             ----------    -----------    ----------       ----------
SECURITIES HELD TO MATURITY
U.S. Government and Agency securities due:
 Within one year.....................................       $  1,025        $    2          $               $  1,027
 After one year, but within five years...............         20,448             1             (106)          20,343
Municipal and other securities.......................            722             -               (1)             721
                                                             -------       -------          -------          -------
                                                              22,195             3             (107)          22,091
                                                             -------       -------          -------          -------
SECURITIES AVAILABLE FOR SALE
U.S. Government and Agency securities due:
 Within one year.....................................         16,028             49               -           16,077
 After one year, but within five years...............         27,238            128            (108)          27,258
Corporate debt securities............................          3,007              1              (3)           3,005
Equity securities....................................          2,017            182             (22)           2,177
                                                             -------        -------         -------          -------
                                                              48,290            360            (133)          48,517
                                                             -------        -------         -------          -------
 
   Total investment securities.......................        $70,485        $   363         $  (240)         $70,608
                                                             =======        =======         =======          =======
F-13
PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED

        (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH 
              PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)
SEPTEMBER 30, 1996
                                                        --------------------------------------------------------------
                                                                           GROSS          GROSS
                                                           AMORTIZED     UNREALIZED     UNREALIZED          FAIR
                                                             COST           GAINS         LOSSES           VALUE
                                                        -------------   -------------   -------------   --------------
SECURITIES HELD TO MATURITY
U.S. Government and Agency securities due
    after one year, but within five years............      $21,402        $     -        $  (332)           $21,070
Municipal and other securities.......................          736              -             (6)               730
                                                           -------        -------        -------            -------
                                                            22,138              -           (338)            21,800
                                                           -------        -------        -------            -------
 
SECURITIES AVAILABLE FOR SALE
U.S. Government and Agency securities due
    after one year, but within five years............      41,161                          (301)            40,860
Corporate debt securities............................       4,037                            (4)             4,033
Equity securities....................................       2,017            403                             2,420
                                                          -------        -------        -------            -------
                                                           47,215            403           (305)            47,313
                                                          -------        -------        -------            -------
                                                        
   Total investment securities.......................     $69,353        $   403          $(643)           $69,113
                                                          =======        =======        =======            =======
The following is an analysis, by type of interest rate, of the amortized
    cost and weighted average yields of the debt securities in the Bank's
    investment securities portfolio:
FIXED         ADJUSTABLE
                                                             RATE             RATE                TOTAL
                                                        ---------------    ---------------     ---------------
JUNE 30, 1998
 Amortized cost.....................................        $63,930          $2,521              $66,451
 Weighted average yield.............................           5.83%           5.29%                5.81%
 
SEPTEMBER 30, 1997
 Amortized cost.....................................        $65,950          $2,518              $68,468
 Weighted average yield.............................           6.08%           5.65%                6.06%
 
SEPTEMBER 30, 1996
 Amortized cost.....................................        $64,822          $2,514              $67,336
 Weighted average yield.............................           5.92%           5.96%                5.92%
Proceeds from sales of investment securities available for sale were $6,007
    in the nine months ended June 30, 1998 (resulting in gross realized gains of
    $10) and $2,014 in the year ended September 30, 1995 (resulting in gross
    realized gains of $14).  These gains are included in other non-interest
    income.  There were no sales of investment securities in the years ended
    September 30, 1997 and 1996.

    U.S. Government securities with a carrying value of $1,500 and $1,350 were
    pledged to secure public funds on deposit at June 30, 1998 and September 30,
    1997, respectively.

                                      F-14
PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED

        (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH 
              PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)

(3)  MORTGAGE-BACKED SECURITIES
     --------------------------
 
    The Bank's mortgage-backed securities are principally Freddie Mac
    participation certificates, and pass-through certificates guaranteed by
    Fannie Mae or Ginnie Mae.  Certain Freddie Mac and Fannie Mae collateralized
    mortgage obligations are also held in the portfolio.  Mortgage-backed
    securities are collateralized by one- to four-family residential loans which
    contractually may be prepaid.

    The following are summaries of mortgage-backed securities:
JUNE 30, 1998
                                                ---------------------------------------------------------------
                                                                    GROSS            GROSS
                                                  AMORTIZED       UNREALIZED      UNREALIZED          FAIR
                                                     COST           GAINS           LOSSES           VALUE
                                                --------------  --------------  ---------------  --------------
SECURITIES HELD TO MATURITY
Freddie Mac...................................      $ 41,915        $    440        $     (3)       $ 42,352
Fannie Mae....................................        38,345             159             (55)         38,449
Ginnie Mae....................................         6,901              82               -           6,983
Other.........................................         2,173             106               -           2,279
                                                    --------        --------        --------        --------
                                                      89,334             787             (58)         90,063
                                                    --------        --------        --------        --------
 
SECURITIES AVAILABLE FOR SALE
Freddie Mac...................................        16,123             168             (15)         16,276
Fannie Mae....................................        23,219             150             (21)         23,348
Other.........................................         4,145               6               -           4,151
                                                    --------        --------        --------        --------
                                                      43,487             324             (36)         43,775
                                                    --------        --------        --------        --------
   Total mortgage-backed securities...........      $132,821        $  1,111        $    (94)       $133,838
                                                    ========        ========        ========        ========
F-15
PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED

        (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH 
              PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)
SEPTEMBER 30, 1997
                                                  ---------------------------------------------------------------
                                                                    GROSS           GROSS
                                                  AMORTIZED       UNREALIZED      UNREALIZED          FAIR
                                                     COST           GAINS           LOSSES           VALUE
                                                  --------------  --------------  ---------------  --------------
SECURITIES HELD TO MATURITY
Freddie Mac...................................        $ 55,950        $   436        $    (59)         $   56,327
Fannie Mae....................................          37,928            121            (148)             37,901
Ginnie Mae....................................           7,971            143               -               8,114
Other.........................................           2,222             60               -               2,282
                                                      --------        -------        --------            --------
                                                       104,071            760            (207)            104,624
                                                      --------        -------        --------            --------

SECURITIES AVAILABLE FOR SALE
Freddie Mac...................................          10,289            224              (5)             10,508
Fannie Mae....................................          20,912            219             (53)             21,078
Other.........................................           4,584              -             (17)              4,567
                                                      --------        -------        --------            --------
                                                        35,785            443             (75)             36,153
                                                      --------        -------        --------            --------
   Total mortgage-backed securities...........        $139,856        $ 1,203        $   (282)           $140,777
                                                      ========        =======        ========            ========
SEPTEMBER 30, 1996
                                                    ---------------------------------------------------------------
                                                                         GROSS           GROSS
                                                       AMORTIZED       UNREALIZED      UNREALIZED          FAIR
                                                         COST            GAINS           LOSSES           VALUE
                                                    --------------  --------------  ---------------  --------------
SECURITIES HELD TO MATURITY
Freddie Mac...................................         $ 62,977        $    194        $   (846)        $ 62,325
Fannie Mae....................................           44,345              48            (798)          43,595
Ginnie Mae....................................            3,284              78               -            3,362
Other.........................................            2,257               -             (20)           2,237
                                                       --------        --------        --------         --------
                                                        112,863             320          (1,664)         111,519
                                                       --------        --------        --------         --------

SECURITIES AVAILABLE FOR SALE
Freddie Mac...................................           13,844             196             (29)          14,011
Fannie Mae....................................           22,696             136            (243)          22,589
Other.........................................            4,896               -             (14)           4,882
                                                       --------        --------        --------         --------
                                                         41,436             332            (286)          41,482
                                                       --------        --------        --------         --------

    Total mortgage-backed securities..........         $154,299        $    652        $ (1,950)        $153,001
                                                       ========        ========        ========         ========
F-16
PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED

         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
              PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)

    The following is an analysis, by type of interest rate, of the amortized
    cost and weighted average yields of the Bank's mortgage-backed securities
    portfolio:
FIXED         ADJUSTABLE
                                                               RATE            RATE           TOTAL
                                                          --------------  --------------  --------------
JUNE 30, 1998
 Amortized cost.....................................        $86,234         $46,587        $132,821
 Weighted average yield.............................           6.49%           6.50%           6.49%

SEPTEMBER 30, 1997
 Amortized cost.....................................        $86,702         $53,154        $139,856
 Weighted average yield.............................           6.65%           6.66%           6.65%

SEPTEMBER 30, 1996
 Amortized cost.....................................        $94,204         $60,095        $154,299
 Weighted average yield.............................           6.44%           6.57%           6.49%
In November 1995, the Financial Accounting Standards Board ("FASB") issued a
    special report concerning SFAS No. 115 which provided an opportunity to
    reclassify debt securities from the held-to-maturity category to the
    available-for-sale category prior to December 31, 1995, without calling into
    question the intent to hold other debt securities to maturity.  In November
    1995, the Bank reclassified mortgage-backed securities with an amortized
    cost of $6,519 and a fair value of $6,582 from the held-to-maturity category
    to the available-for-sale category.  An after-tax net unrealized gain of $37
    was recorded as an increase in equity at the time of transfer.

    There were no sales of mortgage-backed securities in the nine months ended
    June 30, 1998 or the years ended September 30, 1997, 1996 and 1995.

                                      F-17
PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED

        (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH 
              PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)

(4) LOANS RECEIVABLE
       ----------------
    Loans receivable are summarized as follows:
SEPTEMBER 30,
                                                JUNE 30,    ------------------------
                                                  1998         1997          1996
                                               ---------    ---------     ----------
First mortgage loans:
        One- to four-family residential:
          Fixed rate........................    $ 188,779    $ 158,596    $ 137,987
          Adjustable rate...................       82,814       83,299       81,881
    Multi-family residential................        7,108        7,358        7,743
    Commercial real estate..................       63,712       55,747       58,640
    Construction and land...................       27,785       31,740       28,035
                                                ---------    ---------    ---------
                                                  370,198      336,740      314,286
                                                ---------    ---------    ---------
    Other loans:
        Home equity lines of credit.........       28,362       31,456       31,306
        Homeowner loans.....................       25,418       18,678       12,575
        Other consumer loans................        8,855       10,670       10,916
        Commercial business loans...........       24,036       21,651       15,263
                                                ---------    ---------    ---------
                                                   86,671       82,455       70,060
                                                ---------    ---------    ---------
 
          Total loans receivable............      456,869      419,195      384,346
 
    Loans in process......................      (12,732)     (11,424)     (11,775)
    Allowance for loan losses.............       (4,548)      (3,779)      (3,357)
    Deferred loan origination costs, net..          771          505          273
                                                ---------    ---------    ---------
 
          Total loans receivable, net.......    $ 440,360    $ 404,497    $ 369,487
                                                =========    =========    =========
The Bank originates mortgage loans secured by existing one- to four-family
    residential properties.  The Bank also originates multi-family and
    commercial real estate loans, construction and land loans, consumer loans
    and commercial business loans.  A substantial portion of the loan portfolio
    is secured by residential and commercial real estate located in Rockland
    County, New York.  The ability of the Bank's borrowers to make principal and
    interest payments is dependent upon, among other things, the level of
    overall economic activity and the real estate market conditions prevailing
    within the Bank's concentrated lending area.

    The Bank originated commercial real estate loans and construction and land
    loans totaling $25,361 in the nine months ended June 30, 1998, and $23,884,
    $32,371 and $16,896 in the years ended September 30, 1997, 1996 and 1995,
    respectively.  These loans are considered by management to be of somewhat
    greater credit risk than loans to fund the

                                      F-18
PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED

        (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH 
              PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)

    purchase of a primary residence due to the generally larger loan amounts and
    dependency on income production or sale of the real estate.  Substantially
    all of these loans are collateralized by real estate located in the Bank's
    primary market area.

    The principal balances of non-accrual loans were as follows:
SEPTEMBER 30,
                                    JUNE 30,     -----------------
                                      1998        1997       1996  
                                    --------     -----      ------
First mortgage loans:                                          
      One- to four-family......     $  3,323   $ 2,549    $  2,731 
      Commercial real estate...          848     1,375       2,087 
      Construction and land....        1,142       276         920 
    Consumer loans.............          230       234         503 
    Commercial business loans..          194       243         109 
                                    --------   -------    -------- 
    Total non-accrual loans....     $  5,737   $ 4,677    $  6,350 
                                    ========   =======    ========
The allowance for uncollected interest, representing the amount of interest
    on non-accrual loans that has not been recognized in interest income, was
    $505, $433 and $540 at June 30, 1998, September 30, 1997 and September 30,
    1996, respectively.   For the year ended September 30, 1997 and for the
    nine months ended June 30, 1998, gross interest income that would have been
    recorded had the non-accrual loans at the end of the period remained on
    accrual status throughout the period amounted to $411 and $523,
    respectively.  Interest income actually recognized on such loans totaled
    $147 for the year ended September 30, 1997 and $241 for the nine months
    ended June 30, 1998.

    SFAS No. 114 applies to loans that are individually evaluated for
    collectibility in accordance with the Bank's ongoing loan review procedures
    (principally commercial real estate loans, construction and land loans, and
    commercial business loans).  The standard does not generally apply to
    smaller-balance homogeneous loans that are collectively evaluated for
    impairment, such as residential mortgage loans and consumer loans.  The
    Bank's recorded investment in impaired loans, as defined by SFAS No. 114, is
    summarized as follows:
SEPTEMBER 30,
                                                     JUNE 30,     ---------------
                                                       1998       1997      1996
                                                      -----       -----     -----
Loans with an allowance for loan impairment
       under SFAS No. 114 (allowance of $168 and
       $25 at September 30, 1997 and 1996,
       respectively)..............................   $     _   $   615   $   675
     Loans for which an allowance for loan
       impairment was not required................     2,184     1,279     2,441
                                                     -------   -------   -------
         Total impaired loans.....................   $ 2,184   $ 1,894   $ 3,116
                                                     =======   =======   =======
F-19
PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANICAL STATEMENTS, CONTINUED

        (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH 
              PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)

    Substantially of all of these impaired loans were collateral-dependent loans
    measured based on the fair value of the collateral in accordance with SFAS
    No. 114.  The Bank determines the need for an allowance for loan impairment
    under SFAS No. 114 on a loan-by-loan basis.  The Bank's recorded investment
    in impaired loans averaged $3,047 and $2,315 in the nine months ended June
    30, 1998 and 1997, respectively, and $2,210 and $3,663 in the years ended
    September 30, 1997 and 1996, respectively.

    Activity in the allowance for loan losses is summarized as follows:
NINE MONTHS                        YEARS ENDED
                                                      ENDED JUNE 30,                      SEPTEMBER 30,
                                                ------------------------     ----------------------------------------
                                                   1998           1997          1997          1996          1995
                                                -----------   ----------     ------------  ------------  ------------
Balance at beginning of period................     $3,779        $3,357        $3,357       $ 3,472        $2,837
Provision for losses..........................      1,347           875         1,058           911           760
Charge-offs...................................       (611)         (396)         (759)       (1,076)         (152)
Recoveries....................................         33            41           123            50            27
                                                   ------        ------        ------       -------        ------
Balance at end of period......................     $4,548        $3,877        $3,779       $ 3,357        $3,472
                                                   ======        ======        ======       =======        ======
Certain residential mortgage loans originated by the Bank are sold in the
    secondary market.  Other non-interest income for the nine months ended June
    30, 1998 includes a net gain of $185 on sales of residential mortgage loans
    held for sale (net gains in fiscal 1997, 1996 and 1995 were insignificant).
    Fixed-rate residential mortgage loans include loans held for sale with a
    carrying value of $486 at September 30, 1997 and $745 at September 30, 1996,
    which approximated market value at those dates.  There were no loans held
    for sale at June 30, 1998.  Other assets at June 30, 1998 include
    capitalized mortgage servicing rights with an amortized cost of $163, which
    approximated fair value.

    The Bank generally retains the servicing rights on loans sold.  Servicing
    loans for others generally consists of collecting mortgage payments,
    maintaining escrow accounts, disbursing payments to investors and, if
    necessary, processing foreclosures.  Loans serviced for others totaled
    approximately $128,500, $127,600 and $143,000 at June 30, 1998, September
    30, 1997 and September 30, 1996, respectively.  These amounts include loans
    sold with recourse of approximately $2,900, $3,500 and $4,200, respectively,
    for which management does not expect the Bank to incur any significant
    losses. Loan servicing income includes servicing fees from investors and
    certain charges collected from borrowers, such as late payment fees.
    Mortgage escrow funds include amounts held in connection with loans serviced
    for others of $5,271, $1,873 and $2,076 at June 30, 1998, September 30, 1997
    and September 30, 1996, respectively.

                                      F-20
PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED 
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)

(5)  ACCRUED INTEREST RECEIVABLE
     ---------------------------

The components of accrued interest receivable were as follows:
SEPTEMBER 30,
                                             JUNE 30,      ------------------------
                                              1998           1997            1996
                                           ---------       --------        --------
Loans receivable......................... $   2,997   $     2,933    $      2,910
Allowance for uncollected interest.......      (505)         (433)           (540)
                                             ------         -----           -----
                                              2,492         2,500           2,370
Investment securities....................     1,311           868             787
Mortgage-backed securities...............       822           894             939
                                             ------         -----           -----
                                                                  
 Total accrued interest receivable, net.. $   4,625   $     4,262    $      4,096
                                              =====         =====           =====
(6)  PREMISES AND EQUIPMENT
     ----------------------

    Premises and equipment are summarized as follows:
SEPTEMBER 30,
                                             JUNE 30,         ----------------
                                              1998          1997             1996
                                           ---------       ------          --------
Land and land improvements............... $  1,088    $     1,082    $      1,006
Buildings................................    3,159          3,348           3,136
Leasehold improvements...................    2,893          2,642           2,614
Furniture and fixtures...................    6,510          5,820           5,310
                                            ------         ------          -------
                                            13,650         12,892          12,066
Accumulated depreciation and amortization   (6,888)        (5,845)         (4,472)
                                            ------         ------          -------
 Total premises and equipment, net....... $  6,762    $     7,047    $      7,594
                                            ======         ======          ======
Depreciation and amortization expense, which is included in occupancy and
    office operations expense, amounted to $1,044 and $1,084 in the nine months
    ended June 30, 1998 and 1997, respectively, and $1,462, $1,297 and $975 in
    the years ended September 30, 1997, 1996 and 1995, respectively.

                                      F-21
PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED 
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)

(7)    REAL ESTATE OWNED
       -----------------
       Real estate owned consisted of the following:
SEPTEMBER 30,
                                                  JUNE 30,          ----------------------
                                                    1998             1997            1996
                                                  --------          ------          ------
One- to four-family properties..          $     92    $       212    $        347
       Commercial properties...........               274             --           1,010
       Allowance for losses............                --            (26)            (50)
                                                    -----          ------         ------
       
       Real estate owned, net.........          $     366    $       186    $      1,307
                                                      ===            ===           =====
Activity in the allowance for losses on real estate owned is summarized  as
    follows:
Nine Months                         Years Ended
                                                      Ended June 30,                       September 30,
                                                ---------------------------  -----------------------------------------
                                                     1998           1997          1997          1996           1995
                                                -------------  ------------  ------------  ------------  -------------
Balance at beginning of period................  $      26      $     50      $     50      $     --      $      --
Provision for losses..........................         --            --            75            64             90
Losses charged to allowance...................        (26)          (50)          (99)          (14)           (90)
                                                     -----         -----         -----         -----          -----
Balance at end of period......................  $      --      $     --      $     26      $     50      $      --
                                                     =====         =====         =====         =====          =====
Foreclosed real estate expense (income) consisted of the following:
Nine Months                        Years Ended
                                                      Ended June 30,                      September 30,
                                                ---------------------------  ----------------------------------------
                                                    1998           1997          1997          1996          1995
                                                -------------  ------------  ------------  ------------  ------------
Holding costs.................................  $     100      $    145      $    164      $    382      $     66
Provision for losses..........................         --            --            75            64            90
Income from operations........................         --            --           (11)           (4)           (9)
Net gain on sales of properties...............        (34)         (254)         (268)           (1)          (47)
                                                     -----         -----         -----         -----         -----
 Expense (income), net........................  $      66      $   (109)     $    (40)     $    441      $     100
                                                     =====         =====         =====         =====         =====
F-22
PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED 
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)

(8)    DEPOSITS
       --------
       Deposit accounts and weighted average interest rates are summarized as
       follows:
JUNE 30,   1998        September 30, 1997        SEPTEMBER 30, 1996
                                               -----------------       ------------------        ------------------  
                                                AMOUNT      RATE         Amount      Rate          Amount   Rate
                                                ------      ----         ------      ----          ------   ----
Demand deposits.......................   $ 55,072      --%         $ 49,221     --%     $    42,700  %
       NOW deposits..........................     40,969    1.25            32,985   1.25           30,950   1.25
       Savings deposits......................    161,263    2.25           153,171   2.25          153,565   2.25
       Money market deposits.................     79,436    2.96            75,339   2.96           77,111   2.97
       Certificates of deposit...............    243,335    5.22           236,130   5.31          240,960   5.10
                                                --------                  --------                --------
                                                                                    
       Total deposits.......................    $580,075    3.31%         $546,846   3.40%     $   545,286   3.38%
                                                ========    ====          ========   ====         ========   ====
Certificates of deposit had remaining periods to contractual 
  maturity as follows:
SEPTEMBER 30,
                                                              JUNE 30,        -------------
                                                                1998         1997        1996
                                                              -------      --------     -------
Remaining period to maturity:
      Less than one year............................     $    180,515    $  185,557   $ 186,737
      One to two years..............................           50,003        24,075      29,721
      Two to three years............................            7,088        19,086      10,328
      Over three years..............................            5,729         7,412      14,174
                                                              -------      --------     -------
                                                  
      Total certificates of deposit.................     $    243,335    $  236,130   $ 240,960
                                                              =======      ========     =======
Certificate of deposit accounts with a denomination of $100 or more
      totaled $25,780, $25,137 and $26,263 at June 30, 1998, September 30, 1997
      and September 30, 1996, respectively. The FDIC generally insures depositor
      accounts up to $100, as defined in the applicable regulations. 

      The Bank purchased two branch offices in separate transactions consummated
      in March and May 1996. In these transactions, the Bank assumed deposit
      liabilities of $104,477; received cash of $96,165 and other assets of
      $780; and recorded a core deposit purchase premium of $7,532. Premium
      amortization charged to expense amounted to $1,200 and $1,129 in the nine
      months ended June 30, 1998 and 1997, respectively, and $1,506 and $691 in
      the years ended September 30, 1997 and 1996, respectively. Unamortized
      premiums of $4,091, $5,280 and $6,841 are included in other assets at June
      30, 1998, September 30, 1997 and September 30, 1996, respectively.

                                      F-23
PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED 
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)

    Interest expense on deposits is summarized as follows:
NINE MONTHS                      Years Ended
                                                     Ended June 30,                    September 30,
                                                -------------------------  -------------------------------------
                                                    1998         1997         1997         1996         1995
                                                ------------  -----------  -----------  -----------  -----------
Savings deposits..............................       $ 2,731      $ 2,713      $ 3,670      $ 3,592      $ 3,741
Money market and NOW deposits                          2,016        1,992        2,675        2,480        2,136
Certificates of deposit.......................         9,568        9,184       12,347       11,041        8,563
                                                     -------      -------      -------      -------      -------
 
 Total interest expense.......................       $14,315      $13,889      $18,692      $17,113      $14,440
                                                     =======      =======      =======      =======      =======
(9)    BORROWINGS
       ----------

    The Bank's borrowings consist of Federal Home Loan Bank ("FHLB") advances
    with weighted average interest rates and remaining periods to maturity as
    follows:
JUNE 30,    1998     September 30, 1997          SEPTEMBER 30, 1996
                                       -------------------   ---------------------       -------------------
                                         AMOUNT       RATE        AMOUNT       RATE        AMOUNT      RATE
                                        ---------    -----     -----------    ------     -----------  ------
Remaining period to maturity:                                                         
 Less than one year..................  $      --       --%   $        --        --%      $ 5,000      5.44%
 One to two years....................     10,000     6.20         11,000      7.16         5,000      7.81
 Two to three years..................      5,000     6.35          3,000      6.58         3,000      6.58
 Three to four years.................         --       --          5,000      6.12            --        --
 Four to five years..................     10,048     5.94          5,000      6.28            --        --
                                         -------                 -------                  -------
                                                                                      
   Total borrowings..................    $25,048     6.13%       $24,000      6.69%      $ 13,000     6.61%
                                         =======     ====        =======      ====        =======     ====
As a member of the FHLB of New York, the Bank may have outstanding FHLB
    borrowings of up to 30% of its total assets, or approximately $203,700 at
    June 30, 1998 and $194,600 at September 30, 1997, in a combination of term
    advances and overnight funds.  The Bank's unused FHLB borrowing capacity was
    approximately $178,700 at June 30, 1998 and $170,600 at September 30, 1997.

    Borrowings are secured by the Bank's investment in FHLB stock and by a
    blanket security agreement.  This agreement requires the Bank to maintain as
    collateral certain qualifying assets (principally securities and residential
    mortgage loans) not otherwise pledged.  The Bank satisfied this collateral
    requirement at June 30, 1998, September 30, 1997 and September 30, 1996.

                                      F-24
PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED 
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)

(10)    INCOME TAXES
        ------------

    Income tax expense consists of the following components:
NINE MONTHS                      Years Ended
                                                   Ended June 30,                   September 30,
                                              ------------------------  --------------------------------------
                                                  1998         1997        1997          1996         1995
                                              ------------  ----------  -----------  ------------  -----------
Current tax expense:
 Federal....................................       $2,075       $1,549       $1,898      $ 2,743       $2,431
 State......................................          506          336          435          498          645
                                                   ------       ------       ------      -------       ------
                                                    2,581        1,885        2,333        3,241        3,076
                                                   ------       ------       ------      -------       ------
Deferred tax (benefit) expense:
 Federal....................................         (435)         348          356       (1,662)         (78)
 State......................................         (151)         137          140         (889)         241
                                                   ------       ------       ------      -------       ------
                                                     (586)         485          496       (2,551)         163
                                                   ------       ------       ------      -------       ------
 
Total income tax expense....................       $1,995       $2,370       $2,829      $   690       $3,239
                                                   ======       ======       ======      =======       ======
The Bank's actual income tax expense differs from the amounts determined by
    applying the statutory Federal income tax rate to income before income taxes
    for the following reasons:
NINE MONTHS ENDED JUNE 30,
                                                 --------------------------------------------
                                                        1998                     1997
                                                 -------------------      -------------------     
                                                 AMOUNT      Percent      Amount      Percent
                                                 ------      -------      ------      -------
Tax at Federal statutory rate.............  $    1,849         34.0%       $1,984        34.0%
State income taxes, net of                                                       
                    Federal tax effect....         234           4.3          312         5.3
Other, net................................         (88)         (1.6)          74         1.3
                                                 -----          ----       ------        ----
                                                                                 
Actual income tax expense.................  $    1,995          36.7%      $2,370        40.6%
                                                ======          ====       ======        ====
YEARS ENDED SEPTEMBER 30,
                                            ----------------------------------------------------------------------------
                                                      1997                      1996                      1995
                                            ------------------------  ------------------------  ------------------------
                                              AMOUNT       Percent      Amount       Percent      Amount       PERCENT
                                            -----------  -----------  -----------  -----------  -----------  -----------
Tax at Federal statutory rate.............      $2,525         34.0%       $ 948         34.0%      $2,734         34.0%
State income taxes, net of
        Federal tax effect................         380          5.1         (258)        (9.2)         585          7.3
Other, net................................         (76)        (1.0)          --           --          (80)        (1.0)
                                                ------       ------       ------       ------       ------       ------
 
Actual income tax expense.................      $2,829         38.1%       $ 690         24.8%      $3,239         40.3%
                                                ======       ======       ======       ======       ======       ======
F-25
PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED 
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)

    Deferred tax assets and liabilities have been recognized for temporary
    differences between the financial statement carrying amounts and the tax
    bases of assets and liabilities.  The sources of these temporary differences
    and their deferred tax effects are as follows:
SEPTEMBER 30,
                                                       JUNE 30,     ---------------
                                                         1998       1997      1996
                                                       --------     -----     -----
Deferred tax assets:
        Allowance for loan losses...............  $       1,777  $  1,470  $  1,112
        Deferred compensation...................            846       789       681
        Deposit premium amortization............            899       594        --
        Depreciation of premises and equipment..            135       122       175
        Accrued SAIF special assessment.........             --        --     1,351
        Other...................................             83        65        --
                                                          -----     -----     -----
          Total deferred tax assets.............          3,740     3,040     3,319
                                                          -----     -----     -----
 
      Deferred tax liabilities:
        Federal tax bad debt reserve in
          excess of base-year amount............            444       444       476
        Prepaid pension expense.................            354       355       253
        Deferred loan origination costs, net....            329       213        72
        Net unrealized gain on securities
          available for sale....................            260       245        59
                                                          -----     -----     -----
          Total deferred tax liabilities........          1,387     1,257       860
                                                          -----     -----     -----
 
      Net deferred tax asset....................  $       2,353  $  1,783  $  2,459
                                                          =====     =====     =====
Based on recent historical and anticipated future pre-tax earnings,
    management believes it is more likely than not that the Bank will realize
    its deferred tax assets.

    As a savings institution, the Bank is subject to special provisions in the
    Federal and New York State tax laws regarding its allowable tax bad debt
    deductions and related tax bad debt reserves.  These deductions historically
    were determined using methods based on loss experience or a percentage of
    taxable income.  Tax bad debt reserves represent the excess of allowable
    deductions over actual bad debt losses and other reserve reductions.  These
    reserves consist of a defined base-year amount, plus additional amounts
    ("excess reserves") accumulated after the base year.  SFAS No. 109 requires
    recognition of deferred tax liabilities with respect to such excess
    reserves, as well as any portion of the base-year amount which is expected
    to become taxable (or "recaptured") in the foreseeable future.

                                      F-26
PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED 
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)

     Certain amendments to the Federal and New York State tax laws regarding bad
     debt deductions were enacted in the quarter ended September 30, 1996.  The
     Federal amendments eliminated the percentage-of-taxable-income method for
     tax years beginning after December 31, 1995 and imposed a requirement to
     recapture into taxable income (over a six-year period) the bad debt
     reserves in excess of the base-year amounts. The Bank previously
     established, and has continued to maintain, a deferred tax liability with
     respect to such excess Federal reserves. The New York State amendments
     redesignated all then-existing State bad debt reserves as the base-year
     amount and provide for future additions to that base-year reserve using the
     percentage-of-taxable-income method. These changes effectively eliminated
     the Bank's excess New York State reserves for which a deferred tax
     liability had been recognized and, accordingly, such liability was reversed
     in the quarter ended September 30, 1996 and a $500 reduction in income tax
     expense was recognized.

     The Bank's Federal and State base-year reserves were approximately $4,600
     and $24,500, respectively, at June 30, 1998 ($4,600 and $22,800,
     respectively, at September 30, 1997).  In accordance with SFAS No. 109,
     deferred tax liabilities have not been recognized with respect to these
     reserves, since the Bank does not expect that these amounts will become
     taxable in the foreseeable future.  Under the tax laws as amended, events
     that would result in taxation of certain of these reserves include failure
     to maintain a specified qualifying-assets ratio or meet other thrift
     definition tests for New York State tax purposes.  At June 30, 1998 and
     September 30, 1997, the Bank's unrecognized deferred tax liabilities with
     respect to its base-year reserves totaled approximately $3,300  and $3,200,
     respectively.

(11) REGULATORY MATTERS
     ------------------

     CAPITAL REQUIREMENTS

     OTS regulations require savings institutions 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 its 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%.

                                      F-27
PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED 
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)    

    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 June 30, 1998, September 30, 1997 and
    September 30, 1996, the Bank met all capital adequacy requirements to which
    it was 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,
    compared to the OTS minimum capital adequacy requirements and the OTS
    requirements for classification as a well-capitalized institution:
OTS Requirements
                                                            ------------------------------------------------------
                                                                   MINIMUM CAPITAL              CLASSIFICATION
                                         BANK ACTUAL                   ADEQUACY              AS WELL CAPITALIZED
                                 -------------------------  --------------------------  --------------------------
                                    Amount         RATIO        AMOUNT         RATIO        AMOUNT        RATIO
                                 ------------  -----------  -------------  -----------  -------------  -----------
 
JUNE 30, 1998
Tangible capital...........        $49,402         7.3%       $10,120         1.5%  $           --          --%
 Tier 1 (core) capital......         49,402         7.3         20,239         3.0          33,732         5.0
 Risk-based capital:                                          
     Tier 1.................         49,402        13.0             --          --          22,748         6.0
     Total..................         53,950        14.2         30,331         8.0          37,913        10.0
                                    =======        ====        =======         ===         =======        ====
                                                              
September 30, 1997                                            
 Tangible capital...........        $44,769         7.0%       $ 9,650         1.5%  $                      --%
 Tier 1 (core) capital......         44,769         7.0         19,299         3.0          32,165         5.0
 Risk-based capital:                                          
     Tier 1.................         44,769        12.7                                     21,168         6.0
     Total..................         48,336        13.7         28,224         8.0          35,280        10.0
                                    =======        ====        =======         ===         =======        ====
SEPTEMBER 30, 1996
Tangible capital...........        $38,610         6.2%       $ 9,410         1.5%  $               %
 Tier 1 (core) capital......         38,610         6.2         18,820         3.0          31,366         5.0
 Risk-based capital:
     Tier 1.................         38,610        11.5                                     20,149         6.0
     Total..................         41,326        12.3         26,865         8.0          33,582        10.0
                                    =======        ====        =======         ===          ======        ====
F-28
PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED 
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)

    The following is a reconciliation of the Bank's equity under generally
    accepted accounting principles and its regulatory capital amounts:
SEPTEMBER 30,
                                                         JUNE 30,    ------------------
                                                           1998        1997         1996
                                                        ---------    -------      -------
Equity under generally accepted
        accounting principles......................   $   53,879   $  50,399   $  45,536
      Core deposit purchase premiums...............       (4,091)     (5,280)     (6,841)
      Net unrealized gain on securities available
        for sale, net of income taxes..............         (386)       (350)        (85)
                                                          ------      ------      ------
      Tangible capital, Tier 1 (core) capital
        and Tier 1 risk-based capital..............       49,402      44,769      38,610
      Allowance for loan losses includable
        in regulatory capital......................        4,548       3,567       2,716
                                                          ------      ------      ------
 
      Total risk-based capital.....................   $   53,950   $  48,336   $  41,326
                                                          ======      ======      ======
SAIF SPECIAL 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-assessable deposits, in order to recapitalize the SAIF to the
    reserve level required by law.  The Bank's consolidated financial statements
    for the year ended September 30, 1996 reflect a separate expense charge of
    $3,298 for this special assessment.

(12)    EMPLOYEE BENEFITS
        -----------------

    PENSION PLANS

    The Bank has a noncontributory defined benefit pension plan covering
    substantially all of its employees.  Employees who are twenty-one years of
    age or older and have worked for the Bank for one year are eligible to
    participate in the plan.  The Bank's funding policy is to contribute
    annually an amount sufficient to meet statutory minimum funding
    requirements, but not in excess of the maximum amount deductible for Federal
    income tax purposes.  Contributions are intended to provide not only for
    benefits attributed to service to date, but also for those expected to be
    earned in the future.

                                      F-29
PROVIDENT BANK

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH PERIODS ENDED 
                     JUNE 30, 1998 AND 1997 IS UNAUDITED)

                            (Dollars in thousands)

    The following is a reconciliation of the funded status of the plan and the
    prepaid pension costs recognized in the consolidated statements of financial
    condition at September 30:
1997       1996
                                                                       ------     ------
Accumulated benefit obligation, including vested benefits
        of $2,768 in 1997 and $2,301 in 1996......................  $  3,099   $  2,439
                                                                       =====      =====
 
      Projected benefit obligation for service rendered to date...  $  4,411   $  3,522
      Plan assets at fair value...................................     4,906      3,821
                                                                       -----      -----
      Plan assets in excess of projected benefit obligation.......       495        299
      Transition obligation.......................................       190        216
      Unrecognized prior service cost.............................      (138)      (151)
      Unrecognized net loss.......................................       319        254
                                                                       -----      -----
      Prepaid pension cost........................................  $    866   $    618
                                                                       =====      =====
Pension plan assets at September 30, 1997 and 1996 were invested principally
    in a managed growth fund and certificates of deposit with the Bank.

    The components of the net periodic pension expense were as follows for the
    years ended September 30:
1997       1996       1995
                                                              ----------  ---------  ---------
Service cost (benefits earned during the year)............      $ 348      $ 292      $ 307
Interest cost on projected benefit obligation.............        329        273        248
Return on plan assets.....................................       (306)      (227)      (221)
Amortization:
  Transition obligation...................................         26         26         26
 Unrecognized prior service cost..........................        (14)       (14)       (14)
 Unrecognized net loss....................................         21          7         --
                                                                -----      -----      -----  
 
Net periodic pension expense..............................      $ 404      $ 357      $ 346
                                                                =====      =====      =====
Net periodic pension expense was $325 and $317 in the nine months ended June
    30, 1998 and 1997, respectively.

    The actuarial present values of the projected benefit obligation at
    September 30, 1997 and 1996 were determined using a discount rate of 7.75%
    and a rate of increase in future compensation of 6.0% (8.5% and 6.75%,
    respectively, at September 30, 1995).  The expected long-term rate of return
    on plan assets was 8.0%, 7.5% and 7.5% for the years ended September 30,
    1997, 1996 and 1995, respectively.

                                      F-30
PROVIDENT BANK
                                        
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                                        
         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
               PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
                                        
                             (Dollars in thousands)

      The Bank also has established a non-qualified Supplemental Executive
      Retirement Plan to provide certain executives with supplemental retirement
      benefits in addition to the benefits provided by the pension plan. The
      periodic pension expense related to the supplemental plan amounted to $32
      and $31 for the nine months ended June 30, 1998 and 1997, respectively,
      and $40 and $34 for the years ended September 30, 1997 and 1996,
      respectively. The actuarial present value of the accumulated benefit
      obligation was approximately $74 at September 30, 1997, all of which is
      unfunded. This amount was determined using a discount rate of 7.75% and a
      rate of increase in future compensation of 4.5%.

      OTHER POSTRETIREMENT BENEFITS

      The Bank's postretirement health care plan, which is unfunded, provides
      optional medical, dental and life insurance benefits to retirees. The Bank
      adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits
      Other Than Pensions", effective October 1, 1995. SFAS No. 106 requires
      accrual of the cost of postretirement benefits over the years in which
      employees provide services to the date of their full eligibility for such
      benefits. In accordance with SFAS No. 106, the Bank elected to amortize
      the transition obligation for accumulated benefits (which amounted to $237
      at the adoption date) as an expense over a 20-year period. The total
      periodic expense recognized under SFAS No. 106 amounted to $30 and $32 in
      the nine months ended June 30, 1998 and 1997, respectively, and $37 and
      $42 in the years ended September 30, 1997 and 1996, respectively.

      401(k) SAVINGS PLAN

      The Bank also sponsors a defined contribution plan established under
      Section 401(k) of the Internal Revenue Code, pursuant to which eligible
      employees may elect to contribute up to 10% of their compensation. The
      Bank makes contributions equal to 100% of the participant's contributions
      up to a maximum contribution equal to 6% of the participant's
      compensation. Voluntary and matching contributions are invested, in
      accordance with the participant's direction, in one or a number of
      investment options. Compensation and employee benefits expense includes
      401(k) savings plan expense of $225 and $200 in the nine months ended 
      June 30, 1998 and 1997, respectively, and $276, $234 and $228 in the years
      ended September 30, 1997, 1996 and 1995, respectively.

(13)  COMMITMENTS AND CONTINGENCIES
      -----------------------------

      Certain premises and equipment are leased under operating leases with
      terms expiring through 2025. The Bank has the option to renew certain of
      these leases for terms of up to five years. Future minimum rental payments
      due under non-cancelable operating leases with initial or remaining terms
      of more than one year at September 30, 1997 are $834 for fiscal 1998; $823
      for fiscal 1999; $748 for fiscal 2000; $782 for fiscal 2001; $800 for
      fiscal 2002; and $7,683 for later years. There were no significant changes
      in future minimum lease rentals during the nine months ended June 30,
      1998. Net rent expense, which is 

                                     F-31
PROVIDENT BANK
                                        
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                                        
         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
               PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
                                        
                             (Dollars in thousands)

      included in occupancy and office operations expense, amounted to $716 and
      $672 in the nine months ended June 30, 1998 and 1997, respectively, and
      $951, $941 and $858 in the years ended September 30, 1997, 1996 and 1995,
      respectively.

      The Bank is a defendant in certain claims and legal actions arising in the
      ordinary course of business. Management, after consultation with legal
      counsel, does not anticipate losses on any of these claims or actions
      which would have a material adverse effect on the Bank's consolidated
      financial statements.

(14)  OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
      ---------------------------------------

      In the normal course of business, the Bank is a party to off-balance-sheet
      financial instruments that involve, to varying degrees, elements of credit
      risk and interest rate risk in addition to the amounts recognized in the
      consolidated financial statements. The contractual or notional amounts of
      these instruments, which reflect the extent of the Bank's involvement in
      particular classes of off-balance-sheet financial instruments, are
      summarized as follows:
SEPTEMBER 30,  
                                           JUNE 30,   ------------------
                                             1998       1997      1996  
                                           --------   --------  --------
LENDING-RELATED INSTRUMENTS:                                      
        Commitments to extend credit:                                   
          Fixed-rate loans..............    $ 9,694    $ 8,610   $ 3,925
          Adjustable-rate loans.........     20,086     14,503    10,393
        Unused lines of credit..........     27,574     25,883    29,373
        Standby letters of credit.......      3,893      4,222     2,470
      INTEREST RATE RISK MANAGEMENT:                                    
        Interest rate cap agreement.....     20,000         --        --
                                            =======    =======   =======
LENDING-RELATED INSTRUMENTS

      The contractual amounts of the lending-related instruments set forth above
      represent the Bank's maximum potential exposure to credit loss, assuming
      (i) the instruments are fully funded at a later date, (ii) the borrower
      does not meet the contractual payment obligations and (iii) any collateral
      or other security proves to be worthless. The contractual amounts of these
      instruments do not necessarily represent future cash requirements since
      certain of these instruments may expire without being funded and others
      may not be fully drawn upon. Substantially all of these lending-related
      instruments have been entered into with customers located in the Bank's
      primary market area described in Note 4.

                                     F-32
PROVIDENT BANK
                                        
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                                        
         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
               PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
                                        
                             (Dollars in thousands)

      Commitments to extend credit are legally-binding agreements to lend to a
      customer as long as there is no violation of any condition established in
      the contract. Commitments have fixed expiration dates (generally ranging
      up to 45 days) or other termination clauses, and may require payment of a
      fee by the customer. The Bank evaluates each customer's credit worthiness
      on a case-by-case basis. The amount of collateral, if any, obtained by the
      Bank upon extension of credit, is based on management's credit evaluation
      of the borrower. Collateral held varies but may include mortgages on
      residential and commercial real estate, deposit accounts with the Bank,
      and other property. The Bank's fixed-rate loan commitments at June 30,
      1998 provide for interest rates ranging from 6.125% to 10.25%.

      Unused lines of credit are legally-binding agreements to lend to a
      customer as long as there is no violation of any condition established in
      the contract. Lines of credit generally have fixed expiration dates or
      other termination clauses. The amount of collateral obtained, if deemed
      necessary by the Bank, is based on management's credit evaluation of the
      borrower.

      Standby letters of credit are conditional commitments issued by the Bank
      to assure the performance of financial obligations of a customer to a
      third party. These commitments are primarily issued in favor of local
      municipalities to support the obligor's completion of real estate
      development projects. The credit risk involved in issuing letters of
      credit is essentially the same as that involved in extending loan
      facilities to customers.

      INTEREST RATE CAP AGREEMENT

      At June 30, 1998, the Bank was a party to an interest rate cap agreement
      with a notional amount of $20,000 and a five-year term ending in March
      2003. This agreement was entered into to reduce the Bank's exposure to
      potential increases in interest rates on a portion of its certificate of
      deposit accounts. The counterparty in the transaction has agreed to make
      interest payments to the Bank, based on the notional amount, to the extent
      that the three-month LIBOR rate exceeds 6.50% over the term of the cap
      agreement. No payments were due from the counterparty through June 30,
      1998. The carrying amount of the cap agreement at June 30, 1998
      represented the unamortized premium of $286, which is included in other
      assets. Premium amortization of $20 is included in deposit interest
      expense for the nine months ended June 30, 1998. The estimated fair value
      of the interest rate cap agreement at June 30, 1998 was approximately
      $158, representing the estimated amount the Bank would receive to
      terminate the contract at that date.

(15)  RELATED PARTY TRANSACTIONS
      --------------------------

      The Bank was indebted to its directors for deferred directors fees (and
      accrued interest thereon) totaling $1,964, $1,859 and $1,663 at June 30,
      1998, September 30, 1997 and September 30, 1996, respectively. The
      interest rates on these amounts were 6.53%, 6.64% and 6.41% at the
      respective dates.

                                     F-33
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
               PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
                                        
                             (Dollars in thousands)

      The Bank has had, and expects to have in the future, banking transactions
      in the ordinary course of business with its directors, senior officers and
      their affiliates. Loans are made to these individuals on the same terms as
      those prevailing for comparable transactions with other borrowers and do
      not involve more than normal collection risk. Loans receivable from
      related parties totaled $378, $426 and $456 at June 30, 1998, September
      30, 1997 and September 30, 1996, respectively. Repayments on related party
      loans were $48 in the nine months ended June 30, 1998 and $30 in the year
      ended September 30, 1997. No new loans were granted to such related
      parties during these periods.

(16)  FAIR VALUES OF FINANCIAL INSTRUMENTS
      ------------------------------------

      SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
      requires disclosure of fair value information for those financial
      instruments for which it is practicable to estimate fair value, whether or
      not such financial instruments are recognized in the consolidated
      statements of financial condition. Fair value is the amount at which a
      financial instrument could be exchanged in a current transaction between
      willing parties, other than in a forced sale or liquidation.

      Quoted market prices are used to estimate fair values when those prices
      are available. However, active markets do not exist for many types of
      financial instruments. Consequently, fair values for these instruments
      must be estimated by management using techniques such as discounted cash
      flow analysis and comparison to similar instruments. These estimates are
      highly subjective and require judgments regarding significant matters,
      such as the amount and timing of future cash flows and the selection of
      discount rates that appropriately reflect market and credit risks. Changes
      in these judgments often have a material effect on the fair value
      estimates. Since these estimates are made as of a specific point in time,
      they are susceptible to material near-term changes. Fair values disclosed
      in accordance with SFAS No. 107 do not reflect any premium or discount
      that could result from the sale of a large volume of a particular
      financial instrument, nor do they reflect possible tax ramifications or
      estimated transaction costs.

                                     F-34
PROVIDENT BANK
                                        
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                                        
         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
               PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
                                        
                             (Dollars in thousands)

      The following is a summary of the carrying amounts and estimated fair
      values of financial assets and liabilities (none of which were held for
      trading purposes):
JUNE 30, 1998       SEPTEMBER 30, 1997     SEPTEMBER 30, 1996
                                    ---------------------  ---------------------  ---------------------
                                    CARRYING   ESTIMATED   CARRYING   ESTIMATED   CARRYING   ESTIMATED
                                     AMOUNT    FAIR VALUE   AMOUNT    FAIR VALUE   AMOUNT    FAIR VALUE
                                    ---------  ----------  ---------  ----------  ---------  ----------
Financial assets:
 Cash and due from banks..........   $  7,785    $  7,785   $  9,191    $  9,191   $  8,669    $  8,669
 Federal funds sold...............      5,000       5,000                             5,000       5,000
 Investment securities............     68,826      68,808     70,712      70,608     69,451      69,113
 Mortgage-backed securities.......    133,109     133,838    140,224     140,777    154,345     153,001
 Loans receivable.................    440,360     446,624    404,497     410,382    369,487     373,068
 Accrued interest receivable......      4,625       4,625      4,262       4,262      4,096       4,096
 Federal Home Loan Bank stock.....      3,690       3,690      3,641       3,641      3,211       3,211
                                     ========    ========   ========    ========   ========    ========
Financial liabilities:
 Deposits.........................   $580,075    $579,437   $546,846    $547,557   $545,286    $546,039
 Borrowings.......................     25,048      24,139     24,000      24,071     13,000      13,299
 Bank overdraft...................        147         147     17,623      17,623     17,157      17,157
 Mortgage escrow funds............     14,471      14,471      4,559       4,559      4,996       4,996
                                     ========    ========   ========    ========   ========    ========
The following methods and assumptions were used to estimate the fair value
      of each class of financial instruments:

      INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES

      The estimated fair values of securities were based on quoted market 
      prices.

      LOANS RECEIVABLE
  
      Fair values were estimated for portfolios of loans with similar financial
      characteristics. For valuation purposes, the total loan portfolio was
      segregated into performing and non-performing categories. Performing loans
      were segregated by adjustable-rate and fixed-rate loans; fixed-rate loans
      were further segmented by type, such as residential mortgage, commercial
      mortgage, commercial business and consumer loans. Residential loans were
      also segmented by maturity.

                                     F-35
PROVIDENT BANK
                                        
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                                        
         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
               PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
                                        
                             (Dollars in thousands)

      Fair values were estimated by discounting scheduled future cash flows
      through estimated maturity using a discount rate equivalent to the rate at
      which the Bank would currently make loans which are similar with regard to
      collateral, maturity and the type of borrower. The discounted value of the
      cash flows was reduced by a credit risk adjustment based on loan
      categories. Based on the current composition of the Bank's loan portfolio,
      as well as both past experience and current economic conditions and
      trends, the future cash flows were adjusted by prepayment assumptions
      which shortened the estimated remaining time to maturity and therefore
      impacted the fair value estimates.

      Estimated fair values of loans held for sale were based on contractual
      sale prices for loans covered by forward sale commitments. Any remaining
      loans held for sale were valued based on current secondary market prices
      and yields.

      DEPOSITS
  
      In accordance with SFAS No. 107, deposits with no stated maturity (such as
      savings, demand and money market deposits) were assigned fair values equal
      to the carrying amounts payable on demand. Certificates of deposit were
      segregated by account type and original term, and fair values were
      estimated based on the discounted value of contractual cash flows. The
      discount rate for each account grouping was equivalent to the then-current
      rate offered by the Bank for deposits of similar type and maturity.

      These fair values do not include the value of core deposit relationships
      which comprise a significant portion of the Bank's deposit base.
      Management believes that the Bank's core deposit relationships provide a
      relatively stable, low-cost funding source which has a substantial
      unrecognized value separate from the deposit balances.

      BORROWINGS

      Estimated fair values of FHLB advances were based on the discounted value
      of contractual cash flows. A discount rate was utilized for each
      outstanding advance equivalent to the then-current rate offered by the
      FHLB on borrowings of similar type and maturity.

      OTHER FINANCIAL INSTRUMENTS

      The other financial assets and liabilities listed in the preceding table
      have estimated fair values that approximate the respective carrying
      amounts because the instruments are payable on demand or have short-term
      maturities and present relatively low credit risk and interest rate risk.

      The carrying amount and estimated fair value of the Bank's interest rate
      cap agreement at June 30, 1998 is set forth in Note 14. The fair values of
      the Bank's lending-related off-balance-sheet financial instruments
      described in Note 14 were estimated based on the

                                     F-36
PROVIDENT BANK
                                        
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                                        
         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
               PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
                                        
                             (Dollars in thousands)

      interest rates and fees currently charged to enter into similar
      agreements, considering the remaining terms of the agreements and the
      present credit worthiness of the counterparties. At June 30, 1998,
      September 30, 1997 and September 30, 1996, the estimated fair values of
      these instruments approximated the related carrying amounts which were not
      significant.

(17)  ACCOUNTING STANDARDS
      --------------------

      In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
      Income," which establishes standards for the reporting and display of
      comprehensive income (and its components) in financial statements. The
      standard does not, however, specify when to recognize or how to measure
      items that make up comprehensive income. Comprehensive income represents
      net income and certain amounts reported directly in equity, such as the
      net unrealized gain or loss on available-for-sale securities. While SFAS
      No. 130 does not require a specific reporting format, it does require that
      an enterprise display in the financial statements an amount representing
      total comprehensive income for the period. SFAS No. 130 is effective for
      fiscal years beginning after December 15, 1997 and, accordingly, will be
      adopted by the Bank in the fiscal year beginning October 1, 1998.
      Management does not anticipate that the adoption of this standard will
      significantly affect the Bank's financial reporting.

      In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures
      about Pensions and Other Postretirement Benefits," which standardizes the
      disclosure requirements for pensions and other postretirement benefits;
      requires additional information on changes in the benefit obligations and
      fair values of plan assets; and eliminates certain present disclosure
      requirements. The standard does not change the recognition or measurement
      requirements for postretirement benefits. SFAS No. 132 is effective for
      fiscal years beginning after December 15, 1997 and, accordingly, will be
      adopted by the Bank in the fiscal year beginning October 1, 1998.
      Management does not anticipate that the adoption of this standard will
      significantly affect the Bank's financial reporting.

      In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
      Instruments and Hedging Activities," which requires entities to recognize
      all derivatives as either assets or liabilities in the statement of
      financial condition at fair value. If certain conditions are met, a
      derivative may be specifically designated as a fair value hedge, a cash
      flow hedge, or a foreign currency hedge. A specific accounting treatment
      applies to each type of hedge. Entities may reclassify securities from the
      held-to-maturity category to the available-for-sale category at the time
      of adopting SFAS No. 133. The Bank has not yet determined whether it will
      reclassify securities between categories. SFAS No. 133 is effective for
      all fiscal quarters of fiscal years beginning after June 15, 1999 and,
      accordingly, will be adopted by the Bank in the fiscal year beginning on
      October 1, 1999. The Bank has engaged in limited derivatives and hedging
      activities covered by the new standard and, accordingly, SFAS No. 133 is
      not expected to have a material impact on the Bank's consolidated
      financial statements.

                                     F-37
PROVIDENT BANK
                                        
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                                        
         (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE NINE-MONTH
               PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
                                        
                             (Dollars in thousands)

(18)  MUTUAL HOLDING COMPANY REORGANIZATION AND OFFERING
      --------------------------------------------------

      On April 23, 1998, the Board of Directors of the Bank adopted a Plan of
      Reorganization and Stock Issuance Plan ("the Plan") pursuant to which the
      Bank will convert from mutual to stock form of ownership under a two-tier
      mutual holding company structure and shares of common stock will be sold
      in an initial public offering. As part of the Plan, the Bank will
      establish a federally-chartered mutual holding company known as Provident
      Bancorp, MHC (the "Mutual Holding Company") and a capital stock holding
      company known as Provident Bancorp, Inc. (the "Company"). The Bank will
      become a federally-chartered capital stock savings bank, wholly owned by
      the Company.

      The Company plans to offer for sale 46.6% of its common shares in a
      subscription offering (the "Offering") initially to eligible Bank
      depositors; tax-qualified employee benefit plans of the Bank; certain
      other Bank depositors and borrowers; and employees, officers and directors
      of the Bank. Any shares of common stock not sold in the Offering will be
      offered to certain members of the general public in a community offering,
      with preference given to natural persons residing in Rockland County, New
      York. The Mutual Holding Company will own the remaining 53.4% of the
      Company's issued common shares.

      Following the completion of the reorganization, all depositors who had
      liquidation rights with respect to the Bank as of the effective date of
      the reorganization will continue to have such rights solely with respect
      to the Mutual Holding Company so long as they continue to hold deposit
      accounts with the Bank. In addition, all persons who become depositors of
      the Bank subsequent to the reorganization will have such liquidation
      rights with respect to the Mutual Holding Company.

      Offering costs will be deferred and reduce the proceeds from the shares
      sold in the Offering. If the Offering is not completed, these costs will
      be charged to expense. At June 30, 1998, offering costs of $49 had been
      incurred and are included in other assets.

                                     F-38
================================================================================

     NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE PROVIDENT BANCORP, INC. OR PROVIDENT BANK.  THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OF COMMON STOCK 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. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.

                            PROVIDENT BANCORP, INC.

                         (Proposed Holding Company for
                                Provident Bank)

                             UP TO 3,484,500 SHARES

                                  Common Stock
                          ($0.10 par value per share)

                                SUBSCRIPTION AND
                               COMMUNITY OFFERING
                                   PROSPECTUS

                             RYAN BECK & CO., INC.

                               November __, 1998

                 THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS
                  AND ARE NOT FEDERALLY INSURED OR GUARANTEED

Until December __, 1998 or 25 days after the commencement of the offering of
Common Stock, all dealers effecting transactions in the registered securities,
whether or not participating in this distribution, may be required to deliver a
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.

================================================================================
PART II:  INFORMATION NOT REQUIRED IN PROSPECTUS                               
                                                                               
ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Amount   
                                                                       ------
*    Legal Fees and Expenses (including Blue Sky fees)......     $180,000  
     **   Underwriter's fees.....................................      470,000  
     *    Printing, Postage, EDGAR and Mailing...................      225,000  
     *    Appraisal and Business Plan Fees and Expenses..........       52,500  
     *    Accounting Fees and Expenses...........................      125,000  
     *    Underwriter's Counsel Fees.............................       42,000  
     *    Filing Fees (NASD, NASDAQ, OTS and SEC)................       95,900  
     *    Conversion Agent/Transfer Agent........................       25,000  
     *    Other Expenses.........................................       34,000  
                                                                    ----------  
     *    Total..................................................   $1,250,000  
                                                                    ==========
_____________
*    Estimated
**   Provident Bancorp, Inc. has retained Ryan, Beck & Co., Inc. ("Ryan, Beck")
     to assist in the sale of common stock on a best efforts basis in the
     Offerings.  Ryan, Beck will receive fees of approximately $450,000,
     exclusive of estimated expenses of $20,000.

ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS OF PROVIDENT BANK AND
          PROVIDENT BANCORP, INC.

          Generally, federal regulations define areas for indemnity coverage for
federal savings associations, and proposed federal regulations define areas for
indemnity coverage for federal MHC subsidiary holding companies, as follows:

          (a)  Any person against whom any action is brought or threatened
because that person is or was a director or officer of the savings association
shall be indemnified by the savings association for:

               (i)  Any amount for which that person becomes liable under a
          judgment in such action; and

               (ii) Reasonable costs and expenses, including reasonable
          attorneys' fees, actually paid

          or incurred by that person in defending or settling such action, or in
          enforcing his or her rights under this section if he or she attains a
          favorable judgement in such enforcement action.
 
          (b) Indemnification shall be made to such person under paragraph (b)
of this Section only if:

               (i)  Final judgement on the merits is in his or her favor; or

               (ii) In case of:

                    a.   Settlement,
                    b.   Final judgement against him or her, or
                    c.   Final judgement in his or her favor, other than on the
                         merits, if a majority of the disinterested directors of
                         the savings association determine that he or she was
                         acting in good faith within the scope of his or her
                         employment or authority as he or she could reasonably
                         have perceived it under the circumstances and for a
                         purpose he or she could reasonably have believed under
                         the circumstances was in the best interest of the
                         savings association or its members. However, no
                         indemnification shall be made unless the association
                         gives the Office at least 60 days

                                      II-1
notice of its intention to make such indemnification.
                         Such notice shall state the facts on which the action
                         arose, the terms of any settlement, and any disposition
                         of the action by a court. Such notice, a copy thereof,
                         and a certified copy of the resolution containing the
                         required determination by the board of directors shall
                         be sent to the Regional Director, who shall promptly
                         acknowledge receipt thereof. The notice period shall
                         run from the date of such receipt. No such
                         indemnification shall be made if the OTS advises the
                         association in writing, within such notice period, of
                         its objection thereto.

          (c)  As used in this paragraph:

               (i)   "Action" means any judicial or administrative proceeding,
          or threatened proceeding, whether civil, criminal, or otherwise,
          including any appeal or other proceeding for review;

               (ii)  "Court" includes, without limitation, any court to which or
          in which any appeal or any proceeding for review is brought;

               (iii) "Final Judgment" means a judgment, decree, or order which
          is not appealable or as to which the period for appeal has expired
          with no appeal taken;

               (iv)  "Settlement" includes the entry of a judgment by consent or
          confession or a plea of guilty or of nolo contendere.

ITEM 15.  RECENT SALES OF UNREGISTERED SECURITIES

          Not Applicable.

ITEM 16.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES:

          See the Exhibit Index which immediately preceeds the Exhibits to the
          Form S-1.

ITEM 17.  UNDERTAKINGS

          The undersigned Registrant hereby undertakes to:

          (1) File, during any period in which it offers or sales are being
made, a post-effective amendment to this registration statement to:

          (i)   Include any prospectus required by Section 10(a)(3) of the
          Securities Act of 1933;

          (ii)  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 and 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 20 percent change in the
          maximum aggregate offering price set forth in the "Calculation of
          Registration Fee" table in the effective registration statement;

          (iii) 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.

                                      II-2
(2)  For the purpose of determining liability under the Securities
Act, 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.

          (3)  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.

          The registrant will provide to the underwriter at the closing
specified in the Underwriting Agreement certificates in such documentation and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.

          Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, 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 director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, 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.

                                      II-3
As filed with the Securities and Exchange Commission on September 17, 1998
                                                           Registration No. 333-
                                                                                
================================================================================

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                              ___________________

                                   EXHIBITS
                                      TO
                            REGISTRATION STATEMENT
                                      ON
                                   FORM S-1

                              ___________________

                            PROVIDENT BANCORP, INC.
                             MONTEBELLO, NEW YORK
EXHIBIT INDEX

1.1  Engagement Letter between Provident Bank and Ryan, Beck & Co., Inc.

1.2  Agency Agreement among Provident Bancorp, Inc., Provident Bank and Ryan,
     Beck & Co., Inc.*

2    Plan of Reorganization from Mutual Savings Association to Mutual Holding
     Company and
     Stock Issuance Plan

3.1  Proposed Federal Holding Company Charter of Provident Bancorp, Inc.
     (contained in Exhibit 2)

3.2  Proposed Bylaws of Provident Bancorp, Inc (contained in Exhibit 2)

4    Form of Common Stock Certificate of Provident Bancorp, Inc

5    Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. regarding legality of
     securities being registered

8.1  Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C.
 
8.2  Opinion of RP Financial, LC with respect to Subscription Rights

10.1 Form of Employee Stock Ownership Plan

10.2 Employment Agreement with George Strayton, as amended

10.3 Form of Employment Agreement

10.4 Deferred Compensation Agreement

10.5 Supplemental Executive Retirement Plan, as amended

10.6 Management Incentive Program*

10.7 1996 Long-Term Incentive Plan for Officers and Directors*

21   Subsidiaries of the Registrant

23.1 Consent of Luse Lehman Gorman Pomerenk & Schick, P.C. (contained in
     Opinions included on Exhibits 5 and 8.1)

23.2 Consent of KPMG Peat Marwick LLP

23.3 Consent of Deloitte & Touche LLP

23.4 Consent of RP Financial, LC

24   Power of Attorney (set forth on signature page)

27   EDGAR Financial Data Schedule

99.1 Appraisal Agreement between Provident Bank and RP Financial, LC.
 
99.2 Business Plan Agreement between Provident Bank and RP Financial, LC.

99.3 Appraisal Report of RP Financial, LC*

99.4 Proxy Statement

99.5 Marketing Materials*

99.6 Order Form*

99.7 401(k) Supplement*

___________________
*    To be filed supplementally or by amendment.