<PAGE>
 
     As filed with the Securities and Exchange Commission on June 12, 1998
                                                 Registration No. 333-__________
================================================================================

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM S-1
                            REGISTRATION STATEMENT
                       UNDER THE SECURITIES ACT OF 1933
                           WEST ESSEX BANCORP, INC.
                                        
                            WEST ESSEX BANK, F.S.B.
                         401(K) EMPLOYEE BENEFIT PLAN
            (exact name of registrant as specified in its charter)

<TABLE> 
<CAPTION> 
<S>                                 <C>                            <C> 
        UNITED STATES                           6035                BEING APPLIED FOR
(State or Other Jurisdiction of     (Primary Standard Industrial      (IRS Employer 
 Incorporation or Organization)      Classification Code Number)    Identification No.)
</TABLE> 
             
 
                             417 BLOOMFIELD AVENUE
                          CALDWELL, NEW JERSEY  07006
                                (973) 226-7911
             (Address, including zip code, and telephone number, 
       including area code, of registrant's principal executive offices)

                             LEOPOLD W. MONTANARO
                     PRESIDENT AND CHIEF EXECUTIVE OFFICER
                                WEST ESSEX BANK
                             417 BLOOMFIELD AVENUE
                          CALDWELL, NEW JERSEY  07006
                                (973) 226-7911
           (Name, Address, Including Zip Code, and Telephone Number,
                  Including Area Code, of Agent for Service)

                                  Copies to:
                         DOUGLAS P. FAUCETTE, ESQUIRE
                          LORI M. BERESFORD, ESQUIRE
                          MULDOON, MURPHY & FAUCETTE
                          5101 WISCONSIN AVENUE, N.W.
                            WASHINGTON, D.C. 20016
                                (202) 362-0840


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

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

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

     If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering.   /   /
            ---- 

     If 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 number of the earlier effective registration statement for the same
offering.   /   /
            ---- 
 
 If delivery of the prospectus is expected to be made pursuant to Rule 434,
 please check the following box. /   /
                                 ---- 

<TABLE>
<CAPTION>
                                            CALCULATION OF REGISTRATION FEE
-----------------------------------------------------------------------------------------------------------------------
                                                       Proposed Maximum         Proposed Maximum          Amount of
   Title of each Class of           Amount to           Offering Price         Aggregate Offering        Registration
 Securities to be Registered      be Registered            Per Unit                 Price (2)                Fee
-----------------------------------------------------------------------------------------------------------------------
<S>                            <C>                  <C>                      <C>                      <C>
Common Stock                        2,482,585
$.01 par value(1)                    Shares                 $10.00                 $24,825,850             $7,324
-----------------------------------------------------------------------------------------------------------------------
Participation                          59,795               _______                                         (3)
Interests
=======================================================================================================================
</TABLE>

(1) Includes shares of Common Stock to be issued to the West Essex Bancorp
    Charitable Foundation, a private foundation.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) The securities of West Essex Bancorp, Inc. to be purchased by the West Essex
    Bank 401(k) Savings Plan are included in the amount shown for Common Stock.
    Accordingly, no separate fee is required for the participation interests. In
    accordance with Rule 457(h) of the Securities Act, as amended, the
    registration fee has been calculated on the basis of the number of shares of
    Common Stock that may be purchased with the current assets of such Plan.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
<PAGE>
 
[To be used in connection with sales to Participants in the WEST ESSEX BANK,
F.S.B. 401(k) SAVINGS PLAN IN RSI TRUST]
 

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


                           WEST ESSEX BANCORP, INC.

                                WEST ESSEX BANK
                            PARTICIPATION INTERESTS
                            WEST ESSEX BANK, F.S.B.
                              401(K) SAVINGS PLAN

     This Prospectus Supplement relates to the offer and sale to participants
(the "participants") in the West Essex Bank, F.S.B. 401(k) Savings Plan in RSI
Retirement Trust (the "Plan") of participation interests and shares of common
stock, par value $.01 per share of West Essex Bancorp, Inc. common stock (the
"Common Stock"), as set forth herein.

     The Plan will be amended in connection with the proposed reorganization of
West Essex Bank, F.S.B. from a federally chartered mutual savings bank to a
federally chartered stock savings bank (the "Bank") in the mutual holding
company form of organization (the "Reorganization"), and concurrent offering of
West Essex Bancorp, Inc. (the "Bancorp") Common Stock ("Stock Offering") to
permit the investment of Plan assets in the Common Stock. The amended Plan will
permit participants to direct the trustee of the Plan (the "Trustee") to invest
in the Common Stock with amounts in the Plan attributable to such participants.
Such investments in the Common Stock will be made by means of the West Essex
Bancorp, Inc. Stock Fund (the "Employer Stock Fund").  Based upon the value of
the Plan assets at March 31, 1998, 59,794 shares of the Common Stock could be
purchased with Plan assets (assuming a purchase price of $10.00 per share).
This Prospectus Supplement relates to the initial election of participants to
direct that all or a portion of their accounts be invested in the Employer Stock
Fund in connection with the Reorganization and Stock Offering and also to
elections by participants to direct that all or a portion of their accounts be
invested in the Employer Stock Fund after the Reorganization and Stock Offering
on a quarterly basis.

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

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

     THE DATE OF THIS PROSPECTUS SUPPLEMENT IS ___________, 1998.
<PAGE>
 
     THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION OR ANY OTHER STATE OR
FEDERAL AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS SUCH COMMISSION OR
OTHER AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT.  ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

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

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

<TABLE> 
<S>                                                                         <C> 
THE OFFERING ...................................................................
     Securities Offered ........................................................
     Election to Purchase the Common Stock in the Reorganization and 
          Stock Offering .......................................................
     Value of Participation Interests ..........................................
     Method of Directing Transfer ..............................................
     Time for Directing Transfer ...............................................
     Irrevocability of Transfer Direction ......................................
     Direction to Purchase the Common Stock After the Reorganization and 
          Stock Offering ............................                           
     Purchase Price of the Common Stock.........................................
     Nature of a participant's Interest in the Common Stock.....................
     Voting and Tender Rights of the Common Stock...............................

DESCRIPTION OF THE PLAN ........................................................
     Introduction ..............................................................
     Eligibility and Participation .............................................
     Contributions Under the Plan ..............................................
     Limitations on Contributions ..............................................
     Investment of Contributions ...............................................
     Benefits Under the Plan ...................................................
     Withdrawals and Distributions From the Plan ...............................
     Administration of the Plan ................................................
     Reports to Plan participants ..............................................
     Plan Administrator ........................................................
     Amendment and Termination .................................................
     Merger, Consolidation or Transfer .........................................
     Federal Income Tax Consequences ...........................................
     ERISA and Other Qualification .............................................
     Restrictions on Resale ....................................................
     SEC Reporting and Short-Swing Profit Liability ............................


LEGAL OPINION ..................................................................

TRANSFER FORM ..................................................................
</TABLE>
<PAGE>
 
                                  THE OFFERING


SECURITIES OFFERED

     The securities offered hereby are participation interests in the Plan. Up
to 59,794 shares (assuming the actual purchase price is $10.00 per share) of the
Common Stock may be acquired by the Plan to be held in the Employer Stock Fund.
The Bancorp is the issuer of the Common Stock. All eligible employees of the
Bank (hereinafter referred to as the "Employer") may participate in the Plan.
The Common Stock to be issued hereby is conditioned on the consummation of the
Reorganization and Stock Offering. A participant's investment in units in the
Employer Stock Fund in connection with the Reorganization and Stock Offering is
subject to priorities set forth in the Plan of Reorganization and Stock
Issuance.

     Information with regard to the Plan is contained in this Prospectus
Supplement and information with regard to the Reorganization and Stock Offering
and the financial condition, results of operations and business of the Bank is
contained in the attached Prospectus.  The address of the principal executive
office of the Bank is 417 Bloomfield Avenue, Caldwell, New Jersey 07006.  The
Bank's telephone number is (973) 226-7911.

ELECTION TO PURCHASE THE COMMON STOCK IN THE REORGANIZATION AND STOCK OFFERING

     In connection with the Reorganization and Stock Offering, the Plan has been
amended to permit each participant to direct that all or part of the funds which
represent his or her beneficial interest in the assets of the Plan may be
transferred to the Employer Stock Fund. To the extent shares are available,
these transferred funds will be used to purchase the Common Stock sold in the
Stock Offering , and to purchase the Common Stock in the open market. [IF THERE
IS NOT ENOUGH COMMON STOCK IN THE STOCK OFFERING TO FILL ALL SUBSCRIPTIONS, THE
COMMON STOCK WOULD BE APPORTIONED AND THE PLAN MAY NOT BE ABLE TO PURCHASE ALL
OF THE COMMON STOCK REQUESTED BY THE PARTICIPANTS. IN SUCH CASE, THE TRUSTEE
WILL PURCHASE SHARES IN THE OPEN MARKET AFTER THE STOCK OFFERING TO FULFILL
PARTICIPANTS' REQUESTS. SUCH PURCHASES MAY BE AT PRICES HIGHER THAN THE PURCHASE
PRICE IN THE STOCK OFFERING.] The ability of each participant to invest in the
Employer Stock Fund in the Reorganization and Stock Offering pursuant to
directions to transfer all or a portion of their beneficial assets in the Plan,
will be based on such participant's status as an Eligible Account Holder
(depositors whose accounts with the Bank totalled $50.00 or more on February 28,
1997), Supplemental Eligible Account Holder (depositors whose account totalled
$50.00 or more on _________, 1998) or Other Member (depositors of the Bank as of
the voting record date) pursuant to the Plan of Reorganization. No Eligible
Account Holders, Supplemental Eligible Account Holders or Other Member may
purchase in the Stock Offering more than $350,000 of the Common Stock. The
Trustee of the Plan will follow the participants' directions in transferring
funds to the Employer Stock Fund. Funds not transferred to the Employer Stock
Fund will remain in the other investment funds of the Plan as directed by the
participant on the attached Transfer Form.

                                       1
<PAGE>
 
VALUE OF PARTICIPATION INTERESTS

     The market value of the assets of the Plan, as of March 31, 1998, was 
$597,949 and each participant was informed of the value of his or her beneficial
interest in the Plan. This value represented the past contributions to the Plan
by the participants and any earnings or losses thereon, less previous
withdrawals.

 METHOD OF DIRECTING TRANSFER

     The last page of this Prospectus Supplement is a form to direct a transfer
to the Employer Stock Fund (the "Transfer Form"). If a participant wishes to
transfer all or part (in multiples of not less than 1%) of his or her beneficial
interest in the assets of the Plan to the Employer Stock Fund being established
in connection with the Reorganization and Stock Offering, he or she should
indicate that decision in Part 2 of the Transfer Form. If a participant does not
wish to make such an election, he or she does not need to take any action.

TIME FOR DIRECTING TRANSFER

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

IRREVOCABILITY OF TRANSFER DIRECTION

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

DIRECTION TO PURCHASE THE COMMON STOCK AFTER THE REORGANIZATION AND STOCK
OFFERING

     After the Reorganization and Stock Offering, a participant shall be able to
direct that a certain percentage (in multiples of not less than 1%) of the net
value of such participant's interests in the trust fund established for the Plan
(the "Trust Fund") be transferred to the Employer Stock Fund and invested in the
Common Stock, or to the other investment funds available under the Plan.
Alternatively, a participant may direct that a certain percentage of such
participant's interest in the Employer Stock Fund be transferred to the Trust
Fund to be invested in accordance with the terms of the Plan.  Participants will
be permitted to direct that future contributions made to the Plan by or on their
behalf will be invested in the Common Stock. Following the initial election, the
allocation of a participant's interest in the Employer Stock Fund may be changed
once each calendar quarter in any Plan Year by filing a written notice with the
plan administrator at least ten days before the effective date of the change.
Special

                                       2
<PAGE>
 
restrictions apply to transfers directed by those participants who are officers,
directors and principal shareholders of the Bank who are subject to the
provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "1934 Act").

PURCHASE PRICE OF THE COMMON STOCK

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

     The Common Stock purchased by the Trustee after the Reorganization and
Stock Offering will be acquired in open market transactions. The prices paid by
the Trustee for shares of the Common Stock will not exceed "adequate
consideration" as defined in Section 3(18) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). Transaction fees associated with
purchase, sale or transfer of the Common Stock after the Reorganization and
Stock Offering will be paid by the Employer Stock Fund.

NATURE OF A PARTICIPANT'S INTEREST IN THE COMMON STOCK

     A Participant's interest in the Employer Stock Fund does not consist of a
specific number of shares; rather, his interest consists of units whose value is
related to a pro rata portion of the net asset value ("NAV") of the Employer
Stock Fund. The NAV is determined daily and all realized and unrealized gains,
dividends, and expenses are used to calculate the NAV. For purposes of such
valuation, all assets of the Trust are valued at their fair market value. The
Common Stock in the Employer Stock Fund will be held in the name of the Trustee
for the Plan, as trustee.

VOTING AND TENDER RIGHTS OF THE COMMON STOCK

     The Trustee generally will exercise voting and tender rights attributable
to all the Common Stock held by the Trust Fund as directed by participants with
interests in the Employer Stock Fund. With respect to each matter as to which
holders of the Common Stock have a right to vote, each participant will be
allocated a number of voting instruction rights reflecting such participant's
proportionate interest in the Employer Stock Fund. The number of shares of the
Common Stock held in the Employer Stock Fund that are voted in the affirmative
and negative on each matter shall be proportionate to the number of voting
instruction rights exercised in the affirmative and negative, respectively. In
the event of a tender offer for the Common Stock, the Plan provides that each
participant will be allotted a number of tender instruction rights reflecting
such participant's proportionate interest in the Employer Stock Fund. The
percentage of shares of the Common Stock held in the Employer Stock Fund that
will be tendered will be the same as the percentage of the total number of
tender instruction rights that are exercised in favor of tendering. The
remaining shares of the Common Stock held in the Employer Stock Fund will

                                       3
<PAGE>
 
not be tendered. The Plan makes provision for participants to exercise their
voting instruction rights and tender instruction rights on a confidential basis.

                            DESCRIPTION OF THE PLAN

I.   INTRODUCTION

     Effective January 1, 1993, the Employer adopted the West Essex Savings Bank
401(k) Plan. Effective as of January 1, 1996, the West Essex Savings Bank 401(k)
Plan was amended and restated in its entirety and the Employer adopted
resolutions wherein RSI Retirement Trust was named successor trustee and the RSI
Retirement Trust Agreement was adopted. On ______, 1998, the Plan was amended to
provide for the Employer Stock Fund.

     The Plan is a cash or deferred arrangement established in accordance with
the requirements under Section 401(a) and Section 401(k) of the Internal Revenue
Code of 1986 (the "Code"). The Plan, as amended, will be submitted to the
Internal Revenue Service (the "IRS") in a timely manner for a determination that
the amended Plan is qualified under Section 401(a) of the Code, and that its
related trust(s) are qualified under Section 501(a) of the Code. The Employer
intends that the Plan, in operation, will comply with the requirements under
Section 401(a) and Section 401(k) of the Code. The Employer will adopt any
amendments to the Plan that may be necessary to ensure the qualified status of
the Plan under the Code and applicable Treasury Regulations.

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

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

                                       4
<PAGE>
 
      Reference to Full Text of Plan.  The following statements are summaries of
      ------------------------------                                            
certain provisions of the Plan. They are not complete and are qualified in their
entirety by the full text of the Plan. Copies of the Plan are available to all
employees by filing a request with the Plan Administrator, Dennis A. Petrello,
West Essex Bank, FSB, 417 Bloomfield Avenue, Caldwell, New Jersey 07006 . The
Plan Administrator's telephone number is (973) 226-7911. Each employee is urged
to read carefully the full text of the Plan.

II.   ELIGIBILITY AND PARTICIPATION

      Any employee of the Employer may participate in the Plan upon satisfaction
of certain eligibility requirements, unless the employee belongs to one of the
groups of ineligible employees listed below. Employees satisfy the eligibility
requirements upon attainment of age 21 and completion of at least 182 days of
eligibility service with the Employer. Eligibility service is measured from an
employee's date of hire with the Employer. In order to commence participation,
an employee must submit an enrollment form at least 10 days in advance of the
date he desires to enter the Plan. Employees compensated on daily, fee or
retainer basis, leased employees (within the meaning of Section 414(n) of the
Code) and employees covered by a collective bargaining agreement which does not
expressly provide for their coverage under the Plan, are not eligible to
participate in the Plan ("ineligible employees").

      As of March 31, 1998, there were approximately 46 employees eligible to
participate in the Plan, and 29 employees had elected to participate in the
Plan.

III.  CONTRIBUTIONS UNDER THE PLAN

      401(k) Plan Contributions.  Subject to certain limitations on
      -------------------------                                    
contributions, each participant in the Plan is permitted to elect to reduce such
participant's Compensation (as defined below) pursuant to a "Compensation
Reduction Agreement" by an amount not less than 1% nor greater than 15% and have
that amount contributed to the Plan on such participant's behalf ("Before-Tax
Contributions"). Such amounts are credited to the participant's "Before-Tax
Contribution Account." See "Section IV Limitations on Contributions" below. For
purposes of the Plan, "Compensation" means an employee's wages, salary, fees and
other amounts defined as Compensation in Section 415(c)(3) of the Code and
related Income Tax Regulations received for personal services actually rendered
in the course of employment with the Employer for the calendar year prior to any
reduction pursuant to the Compensation Reduction Agreement. Compensation
includes commissions, overtime, bonuses, wage continuation payments to an
employee absent due to illness or disability of a short-term nature, amounts
paid or reimbursed by the Employer for employee moving expenses (to the extent
not deductible by the employee), and the value of any non-qualified stock
options granted to an employee by the Employer (to the extent includable in
gross income for the year granted). "Compensation" does not include
contributions made by the Employer to any other pension, deferred compensation,
welfare or other employee benefit plan, amounts realized from the exercise of a
non-qualified stock option or the sale of a qualified stock option, and other
amounts which receive special tax benefits. As of January 1, 1998, the annual
compensation of each participant taken into account under the

                                       5
<PAGE>
 
Plan is limited to $160,000 (adjusted for increases in the cost of living as
permitted by the Code). Generally, a participant may elect to modify the amount
contributed to the Plan under such participant's Compensation Reduction
Agreement not more often than once in any calendar quarter by providing notice
to the Plan Administrator at least 10 days before commencement of the first day
of the payroll period for which the modification is to become effective.
However, special restrictions apply to persons subject to Section 16 of the 1934
Act.  Before-Tax Contributions are transferred by the Employer to the Trustee of
the Plan.

     Employer Contributions.  The Employer may, in its sole and absolute
     ----------------------                                             
discretion, make discretionary employer contributions to the Plan for a Plan
Year ("Discretionary Employer Contributions"). As of this date, no Discretionary
Employer Contributions have been made. After the Reorganization, at the
discretion of the Bank, the Discretionary Employer Contributions, if any, may be
credited to the participants' Accounts in the West Essex Bank, FSB Employee
Stock Ownership Plan. At its discretion, the Employer may also make special
contributions to the Plan as of the end of the Plan Year in an amount determined
by the Employer for the purpose of ensuring that the Plan complies with Section
401(k) of the Code ("Special Contributions"). Such amounts are credited to
participants' "Special Contribution Accounts" based on each participant's
compensation. Special Contributions may be made only to the accounts of non-
highly compensated eligible employees.

IV.  LIMITATIONS ON CONTRIBUTIONS

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

     (i)   Any excess amount in the participant's Accounts will be used to
reduce the Before-Tax Contributions, Discretionary Employer Contributions and/or
Special Contributions to be made on behalf of such participant in the next
Limitation Year, and each succeeding Limitation Year, if necessary, provided
that such participant is an eligible employee during such succeeding Limitation
Year; and

     (ii)  If, an excess amount still exists, and the participant is not covered
                                                                     ---
by the Plan at the end of the Limitation Year, any remaining excess amounts will
be allocated during the succeeding Limitation Year to each participant then
actively participating in the Plan. Such

                                       6
<PAGE>
 
allocation shall be in proportion to the Before-Tax Contributions made to date
on his behalf for such Limitation Year; or the prior Limitation Year with
respect to an allocation as of the beginning of a Limitation Year, before any
other contributions are made in such succeeding Limitation Year.

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

     Limitation on Plan Contributions for Highly Compensated Employees.
     -----------------------------------------------------------------  
Sections 401(k) and 401(m) of the Code limit the amount of deferred compensation
that may be made to the Plan in any Plan Year on behalf of Highly Compensated
Employees (defined below) in relation to the amount of deferred compensation
made by or on behalf of all other employees eligible to participate in the Plan.
Specifically, the percentage of Before-Tax Contributions made on behalf of a
Participant who is a Highly Compensated Employee shall be limited so that the
Average Actual Deferral Percentage for the group of such Highly Compensated
Employees for the Plan Year does not exceed the greater of (i) the Average
Actual Deferral Percentage for the group of eligible Employees who are Non-
Highly Compensated Employees for the Plan Year multiplied by 1.25; or (ii) the
Average Actual Deferral Percentage for the group of eligible Employees who are
Non-Highly Compensated Employees for the Plan Year, multiplied by two (2);
provided that the difference in the Average Actual Deferral Percentage for
eligible Non-Highly Compensated Employees does not exceed two percent (2%).  Use
of this alternative limitation shall be subject to the provisions of Income Tax
Regulations Section 1.401(m)-2 regarding the multiple use of the alternative
deferral test set forth in Sections 401(k) and 401(m) of the Code.

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

      In addition, the compensation of an employee who is a family member of a
5% owner, or one of the ten most highly compensated employees during the
relevant period is aggregated with

                                       7
<PAGE>
 
that of the Highly Compensated Employee.  All such family members are treated as
a single employee with respect to the application of the limitations on Highly
Compensated Employees.

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

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

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

V.   INVESTMENT OF CONTRIBUTIONS

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

     Prior to [insert date of Prospectus here], the Accounts of a participant
held in the Trust have been invested by the Trustee at the direction of the
participant in the following funds:

     a.   Core Equity Fund:  a diversified fund which seeks to achieve a total
          return in excess of the total return of the Lipper Growth and Income
          Mutual Funds Average measured over a period of three to five years.

     b.   Emerging Growth Equity Fund:  a diversified fund which seeks to
          maximize total return, primarily through capital appreciation, through
          investments in securities of rapidly growing, emerging companies.

                                       8
<PAGE>
 
     c.   Value Equity Fund:  a diversified fund which seeks to achieve a total
          return which exceeds the Lipper Growth and Mutual Funds Average
          measured over a period of three to five years, primarily through
          capital appreciation.

     d.   Actively Managed Bond Fund:  a diversified fund which seeks through
          selective investment in bonds and other debt securities, to achieve a
          total return in excess of the Lipper U.S. Government Bond Funds
          Average measured over a period of three to five years.

     e.   Intermediate-Term Bond Fund:  a diversified fund which seeks to
          achieve a total return in excess of the Lipper Short-Intermediate
          (five to ten year maturity) U.S. Government Mutual Funds Average
          measured over a period of three to five years.

     f.   Short-Term Investment Fund:  a diversified fund which seeks current
          income and stability of principal through investment in short term,
          fixed-income securities, and seeks to achieve a 12 month total return
          in excess of the average return of a broad-based universe of
          institutional money market funds.

     g.   International Equity Fund:  a diversified fund which seeks to achieve
          a total return (currency adjusted) in excess of the total return of
          the Lipper International Mutual Funds Average measured over a period
          of three to five years.

 
     The Plan, as amended effective _______, 1998, will provide that in addition
to the Funds specified above, a participant who is employed by the Bank may
direct the Trustee to invest all or a portion of his Accounts in the Employer
Stock Fund.

     Once in any calendar quarter a participant may elect (in increments of 1%),
to have both past and future contributions and additions to his Accounts
invested in the Employer Stock Fund. These elections will be effective on the
effective date of the participant's written notice to the plan administrator,
provided such notice is filed with the administrator at least 10 days before it
is to become effective.  Any amounts credited to a participant's Account for
which investment directions are not given will be invested in the Short-Term
Investment Fund in accordance with the terms of the Plan.

                                       9
<PAGE>
 
     A.   Previous Funds.
          -------------- 

     Prior to the Reorganization and Stock Offering, contributions under the
Plan were invested in the Funds specified below.  The annual percentage return
on these funds for the prior three years was:

<TABLE>
<CAPTION>
                                         1997   1996   1995
                                        --------------------
     <S>                                <C>     <C>    <C>  
     a.   Core Equity Fund               25.32  21.53  40.17
     b.   Emerging Growth Equity Fund     8.25  27.09  42.83
     c.   Value Equity Fund              31.70  25.90  33.96
     d.   Actively Managed Bond Fund      9.70   3.15  17.70
     e.   Intermediate-Term Bond Fund     7.07   4.02  13.99
     f.   Short-Term Investment Fund      4.93   4.70   5.39
     g.   International Equity Fund       0.92  10.86  12.46 
</TABLE>
 
     B.   The Employer Stock Fund.
          ------------------------

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

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

     Any brokerage commissions, transfer fees and other expenses incurred in the
sale and purchase of the Common Stock for the Employer Stock Fund will be paid
out of a cash account

                                      10
<PAGE>
 
managed by the Trustee.  Therefore, although participants' accounts will not be
directly adjusted for such fees, the market value of their accounts will be
reduced.

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

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

VI.  BENEFITS UNDER THE PLAN

     Vesting.  A participant, at all times, has a fully vested, nonforfeitable
     -------                                                                  
interest in his Before-Tax Contribution Account and the earnings thereon under
the Plan.  A participant vests in his Discretionary Employer Contribution
Account under the Plan according to the following schedule:

<TABLE>
<CAPTION>
                   PERIOD OF SERVICE              VESTED PERCENTAGE   
                   --------------------------    -------------------  
                   <S>                           <C>                 
                   1 year                                   0%        
                   2 years but less than 3                 20         
                   3 years but less than 4                 40         
                   4 years but less than 5                 60         
                   5 years but less than 6                 80         
                   6 years or more                        100          
</TABLE>

VII. WITHDRAWALS AND DISTRIBUTIONS FROM THE PLAN

     Withdrawals Prior to Termination of Employment.  Plan participants may take
     ----------------------------------------------                             
in-service distributions under limited circumstances in the form of non-hardship
distributions, hardship distributions and Plan loans.  In the case of non-
hardship withdrawals, a participant may make a withdrawal from his Before-Tax
Contribution Account, Rollover Contribution Account, and Discretionary Employer
Contribution Account after he turns 59 1/2.  Such withdrawals may not be made
more often than once during any Plan Year.  Participants may also be eligible
for hardship withdrawals.  In order to qualify for a hardship withdrawal, a
participant must have an immediate and substantial need to meet certain expenses
and have no other reasonably available resources to meet the financial need.  If
a participant qualifies for a hardship distribution, the distribution will be
made, pro rata, from the Investment Funds in which a participant has invested
his account balances.  Participants may not make more than one hardship
withdrawal in any calendar year.

                                      11
<PAGE>
 
     In addition to hardship and non-hardship distributions, Plan participants
may borrow against Plan accounts at any time for any reason.  The minimum amount
a participant may borrow is $500 and the maximum amount is the lesser of 50% of
a participant's vested portion of his accounts or $50,000 (reduced by
outstanding loans). Such withdrawals may not be made more often than two (2)
times during any Plan Year.

     Distribution Upon Retirement, Disability or Termination of Employment.
     ---------------------------------------------------------------------  
Payment of benefits to a participant who retires, incurs a disability, or
otherwise terminates employment generally shall be made in a lump sum cash
payment as soon as administratively feasible after such termination of
employment if the vested value of the participant's Account is $5,000 or less.
If the vested portion of the participant's Account balance is greater than
$5,000, the participant may request a distribution (subject to the minimum
distribution rules) in a lump sum payment: (a) as soon as administratively
possible after termination, (b) as of any valuation date up to 13 months after
termination or (c) as of the date the participant attains normal retirement age.
At the request of the participant, the distribution may include an in kind
distribution of the Common Stock of the Holding Company equal to the number of
shares that can be purchased with the participant's balance in the Employer
Stock Fund.  Benefit payments ordinarily shall be made not later than 60 days
following the end of the Plan Year in which occurs the latest of the
participant's:  (i) termination of employment; (ii) the attainment of age 65 or
(iii) 10th anniversary of commencement of participation in the Plan; but in no
event paid later than the April 1st of the later of (a) the calendar year
following the calendar year in which the participant attains age 70 1/2 or (b)
the calendar year in which a participant retires.  However, if the vested
portion of the participant's Account balances exceeds or has ever exceeded
$5,000, no distribution shall be made from the Plan prior to the participant's
attaining age 65 unless the participant elects to receive an earlier
distribution.

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

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

                                      12
<PAGE>
 
ADMINISTRATION OF THE PLAN

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

     Trustees.  The Trustee is appointed by the Board of Trustees of the Bank to
     --------                                                                   
serve at its pleasure.  The current Trustee of the Plan is the RSI Retirement
Trust.  However, an additional Trustee may be appointed to hold funds invested
in the Employer Stock Fund.

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

REPORTS TO PLAN PARTICIPANTS

     The Plan Administrator  will furnish to each participant a statement at
least quarterly showing (i) the balance in the participant's Account as of the
end of that period, (ii) the amount of contributions allocated to such
participant's Account for that period, and (iii) the adjustments to such
participant's Account to reflect earnings or losses (if any).

PLAN ADMINISTRATOR

     Pursuant to the terms of the Plan, the Plan is administered by one or more
persons who are appointed by and who serve at the pleasure of the Bank.
Currently, the Plan Administrator is Dennis A. Petrello of the Bank.  The
address and telephone number of the Plan Administrator is West Essex Bank, 417
Bloomfield Avenue, Caldwell, New Jersey 07006, (973) 226-7911.  The Plan
Administrator is responsible for the administration of the Plan, interpretation
of the provisions of the Plan, prescribing procedures for filing applications
for benefits, preparation and distribution of information explaining the Plan,
maintenance of Plan records, books of account and all other data necessary for
the proper administration of the Plan, and preparation and filing of all returns
and reports relating to the Plan which are required to be filed with the U.S.
Department of Labor and the IRS, and for all disclosures required to be made to
participants, Beneficiaries and others under Sections 104 and 105 of ERISA.

AMENDMENT AND TERMINATION

     It is the intention of the Bank to continue the Plan indefinitely.
Nevertheless, the Bank may terminate the Plan at any time.  If the Plan is
terminated in whole or in part, then regardless of other provisions in the Plan,
each employee affected by such termination shall have a fully vested interest in
his Accounts.  The Bank reserves the right to make, from time to time, any
amendment or amendments to the Plan which do not cause any part of the Trust to
be used for, or diverted to, any purpose other than the exclusive benefit of
participants or their beneficiaries;

                                      13
<PAGE>
 
provided, however, that the Bank may make any amendment it determines necessary
or desirable, with or without retroactive effect, to comply with ERISA.

MERGER, CONSOLIDATION OR TRANSFER

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

FEDERAL INCOME TAX CONSEQUENCES

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

     The Plan will be submitted to the IRS in a timely manner for a
determination that it is qualified under Section 401(a) and 401(k) of the Code,
and that the related Trust is exempt from tax under Section 501(a) of the Code.
A plan that is "qualified" under these sections of the Code is afforded special
tax treatment which include the following:  (1) The sponsoring employer is
allowed an immediate tax deduction for the amount contributed to the Plan each
year; (2) participants pay no current income tax on amounts contributed by the
employer on their behalf; and (3) earnings of the plan are tax-deferred thereby
permitting the tax-free accumulation of income and gains on investments.  The
Plan will be administered to comply in operation with the requirements of the
Code as of the applicable effective date of any change in the law.  The Bank
expects to timely adopt any amendments to the Plan that may be necessary to
maintain the qualified status of the Plan under the Code.  Following such an
amendment, the Bank will submit the Plan to the IRS for a determination that the
Plan, as amended, continues to qualify under Sections 401(a) and 501(a) of the
Code and that it continues to satisfy the requirements for a qualified cash or
deferred arrangement under Section 401(k) of the Code.  Should the Plan receive
from the IRS an adverse determination letter regarding its tax exempt status,
all participants would generally recognize income equal to their vested interest
in the Plan, the participants would not be permitted to transfer amounts
distributed from the Plan to an IRA or to another qualified retirement plan, and
the Bank may be denied certain deductions taken with respect to the Plan.

                                      14
<PAGE>
 
     Lump Sum Distribution.  A distribution from the Plan to a participant or
     ---------------------                                                   
the beneficiary of a participant will qualify as a Lump Sum Distribution if it
is made:  (i) within one taxable year of the participant or beneficiary; (ii) on
account of the participant's death, disability or separation from service, or
after the participant attains age 59 1/2; and (iii) consists of the balance to
the credit of the participant under this Plan and all other profit sharing
plans, if any, maintained by the Bank.  The portion of any Lump Sum Distribution
that is required to be included in the participant's or beneficiary's taxable
income for federal income tax purposes (the "total taxable amount") consists of
the entire amount of such Lump Sum Distribution less the amount of after-tax
contributions, if any, made by the participant to any other profit sharing plans
maintained by the Bank which is included in such distribution.

     Averaging Rules.  The portion of the total taxable amount of a Lump Sum
     ---------------                                                        
Distribution that is attributable to participation after 1973 in this Plan or in
any other profit-sharing plan maintained by the Bank (the "ordinary income
portion") will be taxable generally as ordinary income for federal income tax
purposes.  However, a participant who has completed at least five (5) years of
participation in this Plan before the taxable year in which the distribution is
made, or a beneficiary who receives a Lump Sum Distribution on account of the
participant's death (regardless of the period of the participant's participation
in this Plan or any other profit-sharing plan maintained by the Employers), may
elect to have the ordinary income portion of such Lump Sum Distribution taxed
according to a special averaging rule ("five-year averaging").  The election of
the special averaging rules may apply only to one Lump Sum Distribution received
by the participant or beneficiary, provided such amount is received on or after
the participant turns 59-1/2 and the recipient elects to have any other Lump Sum
Distribution from a qualified plan received in the same taxable year taxed under
the special averaging rule.  Under a special grandfather rule, individuals who
turned 50 by 1986 may elect to have their Lump Sum Distribution taxed under
either the five-year averaging rule or under the prior law ten-year averaging
rule.  Such individuals also may elect to have that portion of the Lump Sum
Distribution attributable to the participant's pre-1974 participation in the
Plan taxed at a flat 20% rate as gain from the sale of a capital asset.

     The Common Stock Included in Lump Sum Distribution.  If a Lump Sum
     --------------------------------------------------                
Distribution includes the Common Stock, the distribution generally will be taxed
in the manner described above, except that the total taxable amount will be
reduced by the amount of any net unrealized appreciation with respect to such,
i.e., the excess of the value of such Common Stock at the time of the
distribution over its cost or other basis of the securities to the  Trust.  The
tax basis of such Common Stock to the participant or beneficiary for purposes of
computing gain or loss on its subsequent sale will be the value of the Common
Stock at the time of distribution less the amount of net unrealized
appreciation.  Any gain on a subsequent sale or other taxable disposition of
such Common Stock, to the extent of the amount of net unrealized appreciation at
the time of distribution, will be considered long-term capital gain regardless
of the holding period of such Common Stock.  Any gain on a subsequent sale or
other taxable disposition of the Common Stock in excess of the amount of net
unrealized appreciation at the time of distribution will be considered long-term
capital gain regardless of the holding period of the Common Stock. Any gain on a
subsequent sale or other taxable disposition of the Common Stock in excess of
the

                                      15
<PAGE>
 
amount of net unrealized appreciation at the time of distribution will be
considered either short-term, mid-term or long-term capital gain depending upon
the length of the holding period of the Common Stock.  The recipient of a
distribution may elect to include the amount of any net unrealized appreciation
in the total taxable amount of such distribution to the extent allowed by the
regulations to be issued by the IRS.

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

ERISA AND OTHER QUALIFICATION

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

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

RESTRICTIONS ON RESALE

     Any person receiving a distribution of shares of Common Stock under the
Plan who is an "affiliate" of the Bank as the term "affiliate" is used in Rules
144 and 405 under the Securities Act of 1933, as amended (the "Securities Act")
(e.g., directors, officers and substantial shareholders of the Bank) may reoffer
or resell such shares only pursuant to a registration statement filed under the
Securities Act assuming the availability thereof, pursuant to Rule 144

                                      16
<PAGE>
 
or some other exemption of the registration requirements of the Securities Act
Any person who may be an "affiliate" of the Bank may wish to consult with
counsel before transferring any Common Stock owned by him.  In addition,
participants are advised to consult with counsel as to the applicability of
Section 16 of the 1934 Act which may restrict the sale of Common Stock where
acquired under the Plan, or other sales of Common Stock.

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

SEC REPORTING AND SHORT-SWING PROFIT LIABILITY

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

     In addition to the reporting requirements described above, Section 16(b) of
the 1934 Act provides for the recovery by the Holding Company of profits
realized by any officer, director or any person beneficially owning more than
ten percent of the Bancorp's Common Stock ("Section

                                      17
<PAGE>
 
16(b) Persons") resulting from the purchase and sale or sale and purchase of the
Common Stock within any six-month period.

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

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

                                 LEGAL OPINIONS

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

                                      18
<PAGE>
 
                              WEST ESSEX BANK, FSB
                  401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST
                                 Transfer Form
                                 -------------

Name of Plan participant:  ________________________________

Social Security Number:    ________________________________

     1.   INSTRUCTIONS.  In connection with the proposed Reorganization, the
          ------------                                                      
West Essex Bank, FSB 401(k) Savings Plan in RSI Retirement Trust ("Plan") has
been amended to permit participants to direct their current account balances for
their Before-Tax Contribution Account, Discretionary Employer Contribution
Account and Rollover Account into a new fund: the Employer Stock Fund.  The
percentage of a participant's account transferred at the direction of the
participant into the Employer Stock Fund will be used to purchase shares of
common stock of West Essex Bancorp, Inc. (the "Common Stock").

     To direct a transfer of all or a part of the funds credited to your
accounts to the Employer Stock Fund, you should complete and file this form with
the Human Resources Department, no later than 10 days prior to the expiration
date of the Offering (_____________, 1998.)  A representative for the Plan
Administrator will retain a copy of this form and return a copy to you.  If you
need any assistance in completing this form, please contact _____________ at
______________.  If you do not complete and return this form to the Plan
Administrator by ____________, the funds credited to your accounts under the
Plan will continue to be invested in accordance with your prior investment
direction, or in accordance with the terms of the Plan if no investment
direction has been provided.

2.   INVESTMENT DIRECTIONS.  I hereby authorize the Plan Administrator to direct
the Trustee to invest the following percentage (in multiples of not less than
1%) of my Basic Contribution Account, Company Contribution Account and Rollover
Account in the Employer Stock Fund:

          a.   Core Equity Fund ____%                      
          b.   Emerging Growth Fund ____%                  
          c.   Value Equity Fund ____%                     
          d.   Actively Managed Bond Fund ____%            
          e.   Intermediate - Term Investment Fund ____%  
          f.   Short-Term Investment Fund ____%            
          g.   International Equity Fund ____%             

NOTE:  The total percentage of directed investments, above, may not exceed 100%.


3.   PURCHASER INFORMATION.  The ability of participants in the Plan to
purchase Common Stock in the Reorganization and to direct their current account
balances into the Employer Stock Fund is based upon the participant's status as
an Eligible Account Holder, Supplemental Eligible Account Holder or Other
Member.  Please indicate your status.
                         
               a.   [_]  Eligible Account Holder - Check here if you were a
                         depositor with $50.00 or more on deposit with West
                         Essex Bank, FSB as of February 28, 1997.

               b.   [_]  Supplemental Eligible Account Holder - Check here if
                         you were a depositor with $50.00 or more on deposit
                         with West Essex Bank, FSB as of ____________, but are
                         not an Eligible Account Holder.

               c.   [_]  Other Member - Check here if you were a depositor on
                         ___________ ("Voting Record Date").

4.   ACKNOWLEDGMENT OF PARTICIPANT.  I understand that this Transfer Form shall
be subject to all of the terms and conditions of the Plan.  I acknowledge that I
have received a copy of the Prospectus and the Prospectus Supplement.

-------------------           -----------          
Signature of Participant      Date

                                      19
<PAGE>
 
______________________________________


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

______________      __________
By:______________   Date


     THE PARTICIPATION INTERESTS REPRESENTED BY COMMON STOCK OFFERED HEREBY ARE
NOT DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE BANK INSURANCE FUND OR THE
SAVINGS ASSOCIATION INSURANCE FUND OF THE  FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENT AGENCY AND ARE NOT GUARANTEED BY THE COMPANY OR BANK.
THE COMMON STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF
THE PRINCIPAL INVESTED.

                                      20
<PAGE>
 
[To be used in connection with the Syndicated Community Offering only]

SYNDICATED PROSPECTUS SUPPLEMENT


                           WEST ESSEX BANCORP, INC.
         (PROPOSED STOCK HOLDING COMPANY FOR WEST ESSEX BANK, F.S.B.)
                       __________ SHARES OF COMMON STOCK


     West Essex Bancorp, Inc. ("Bancorp"), a federally chartered corporation, is
offering for sale in a syndicated community offering (the "Syndicated Community
Offering") __________ shares, at a per share price of $10.00, of its common
stock, par value $.01 per share (the "Common Stock"), in a minority stock
offering in connection with the reorganization of West Essex Bank, F.S.B. (the
"Bank" or "West Essex") from a federally chartered mutual savings bank to a
federally chartered stock savings bank in the federal mutual holding company
form of organization (the "Reorganization"). As part of the Reorganization, the
Bank will become a wholly owned subsidiary of Bancorp and Bancorp will issue a
majority of its Common Stock to West Essex Bancorp, M.H.C., a mutual holding
company (the "Mutual Company"), and, pursuant to the Bank's Plan of
Reorganization and Stock Issuance (the "Plan"), Bancorp will sell a minority of
its Common Stock to the public (the "Offering"). The remaining __________ shares
of the Common Stock will be offered on a priority basis in a subscription and
community offering to the public (the "Subscription and Community Offerings")
to holders of deposit accounts with the Bank with a balance of $50 or more as of
February 28, 1997, by the West Essex Bank Employee Stock Ownership Plan, a tax-
qualified employee benefit plan, and related trust (the "ESOP"), by holders of
deposit accounts with the Bank with a balance of $50 or more as of
______________, 1998, by certain other account holders of the Bank and, then, by
certain members of the general public. See "The Reorganization and Stock
Offering." Contained herein is the Prospectus in the form used in the
Subscription and Community Offerings. The purchase price for all shares sold in
the Syndicated Community Offering will be the same as the price paid by
subscribers in the Subscription and Community Offerings (the "Purchase Price").
The Purchase Price of $10.00 per share is the amount to be paid for each share
at the time a purchase order is submitted. See the cover page of the Prospectus
and the table below for information as to the method by which the range within
which the number of shares offered may vary and the method of subscribing for
shares of the Common Stock.

     Funds submitted to the Bank with purchase orders will earn interest at the
Bank's passbook rate of interest from the date of receipt until completion or
termination of the Reorganization and Offering.  The Syndicated Community
Offering will expire no later than _______________, 199_, unless extended by the
Bank and Bancorp with the approval of the Office of Thrift Supervision (the
"OTS").  Such extensions may not go beyond _______________, 199_.  If an
extension of time has been granted, all subscribers will be notified of such
extension, and of their rights to confirm their subscriptions, or to modify or
rescind their subscriptions and have their funds returned promptly with
interest, and of the time period within which the subscriber must notify the
Bank of his intention to confirm, modify or rescind his subscription.  If an
affirmative response to any resolicitation is not
<PAGE>
 
received by the Bank and Bancorp from subscribers, such orders will be rescinded
and all funds will be returned promptly with interest.  The minimum number of
shares which may be purchased is 25 shares.  Except for the ESOP, which may
purchase up to 10% of the total number of shares of Common Stock issued in the
Offering, no person, together with associates of and persons acting in concert
with such person, may purchase more than the total number of shares offered in
the Community Offering and the Syndicated Community Offering that could be
purchased for $350,000 at the Purchase Price and the maximum number of shares of
Common Stock which may be subscribed for or purchased by any person together
with any associate or group or persons acting in concert shall not exceed
$700,000 of the Common Stock offered.  See "Plan of Reorganization and Stock
Offering - Limitations on Common Stock Purchases."  The Company reserves the
right, in its absolute discretion, to accept or reject, in whole or in part, any
or all subscriptions in the Syndicated Community Offering.

     Bancorp and the Bank have engaged Sandler, O'Neill & Partners, L.P.
("Sandler O'Neill") as financial advisors to assist them in the sale of the
Common Stock in the Syndicated Community Offering.  It is anticipated that
Sandler O'Neill will use the services of other registered broker-dealers
("Selected Dealers") and that fees to Sandler O'Neill and such Selected Dealers
will not exceed 7% of the aggregate Purchase Price of the shares sold in the
Syndicated Community Offering.  Neither Sandler O'Neill nor any Selected Dealer
shall have any obligation to take or purchase any shares of Common Stock in the
Syndicated Community Offering.

     Bancorp has applied to have its Common Stock quoted on the Nasdaq National
Market ("Nasdaq") under the symbol "WEBK."  Prior to this offering, there has
not been a public market for the Common Stock, and there can be no assurance
that an active and liquid trading market for the Common Stock will develop.  The
absence or discontinuance of a market may have an adverse impact on both the
price and liquidity of the stock.



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



THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED.

                                       2
<PAGE>
 
<TABLE>
<CAPTION>
                                                                                    Estimated Net
                                                    Estimated                         Proceeds
                                                  Underwriting    Estimated Net    of Subscription,
                                                   Commissions     Proceeds of        Community
                                   Syndicated       and Other      Syndicated       and Syndicated
                                   Community        Fees and        Community         Community
                                 Offering Price    Expenses(1)      Offering       Offerings(2)(3)
-------------------------------------------------------------------------------------------------
<S>                              <C>             <C>              <C>            <C>
Minimum Per Share                $10.00          $                $              $
-------------------------------------------------------------------------------------------------
Midpoint Per Share               $10.00          $                $              $
-------------------------------------------------------------------------------------------------
Maximum Per Share                $10.00          $                $              $
-------------------------------------------------------------------------------------------------
Total Minimum(4)                 $               $                $              $
-------------------------------------------------------------------------------------------------
Total Midpoint                   $               $                $              $
-------------------------------------------------------------------------------------------------
Total Maximum(4)                 $               $                $              $
-------------------------------------------------------------------------------------------------
Total Maximum, As Adjusted(5)    $               $                $              $
-------------------------------------------------------------------------------------------------
</TABLE>

______________________________
(1) Consists of a pro rata allocation of estimated expenses of the Bank and
    Bancorp in connection with the Reorganization and Offering (other than
    estimated fees to be paid to Sandler O'Neill for services in connection with
    the Subscription and Community Offerings) and estimated compensation of
    Sandler O'Neill and Selected Dealers in connection with the sale of the
    remaining shares in the Syndicated Community Offering which fees are
    estimated to be $__________ and $__________ at the minimum and the maximum
    of the estimated price range and may be deemed to be underwriting fees.  The
    information under "Pro Forma Data" in the Prospectus was based on the
    assumptions stated therein, which may differ from the estimates used for
    this table.  See "The Conversion - Marketing and Underwriting Arrangements"
    for a more detailed discussion of fee arrangements.
(2) Bancorp applied to retain up to 40% of the net proceeds.  The balance of the
    net proceeds will be transferred to the Bank in exchange for all of the
    capital stock of the Bank to be issued in connection with the Reorganization
    and Offering.
(3) The net proceeds of the Subscription and Community Offerings (based upon the
    sale of the __________ shares subscribed for at a price of $_____ per share
    and after allocation of a pro rata portion of the estimated expenses
    relating to the Reorganization and Offering) are estimated to be
    $__________.
(4) Based on an offering range of $__________ to $__________ at $10.00 per share
    (the "Offering Range").  The Total Minimum reflects the sale of __________
    shares at a per share price of $10.00, leaving a total of __________ shares
    to be sold in the Syndicated Community Offering.
(5) Gives effect to an increase in the number of shares which could occur due to
    an increase in the Offering Range of up to 15% to reflect changes in market
    and financial conditions following commencement of the offerings.  See "The
    Reorganization and Offering - Stock Pricing."  For a discussion of the
    distribution and allocation of the additional shares, see "The
    Reorganization and Offering - Subscription Rights and Limitations on Common
    Stock Purchases."


                       SANDLER O'NEILL & PARTNERS, L.P.
                                        
                       _________________________________


       The date of this Prospectus Supplement is _______________, 1998.

                                       3
<PAGE>
 
PROSPECTUS

                           WEST ESSEX BANCORP, INC.
            2,071,955 (Anticipated Maximum) Shares of Common Stock

     West Essex Bancorp, Inc. ("Bancorp") a federally chartered corporation, is
offering up to 2,071,955 shares of its common stock, par value $.01 per share
(the "Common Stock"), for a purchase price of $10.00 per share (the "Purchase
Price") in a minority stock offering in connection with the reorganization of
West Essex Bank, F.S.B. (the "Bank" or "West Essex") from a federally chartered
mutual savings bank to a federally chartered stock savings bank in the federal
mutual holding company form of organization (the "Reorganization").  As part of
the Reorganization, the Bank will become a wholly owned subsidiary of Bancorp
and Bancorp will issue a majority of its Common Stock to West Essex Bancorp,
M.H.C., a mutual holding company (the "Mutual Company"), and, pursuant to
Bancorp's Plan of Mutual Holding Company Reorganization and Stock Issuance (the
"Plan"), sell a minority of its Common Stock to the public as described herein.
Depending on changes in market and financial conditions, the number of shares
offered may be increased to 2,382,748 shares following commencement of the
offering.

                                                   (continued on following page)

     FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" BEGINNING ON PAGE 15.

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

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

<TABLE>
<CAPTION>
    -----------------------------------------------------------------------------------------------------
                                                                        ESTIMATED                  
                                                       ESTIMATED        UNDERWRITING                  
                                                        MINORITY         COMMISSIONS                  
                                        PURCHASE       OWNERSHIP        AND OTHER FEES      ESTIMATED  
                                        PRICE(1)         REST(1)(2)    AND EXPENSES(3)     NET PROCEEDS 
    -----------------------------------------------------------------------------------------------------
    <S>                                <C>             <C>             <C>                 <C>         
      Minimum Per Share.............   $     10.00             N/A           $    .06       $      9.94
    -----------------------------------------------------------------------------------------------------
      Midpoint Per Share............   $     10.00             N/A           $    .05       $      9.95
    -----------------------------------------------------------------------------------------------------
      Maximum Per Share.............   $     10.00             N/A           $    .04       $      9.96
    -----------------------------------------------------------------------------------------------------
      Total Minimum.................   $15,314,450             43%           $851,000       $14,463,450
    -----------------------------------------------------------------------------------------------------
      Total Midpoint................   $18,017,000             43%           $889,000       $17,128,000
    -----------------------------------------------------------------------------------------------------
      Total Maximum.................   $20,719,550             43%           $926,000       $19,793,550
    -----------------------------------------------------------------------------------------------------
      Total Maximum, as adjusted(4)    $23,827,480             43%           $969,000       $22,858,480
    -----------------------------------------------------------------------------------------------------
</TABLE>

(1) The shares of Common Stock (including shares to be held by the Mutual
    Company) will be issued at an aggregate purchase price equal to the
    estimated pro forma market value of such stock based on an independent
    appraisal (the "Independent Valuation") of Bancorp prepared by FinPro, Inc.
    ("FinPro"), an independent appraisal firm. FinPro determined that the
    estimated pro forma market value of Bancorp, including the impact of the
    Mutual Company, was $41.9 million as of June 12, 1998.  The shares of Common
    Stock being offered represent a minority interest in Bancorp equal to 43% of
    the Independent Valuation. The aggregate purchase price of the Common Stock
    to be offered in the Offering (as defined herein) will range from
    $15,314,450 to $20,719,550 , subject to adjustment up to $23,827,480
    million if there is an increase of up to 15% in the Independent Valuation
    (the "Offering Range").  The Independent Valuation will be updated at the
    time of completion of the Offering  (as defined herein), and the percentage
    of the outstanding shares to be offered in the Offering (as defined herein)
    (the "Minority Ownership Interest") may increase or decrease to reflect
    changes in market and financial conditions, the estimated pro forma market
    value of Bancorp, or both.  The Purchase Price will remain fixed.  In the
    event the Independent Valuation at the completion of the Offering  (as
    defined herein) increases, Bancorp may increase the Offering (as defined
    herein) by up to 15% without giving prospective purchasers the opportunity
    to change or withdraw their purchase orders.  See "The Reorganization and
    Stock Offering--Stock Pricing and Number of Shares Issued." In the event the
    Independent Valuation decreases, the aggregate purchase price necessary to
    purchase the Minority Ownership Interest will also decrease.  Any adjustment
    of shares within the Offering Range will have a corresponding effect on the
    estimated net proceeds of the Offering and the pro forma capitalization and
    per share data of Bancorp.  See "Use of Proceeds," "Capitalization" and "Pro
    Forma Data."

(2) The shares of Common Stock issued in the Offering (as defined herein) will
    represent a minority ownership interest in Bancorp.  The remaining shares
    will be owned by the Mutual Company.  The Minority Ownership Interest is
    calculated as a percentage of the total shares of Bancorp's Common Stock
    that will be outstanding upon completion of the Offering (as defined
    herein), and assumes there has been no change in the estimated pro forma
    market value of Bancorp as determined by the Independent Valuation.

(3) Consists of estimated costs to Bancorp arising from the Offering  (as
    defined herein), including estimated fixed expenses of $600,000, and
    marketing fees to be paid to Sandler O'Neill & Partners, L.P. ("Sandler
    O'Neill"), which marketing fees are estimated to be $205,000.  The actual
    fees and expenses may vary from the estimated amounts.  See "Pro Forma Data"
    and "The Reorganization and Stock Offering" for the assumptions used to
    determine these estimates.

(4) As adjusted to reflect the sale of up to an additional 15% of the Common
    Stock which may be offered at the Purchase Price, without resolicitation of
    subscribers or any right of cancellation, due to regulatory considerations,
    changes in market conditions or general financial and economic conditions.
    See "Pro Forma Data" and "The Reorganization and Stock Offering -- Stock
    Pricing and Number of Shares Issued."  For a discussion of the distribution
    and allocation of the additional shares, if any, see "The Reorganization and
    Stock Offering -- Subscription Offering and Subscription Rights," " --
    Community Offering" and "--Limitations on Common Stock Purchases."

                       SANDLER O'NEILL & PARTNERS, L.P.

             THE DATE OF THIS PROSPECTUS IS ______________, 1998.
<PAGE>
 
     PURSUANT TO THE BANK'S PLAN, THE SHARES OF COMMON STOCK ARE BEING OFFERED
IN A SUBSCRIPTION OFFERING (THE "SUBSCRIPTION OFFERING") ON A PRIORITY BASIS TO:
(1) HOLDERS OF DEPOSIT ACCOUNTS (AS DEFINED BY THE PLAN AND AS DESCRIBED HEREIN)
AT THE BANK WHICH TOTALLED $50 OR MORE ON FEBRUARY 28, 1997 ("ELIGIBLE ACCOUNT
HOLDERS"); (2) THE BANK'S EMPLOYEE STOCK OWNERSHIP PLAN (THE "ESOP"), A TAX-
QUALIFIED EMPLOYEE STOCK OWNERSHIP PLAN; (3) HOLDERS OF DEPOSIT ACCOUNTS AT THE
BANK WHICH TOTALLED $50 OR MORE ON ___________, 1998 ("SUPPLEMENTAL ACCOUNT
HOLDERS"); AND (4) MEMBERS OF THE BANK CONSISTING OF HOLDERS OF DEPOSIT ACCOUNTS
AT THE BANK AS OF ___________, 1998, THE VOTING RECORD DATE ("VOTING RECORD
DATE") FOR THE SPECIAL MEETING (AS DEFINED HEREIN), OTHER THAN THOSE MEMBERS WHO
OTHERWISE QUALIFY AS ELIGIBLE ACCOUNT HOLDERS OR SUPPLEMENTAL ACCOUNT HOLDERS
("OTHER MEMBERS"). SUBSCRIPTION RIGHTS ARE NONTRANSFERABLE. PERSONS FOUND TO BE
TRANSFERRING SUCH RIGHTS WILL BE SUBJECT TO THE FORFEITURE OF SUCH RIGHTS AND
POSSIBLE FURTHER SANCTIONS AND PENALTIES IMPOSED BY THE OFFICE OF THRIFT
SUPERVISION ("OTS").

     Subject to the prior rights of holders of subscription rights, Bancorp may
offer shares of Common Stock not subscribed for in the Subscription Offering for
sale in a community offering to certain members of the general public, with
preference given to natural persons residing in Essex, Morris and Bergen
Counties in the State of New Jersey (the "Community Offering") (the Subscription
Offering and Community Offering are referred to collectively as the
"Subscription and Community Offerings"). Shares not subscribed for in the
Subscription and Community Offerings will be offered to members of the general
public in a syndicated community offering (the "Syndicated Community Offering")
(the Subscription and Community Offerings and the Syndicated Community Offering
are referred to collectively as the "Offering").

     Pursuant to the Plan: (i) the Bank will establish Bancorp and the Mutual
Company; (ii) the Bank will exchange its mutual savings bank charter for a stock
savings bank charter; (iii) the Bank will issue 100% of its capital stock to
Bancorp and (iv) Bancorp will issue between 3,561,500 and 4,818,500 shares of
Common Stock in the Reorganization: 55.2% of these (or between 1,965,887 and
2,659,730 shares) will be issued to the Mutual Company, 43% (or between
1,531,445 and 2,071,955 shares) will be sold through the Offering to the
minority stockholders (the "Minority Stockholders") and 1.8% (or between 64,168
and 86,815 shares) will be issued to a newly formed charitable foundation
(described herein). Interests depositors had in the Bank prior to the
Reorganization will become interests in the Mutual Company, which will own 55.2%
of the shares of Common Stock of Bancorp, while minority ownership in the stock
of Bancorp will be held by the owners of the Common Stock. References herein to
the Bank shall include West Essex in its current form or post-reorganization
stock form, as indicated by the context.

     THE SHARES OF COMMON STOCK ISSUED IN THE OFFERING WILL REPRESENT A MINORITY
INTEREST IN BANCORP. THE REMAINING SHARES WILL BE OWNED BY THE MUTUAL COMPANY.
ASSUMING NO CHANGE IN THE ESTIMATED PRO FORMA MARKET VALUE OF BANCORP AS OF THE
DATE OF COMPLETION OF THE OFFERING, 1,801,700 SHARES OF COMMON STOCK WILL
REPRESENT APPROXIMATELY 43% OF THE ISSUED AND OUTSTANDING SHARES OF BANCORP.
Except for the ESOP, which intends to subscribe for up to 8% of the Common Stock
issued in the Offering, including shares contributed to the Foundation, no
Eligible Account Holder, Supplemental Eligible Account Holder or Other Member
may, in their respective capacities as such, purchase in the Subscription
Offering more than $350,000 of the Common Stock offered in the Offering; no
person, together with associates of and persons acting in concert with such
person, may purchase in the Community Offering and the Syndicated Community
Offering more than $350,000 of the shares offered in the Offering; and no
person, together with associates of and persons acting in concert with such
person, may purchase in the aggregate more than the overall maximum purchase
limitation of $700,000 of the shares of Common Stock offered in the Offering;
provided, however, that such purchase limitations may be increased or decreased
in the sole discretion of Bancorp without further approval of subscribers or the
Bank's members to the extent permitted by applicable regulations. See "The
Reorganization and Stock Offering --The Offering," "-- Community Offering" and 
"--Limitations on Common Stock Purchases." The minimum purchase is 25 shares.

     Pursuant to the Plan, Bancorp intends to establish a charitable foundation,
in connection with the Reorganization and Offering. The Bank and Bancorp will
form the West Essex Bancorp Charitable Foundation (the "Foundation") which will
be incorporated under Delaware law as a non-stock corporation. The Plan provides
that Bancorp will fund the Foundation with cash and shares of Common stock
contributed by Bancorp from authorized but

                                       2
<PAGE>
 
unissued shares in an amount equal to approximately 4.2% of the shares sold in
the Offering. The Foundation will be dedicated to charitable purposes within the
Bank's community. The establishment of the Foundation is subject to the approval
of the Bank's members at the Special Meeting being held to consider the Plan.
For a discussion of the Foundation and its effects on the Reorganization, see
"Risk Factors--Establishment of the Charitable Foundation," "Pro Forma Data" and
"The Reorganization and Stock Offering--Establishment of the Charitable
Foundation."

     THE SUBSCRIPTION OFFERING WILL TERMINATE AT __:__, EASTERN TIME, ON
________, 1998 (THE "EXPIRATION DATE") UNLESS EXTENDED BY BANCORP, WITH THE
APPROVAL OF THE OTS, IF NECESSARY. The Community Offering and Syndicated
Community Offering, if any, must be completed within 45 days of the Subscription
Offering, or __________, 1998, unless extended by Bancorp with the approval of
the OTS. Orders submitted are irrevocable until the completion of the
Reorganization and Offering; provided that, if the Reorganization and Offering
is not completed within the 45 day period referenced to above, unless such
period has been extended with the consent of the OTS, if necessary, all
subscribers will have their funds returned promptly with interest, and all
withdrawal authorizations will be cancelled. Such extensions may not go beyond
________, 2000. See "The Reorganization and Stock Offering --The Offering," " --
Community Offering" and "-- Procedure for Purchasing Shares in the Offering."

     Bancorp has received conditional approval to have its Common Stock quoted
on the Nasdaq National Market ("Nasdaq") under the symbol "WEBK" upon completion
of the Reorganization and Offering. Prior to this offering there has not been a
public market for the Common Stock, and there can be no assurance that an active
and liquid trading market for the Common Stock will develop or that the Common
Stock will trade at or above the Purchase Price. The absence or discontinuance
of a market may have an adverse impact on both the price and liquidity of the
Common Stock. See "Risk Factors--Absence of a Market for the Common Stock," and
"Market for the Common Stock."

     EXPLANATORY NOTE:  This Prospectus contains certain forward looking
statements consisting of estimates with respect to the financial condition,
results of operations and business of Bancorp and the Bank. Prospective
investors are cautioned that such forward looking statements are not guarantees
of future performance and are subject to various factors which could cause
actual results to differ materially from these estimates. These factors include
changes in general, economic and market conditions, and the development of an
interest rate environment that adversely affects the interest rate spread or
other income anticipated from Bancorp's and the Bank's operations and
investments. See "Risk Factors" for a discussion of other factors that might
cause actual results to differ from such estimates.

                                       3
<PAGE>
 
                                [MAP GOES HERE]

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

                SUMMARY OF THE REORGANIZATION AND THE OFFERING

     The following summary of the Reorganization and the Offering is qualified
in its entirety by the terms of the Plan and more detailed information appearing
elsewhere in this Prospectus.

RISK FACTORS...................  A purchase of the Common Stock involves a
                                 substantial degree of risk. Eligible Account
                                 Holders, Supplemental Eligible Account Holders,
                                 Other Members and other prospective investors
                                 should carefully consider the matters set forth
                                 under "Risk Factors." THE SHARES OF COMMON
                                 STOCK OFFERED HEREBY ARE NOT INSURED OR
                                 GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
                                 CORPORATION ("FDIC"), THE BANK INSURANCE FUND
                                 ("BIF") OR THE SAVINGS ASSOCIATION INSURANCE
                                 FUND ("SAIF") OR ANY OTHER GOVERNMENT AGENCY
                                 AND ARE NOT GUARANTEED BY BANCORP OR THE BANK.

WEST ESSEX BANCORP, INC........  Bancorp has not yet been incorporated. It will
                                 be incorporated at the direction of the Bank
                                 under Federal law in connection with the
                                 consummation of the Reorganization and Offering
                                 to become a savings and loan holding company
                                 and own all of the Bank's capital stock to be
                                 issued upon the Reorganization. In connection
                                 with the Reorganization and Offering, Bancorp
                                 will offer shares of Common Stock through the
                                 Offering and issue at least 51% of its shares
                                 to the Mutual Company. Its executive office is
                                 located at 417 Bloomfield Avenue, Caldwell, New
                                 Jersey 07006 and its telephone number is (973)
                                 226-7911.

WEST ESSEX BANCORP, M.H.C......  The Mutual Company is being organized by the
                                 Bank to be a federally chartered mutual holding
                                 company that will own a majority of the Common
                                 Stock of Bancorp following the Reorganization
                                 and Offering. The Mutual Company's principal
                                 assets will be shares of common stock received
                                 in the Reorganization and Offering and up to
                                 $100,000 received as its initial
                                 capitalization.

WEST ESSEX BANK, F.S.B.........  The Bank is a federally chartered mutual
                                 savings bank. At March 31, 1998, the Bank had
                                 total assets of $312.5 million, total deposits
                                 of $239.1 million and total equity of $29.8
                                 million. The Bank currently operates eight full
                                 service banking offices including its main
                                 office, all of which are located in Essex,
                                 Morris and Bergen Counties, New Jersey. The
                                 Bank has historically operated as a community-
                                 oriented savings institution whose business
                                 currently primarily consists of accepting
                                 deposits from customers in its primary market
                                 area and investing those deposits in mortgage-
                                 backed securities and one- to four-family
                                 residential mortgage loans secured by
                                 properties located primarily in the Bank's
                                 primary market area. To a significantly lesser
                                 extent, the Bank originates commercial real
                                 estate loans and home equity loans,
                                 construction and development loans, multi-
                                 family loans and consumer loans and invests in
                                 debt obligations of the federal government and
                                 federal agencies, as well as states and
                                 municipalities. The Bank considers that its
                                 market area consists of Essex, Morris and
                                 Bergen Counties, all of which are located in
                                 Northern New Jersey. Its executive offices are
                                 located at 417 Bloomfield Avenue, Caldwell, New
                                 Jersey 07006 and its telephone number is (973)
                                 226-7911.

THE REORGANIZATION.............  On March 18, 1998, the Board of Directors of
                                 the Bank adopted the Plan pursuant to which the
                                 Bank will reorganize from a federal mutual
                                 savings bank into a federal mutual holding
                                 company structure. The structure following the
                                 Reorganization will be as follows: the Mutual
                                 Company

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                                       5
<PAGE>
 
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                                 (which will be formed by the Bank) will own up
                                 to at least 51% of Bancorp's Common Stock and
                                 Bancorp will own 100% of the issued and
                                 outstanding capital stock of the Bank. It is
                                 intended that, following approval by the Bank's
                                 members of the Plan and the satisfaction of all
                                 other conditions precedent to the
                                 Reorganization, the Bank will effect the
                                 Reorganization in the following way: (i) the
                                 Bank will form an interim federal stock savings
                                 bank ("Interim I"), which will then form two
                                 subsidiaries, another interim federal stock
                                 savings bank ("Interim II") and Bancorp; (ii)
                                 the Bank will exchange its mutual charter for a
                                 stock charter and Interim I will exchange its
                                 charter for a federal mutual holding company
                                 charter to become the Mutual Company; (iii)
                                 Interim II will then merge with and into the
                                 Bank, with the Bank as the resulting entity and
                                 100% of the outstanding capital stock of the
                                 Bank will be transferred to the Mutual Company
                                 in exchange for membership interests in the
                                 Bank that existed when the Bank was in mutual
                                 form; and, finally, (iv) the Mutual Company
                                 will transfer 100% of the issued and
                                 outstanding capital stock of the Bank to
                                 Bancorp. In connection with the Reorganization,
                                 the Mutual Company will be capitalized by the
                                 Bank with $100,000.

THE MUTUAL COMPANY
 STRUCTURE AND REASONS FOR
 THE REORGANIZATION............  In adopting the Plan, the Board of Directors of
                                 the Bank has determined that for the reasons
                                 set forth below, the Reorganization is
                                 advisable and in the best interests of the Bank
                                 and its depositors, and is consistent with the
                                 Bank's business plan to operate as an
                                 independent, community-oriented savings
                                 institution. The Reorganization will structure
                                 the Bank in the stock form of organization,
                                 which is used by commercial banks, most major
                                 business corporations and an increasing number
                                 of savings institutions. The Reorganization
                                 will enable the Bank to access capital markets,
                                 expand its current operations, acquire other
                                 financial institutions or establish new branch
                                 offices, diversify into other financial
                                 services to the extent allowable by applicable
                                 law and regulation and to otherwise improve the
                                 Bank's ability to provide services to its
                                 community. Such access to the capital markets
                                 will also make it possible for the Bank to be
                                 more responsive to possible future changes in
                                 the regulations of the bank regulatory agencies
                                 mandating higher capital reserves and/or
                                 capital ratios. AT THE SAME TIME, THE MUTUAL
                                 HOLDING COMPANY STRUCTURE WILL PRESERVE THE
                                 MUTUAL FORM OF OWNERSHIP WITHIN THE MUTUAL
                                 HOLDING COMPANY STRUCTURE, CONSISTENT WITH THE
                                 BANK'S COMMITMENT TO BE AN INDEPENDENT,
                                 COMMUNITY ORIENTED SAVINGS INSTITUTION. IN THIS
                                 REGARD, SO LONG AS THE MUTUAL COMPANY IS IN
                                 EXISTENCE, IT WILL AT ALL TIMES OWN AT LEAST A
                                 MAJORITY INTEREST OF BANCORP, AND THEREFORE,
                                 INDIRECTLY, THE BANK AS WELL.

                                 The Board of Directors believes that these
                                 advantages outweigh the potential disadvantages
                                 of the mutual holding company structure, which
                                 include: (i) the inability to sell Common Stock
                                 in excess of 49.9% of Bancorp's total issued
                                 and outstanding voting stock so long as the
                                 Mutual Company remains in existence; (ii) the
                                 more limited liquidity of the Common Stock, as
                                 compared to a standard conversion; (iii) the
                                 inability of stockholders other than the Mutual
                                 Company to obtain majority ownership of the
                                 Bank and Bancorp, which may result in the
                                 perpetuation of the existing management and
                                 Board of Directors of Bancorp and the Bank; and
                                 (iv) the added expense of conducting more than
                                 one stock offering should the Mutual Company
                                 convert to the stock form at some future date.
                                 Because the Mutual Company will hold

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                                       6
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                                 a majority of the Common Stock of Bancorp
                                 following consummation of the Reorganization
                                 and Offering, the Mutual Company could take
                                 certain actions that the Minority Stockholders
                                 may not believe is in their best interest,
                                 including but not limited to, preventing the
                                 sale of Bancorp, defeating Board candidates
                                 nominated or supported by Minority
                                 Stockholders, or defeating other proposals that
                                 may be supported by the Minority Stockholders.

                                 The Reorganization does not preclude the
                                 conversion of the Mutual Company from the
                                 mutual to stock form of organization following
                                 the Reorganization. NO ASSURANCE CAN BE GIVEN
                                 THAT THE MUTUAL COMPANY WILL EVER CONVERT TO
                                 STOCK FORM OR WHAT CONDITIONS THE OTS MAY
                                 IMPOSE ON ANY SUCH A TRANSACTION. SEE
                                 "CONVERSION OF MUTUAL COMPANY TO STOCK FORM."

WEST ESSEX BANCORP CHARITABLE
 FOUNDATION....................  The Plan provides for the establishment of a
                                 charitable foundation in connection with the
                                 Reorganization. The Foundation, which will be
                                 incorporated under Delaware law as a non-stock
                                 corporation, will be funded with a contribution
                                 by Bancorp equal to approximately 4.2% of the
                                 Common Stock sold in the Offering, in addition
                                 to a cash contribution of $100,000. The
                                 authority for the affairs of the Foundation
                                 will be vested in the Board of Directors of the
                                 Foundation, all of whom will be Directors of
                                 Bancorp or the Bank or officers of Bancorp or
                                 the Bank. See "The Reorganization and Stock
                                 Offering--Establishment of the Charitable
                                 Foundation."

TERMS OF THE
 SUBSCRIPTION OFFERING.........  The Plan of Stock Issuance authorizes Bancorp
                                 to offer Common Stock to persons other than the
                                 MHC in the Offering in an amount less than
                                 50.0% of the issued and outstanding shares of
                                 Bancorp Common stock. Bancorp is offering
                                 between 1,531,445 and 2,071,955 shares in the
                                 Offering, which represents a Minority Ownership
                                 Interest of 43%, based upon the Independent
                                 Valuation. The shares of Common Stock to be
                                 sold in connection with the Reorganization and
                                 Offering are being offered at a fixed price of
                                 $10.00 per share in the Subscription Offering
                                 pursuant to subscription rights in the
                                 following order of priority to: (i) Eligible
                                 Account Holders; (ii) the ESOP; (iii)
                                 Supplemental Eligible Account Holders; and (iv)
                                 Other Members. Subject to the prior rights of
                                 holders of subscription rights, any shares of
                                 Common Stock not subscribed for in the
                                 Subscription Offering will be offered in the
                                 Community Offering at $10.00 per share to
                                 certain members of the general public.
                                 Subscription rights will expire if not
                                 exercised by 12:00 noon, Eastern time, on
                                 ________, 1998, unless extended by the Bank and
                                 Bancorp, with the approval of the OTS, if
                                 necessary. Deposit accounts that will provide a
                                 subscription right to holders thereof consist
                                 of any "savings account" as defined by the Plan
                                 consistent with OTS Regulations. Pursuant to
                                 the Plan and OTS regulations, certain accounts
                                 do not qualify as "savings accounts,"
                                 including, but not limited to, non-interest-
                                 bearing demand accounts (primarily non-interest
                                 checking accounts) or mortgage loan escrow
                                 accounts maintained at the Bank. See "The
                                 Reorganization and Stock Offering--Subscription
                                 and Subscription Rights" and "--Community
                                 Offering."

PROCEDURE FOR ORDERING SHARES
 AND PROSPECTUS DELIVERY.......  Forms to order Common Stock offered in the
                                 Subscription Offering and the Community
                                 Offering will be preceded or accompanied by a
                                 Prospectus. Any person receiving a stock order
                                 and certification form who desires to subscribe

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                                       7
<PAGE>

--------------------------------------------------------------------------------
 
                                 for shares must do so prior to the Expiration
                                 Date by delivering to the Bank a properly
                                 executed stock order and certification form
                                 together with full payment. ONCE TENDERED,
                                 SUBSCRIPTION ORDERS CANNOT BE REVOKED OR
                                 MODIFIED WITHOUT THE CONSENT OF THE BANK. To
                                 ensure that each purchaser receives a
                                 prospectus at least 48 hours prior to the
                                 Expiration Date in accordance with Rule 15c2-8
                                 of the Securities Exchange Act of 1934, as
                                 amended (the "Exchange Act"), no prospectus
                                 will be mailed any later than five days prior
                                 to the Expiration Date or hand delivered any
                                 later than two days prior to such date. The
                                 Bank is not obligated to accept subscriptions
                                 not submitted on an original stock order form.
                                 See "The Reorganization and Stock Offering--
                                 Procedure for Purchasing Shares in the
                                 Subscription Offering."

FORM OF PAYMENT FOR SHARES.....  Payment for subscriptions may be made: (i) in
                                 cash (if delivered in person); (ii) by check,
                                 bank draft or money order; or (iii) by
                                 authorization of withdrawal from deposit
                                 accounts maintained at the Bank. See "The
                                 Reorganization and Stock Offering--Procedure
                                 for Purchasing Shares in the Offering."

NONTRANSFERABILITY OF
 SUBSCRIPTION RIGHTS...........  The subscription rights of Eligible Account
                                 Holders, Supplemental Eligible Account Holders,
                                 Other Members and the Employee Plans, including
                                 the ESOP, are nontransferable. See "The
                                 Reorganization and Stock Offering-- Certain
                                 Restrictions on Purchase or Transfer of the
                                 Common Stock."

PURCHASE LIMITATIONS...........  Except for the ESOP, no Eligible Account
                                 Holder, Supplemental Eligible Account Holder or
                                 Other Member may purchase in the Subscription
                                 Offering more than $350,000 of Common Stock. No
                                 person, together with associates or persons
                                 acting in concert with such person, may
                                 purchase in the Community Offering and the
                                 Syndicated Community Offering more than
                                 $350,000 of Common Stock. No person, together
                                 with associates or persons acting in concert
                                 with such person, may purchase in the aggregate
                                 more than $700,000 of Common Stock. However,
                                 the ESOP, may purchase up to 10% of the Common
                                 Stock issued in the Offering, including shares
                                 issued to the Foundation. Pursuant to the Plan,
                                 it is intended that the ESOP will purchase 8%
                                 of the Common Stock issued in the Offering,
                                 including shares issued to the Foundation. The
                                 minimum purchase is 25 shares of Common Stock.
                                 At any time during the Reorganization and
                                 Offering and without approval of the Bank's
                                 depositors or a resolicitation of subscribers,
                                 the Bank and Bancorp may, in their sole
                                 discretion, decrease the maximum purchase
                                 limitation below $350,000 of Common Stock;
                                 however, such amount may not be reduced to less
                                 than 0.10% of the Common Stock offered.
                                 Additionally, at any time during the
                                 Reorganization and Offering, the Bank and
                                 Bancorp may, in their sole discretion, increase
                                 the maximum purchase limitation in the
                                 Subscription and Community Offerings to an
                                 amount in excess of $350,000, up to a maximum
                                 of 5% of the shares to be issued in the
                                 Reorganization and Offering. Similarly, the
                                 $700,000 overall maximum purchase limitation
                                 may be decreased to an amount not below 1% of
                                 the Common Stock offered or increased up to 5%
                                 of the total shares of Common Stock offered in
                                 the Offering.

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                                       8
<PAGE>
 
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SECURITIES OFFERED AND
 PURCHASE PRICE................  Bancorp is offering between 1,531,445 and
                                 2,071,955 shares of Common Stock at a purchase
                                 price of $10.00 per share. The maximum of the
                                 Offering Range may be increased by up to 15%
                                 and the maximum number of shares of Common
                                 Stock to be issued may be increased up to
                                 2,382,748 shares due to regulatory
                                 considerations and changes in market or general
                                 financial or economic conditions. See "The
                                 Reorganization and Stock Offering--Stock
                                 Pricing and Number of Shares Issued."

INDEPENDENT VALUATION..........  The purchase price per share has been fixed at
                                 $10.00. The total number of shares to be issued
                                 in the Conversion is based upon an independent
                                 appraisal prepared by FinPro, dated as of June
                                 12, 1998, which states that the estimated pro
                                 forma market value of the Common Stock ranged
                                 from $35.6 million to $48.2 million, taking
                                 into account shares issued to the Foundation.
                                 Establishing the Foundation in connection with
                                 the Reorganization and Offering will result in
                                 a lower aggregate market valuation than if the
                                 Reorganization and Offering were completed
                                 without the Foundation. See "Comparison of
                                 Valuation and Pro Forma Information With No
                                 Foundation." The final aggregate value will be
                                 determined at the time of closing of the
                                 Offering and is subject to change due to
                                 changing market conditions and other factors.
                                 See "The Reorganization and Stock Offering--
                                 Stock Pricing and Number of Shares Issued."

USE OF PROCEEDS................  Bancorp will use up to 75% of the net proceeds
                                 of the Offering to acquire 100% of the capital
                                 stock of the Bank. The remaining net proceeds
                                 will be used for general business activities,
                                 including the loan of funds to the ESOP (to the
                                 extent such loan is not funded by a third
                                 party) to enable the ESOP to purchase up to 8%
                                 of the stock issued in the Offering, including
                                 shares issued to the Foundation. Bancorp
                                 intends initially to invest the remaining net
                                 proceeds in federal funds and securities,
                                 primarily mortgage-related securities and
                                 federal agency obligations. In connection with
                                 the Reorganization, the Mutual Company will be
                                 capitalized by the Bank with $100,000. The Bank
                                 intends to utilize the net proceeds received by
                                 it for general business purposes, including
                                 investment in loans, and mortgage-related
                                 securities. On an interim basis, it is
                                 anticipated that most of the net proceeds will
                                 be invested in investments that qualify as
                                 short-term liquidity for regulatory purposes
                                 until such proceeds can be deployed in longer-
                                 term investments. See "Use of Proceeds."

DIVIDEND POLICY................  Upon consummation of the Reorganization and
                                 Offering, the Board of Directors of Bancorp
                                 will have the authority to declare dividends on
                                 the Common Stock, subject to statutory and
                                 regulatory requirements. In the future, the
                                 Board of Directors of Bancorp may consider a
                                 policy of paying cash dividends on the Common
                                 Stock. However, no decision has been made with
                                 respect to such dividends, if any. See
                                 "Dividend Policy."

BENEFITS OF THE REORGANIZATION 
 TO MANAGEMENT.................  Among the benefits to the Bank and Bancorp
                                 anticipated from the Reorganization and
                                 Offering is the ability to attract and retain
                                 personnel through the use of stock options and
                                 other stock related benefit programs.
                                 Subsequent to the Reorganization, Bancorp
                                 intends to adopt a Stock-Based Incentive Plan
                                 (as defined herein) for the benefit of
                                 directors, officers and employees of Bancorp
                                 and Bank. If the Stock-Based Incentive Plan is
                                 adopted within one year after the
                                 Reorganization, the plan will be subject to

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                                       9
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                                 stockholders' approval at a meeting of
                                 stockholders which may not be held earlier than
                                 six months after the Reorganization. The Stock-
                                 Based Incentive Plan would provide for the
                                 granting of stock-based benefits, including
                                 Common Stock in an amount equal to 4% of the
                                 Common Stock issued in the Offering, including
                                 shares issued to the Foundation, and options to
                                 purchase Common Stock in an amount equal to 10%
                                 of the Common Stock issued in the Offering,
                                 including shares issued to the Foundation. Any
                                 Common Stock awarded under the Stock-Based
                                 Incentive Plan will be awarded at no cost to
                                 the recipients.

                                 Additionally, certain officers of Bancorp and
                                 the Bank will be provided with employment
                                 agreements or change in control agreements
                                 which provide such officers with employment
                                 rights and/or payments upon their termination
                                 of service following a change in control. The
                                 Stock-Based Incentive Plan may also provide
                                 participants with benefits upon a change in
                                 control of Bancorp or the Bank. For a further
                                 description of the Stock-Based Incentive Plan
                                 and employment and change in control
                                 agreements, see "Risk Factors--Stock Based
                                 Benefits to Management and Directors,
                                 Employment Contracts and Change in Control
                                 Payments" and "Management of the Bank--Other
                                 Benefit Plans." See "Management of the Bank--
                                 Subscriptions by Executive Officers and
                                 Directors," "Certain Restrictions on
                                 Acquisition of Bancorp" and "The Reorganization
                                 and Stock Offering--Establishment of the
                                 Charitable Foundation."

VOTING CONTROL OF OFFICERS
  AND DIRECTORS................  Directors and executive officers of the Bank
                                 and Bancorp expect to purchase approximately
                                 18.8% or 13.9% of shares of Common Stock sold
                                 in the Offering, based upon the minimum and the
                                 maximum of the Offering Range, including shares
                                 issued to the Foundation, respectively.
                                 Additionally, assuming the implementation of
                                 the ESOP and Stock-Based Incentive Plan,
                                 directors, executive officers and employees
                                 have the potential to control the voting of
                                 approximately 36.4% or 32.1% of the Common
                                 Stock at the minimum and the maximum of the
                                 Offering Range, including shares issued to the
                                 Foundation, respectively. See "Management of
                                 the Bank--Subscriptions by Executive Officers
                                 and Directors," and "Certain Restrictions on
                                 Acquisition of Bancorp." In addition, the
                                 Mutual Company will control the voting of at
                                 least 51% of the total outstanding Common Stock
                                 of Bancorp, and the Bank's current Board of
                                 Directors will control the Mutual Company.

WAIVER OF DIVIDENDS BY THE
 MUTUAL COMPANY................  It has been the recent practice of the OTS to
                                 permit mutual holding companies to waive the
                                 receipt of cash dividends declared by savings
                                 association subsidiaries or subsidiary holding
                                 companies on a case-by-case basis and pursuant
                                 to OTS regulations, subject to the satisfaction
                                 of certain conditions, although there can be no
                                 assurance that the OTS will permit future
                                 dividend waivers, or of the terms of such
                                 permitted waivers. The Board of Directors of
                                 the Mutual Company, which initially will
                                 consist of the same individuals as the Board of
                                 Directors of the Bank, will determine whether
                                 the Mutual Company will waive receipt of such
                                 dividends as such dividends are declared by
                                 Bancorp. The Mutual Company may elect to
                                 receive dividends and to utilize the dividends
                                 received, if any, for general corporate
                                 purposes and to fund the purchase of Common
                                 Stock in the open market, as well as the
                                 payment of miscellaneous expenses. Any waiver
                                 of 

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                                       10
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                               dividends by the Mutual Company may result in an
                               adjustment to the ratio pursuant to which shares
                               of Common Stock are exchanged for shares of a
                               stock holding company should the Mutual Company
                               convert from the mutual to stock form of
                               organization. Such an adjustment would have the
                               effect of diluting the Minority Ownership
                               Interest. See "Risk Factors--Waiver of Dividends
                               by the Mutual Company," "Waiver of Dividends by
                               the Mutual Company" and "Conversion of the Mutual
                               Company to Stock Form."

CONVERSION OF THE MUTUAL
 COMPANY TO STOCK FORM......   Although the Mutual Company may convert to the
                               stock form of organization in the future (a
                               "Conversion Transaction") and OTS regulations
                               provide for a Conversion Transaction, there can
                               be no assurance when, if ever, a Conversion
                               Transaction will occur, or what conditions may be
                               imposed by the OTS on any Conversion Transaction.
                               Any Conversion Transaction would be subject to
                               federal securities laws and the regulations of
                               the OTS in effect at the time of the Conversion
                               Transaction. In the event of a Conversion
                               Transaction, subject to OTS approval, (1) the
                               stockholders of Bancorp other than the Mutual
                               Company will be entitled to exchange their shares
                               of Common Stock for shares of the stock holding
                               company in a manner that is fair and reasonable
                               to the stockholders and subject to the stock
                               purchase limitations of the OTS conversion
                               regulations (which may require, as a condition to
                               the approval of the Conversion Transaction by the
                               OTS, that certain insiders of Bancorp who have
                               accumulated shares in excess of the stock
                               purchase limitations of the Conversion
                               Transaction to divest such shares, and may also
                               potentially restrict or prohibit additional
                               purchases of common stock of the stock holding
                               company in the Conversion Transaction by other
                               stockholders that could be in excess of such
                               stock purchase limitation), or (2) the Mutual
                               Company may conduct a Conversion Transaction that
                               does not exchange shares of Common Stock for
                               stock of the stock holding company; provided,
                               however, the Mutual Company must purchase all
                               shares not owned by it simultaneously with the
                               closing of such Conversion Transaction at the
                               fair market value of such shares, determined as
                               if such shares had such exchange rights, as
                               determined by an independent appraisal. The
                               precise treatment of a Conversion Transaction by
                               the OTS cannot be determined at this time and the
                               OTS may impose, or the regulations of the OTS may
                               require, restrictions or conditions that may
                               adversely affect minority stockholders. See
                               "Conversion of the Mutual Company to Stock Form."

EXPIRATION DATE FOR THE
 SUBSCRIPTION OFFERING......   The Expiration Date for the Subscription Offering
                               is 12:00 noon Eastern Time on ________, 1998
                               unless extended by the Bank and Bancorp and
                               subject to any applicable regulatory approvals.

MARKET FOR STOCK............   As a mutual institution, the Bank has never
                               issued capital stock and, consequently, there is
                               no existing market for the Common Stock. Bancorp
                               has received conditional approval to have its
                               Common Stock listed on the Nasdaq under the
                               symbol "WEBK" subject to the completion of the
                               Offering and compliance with certain conditions.
                               See "Market for the Common Stock."

CONVERSION CENTER...........   If you have any questions regarding the
                               Reorganization and Offering, call the Stock
                               Offering Center at (___) ___-____.

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                                       11
<PAGE>
 
          SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE BANK

     The selected consolidated financial and other data of the Bank set forth
below is derived in part from, and should be read in conjunction with, the
Consolidated Financial Statements of the Bank and Notes thereto presented
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
                                              AT                                       
                                          MARCH 31,                    AT DECEMBER 31, 
                                          ---------   -------------------------------------------------
                                           1998(1)       1997      1996      1995      1994      1993
                                          ---------   ---------  --------  --------  --------  --------
                                                                (IN THOUSANDS)
<S>                                       <C>         <C>        <C>       <C>       <C>       <C> 
SELECTED CONSOLIDATED FINANCIAL DATA:
Total assets(2).........................  $312,522     $299,025  $235,969  $223,165  $199,580  $195,714
Loans receivable, net(3)................   114,302      112,735    82,134    85,031    84,611    89,419
SECURITIES AVAILABLE-FOR-SALE(4):
   Investment securities, net...........     7,105        7,081     1,647     1,932     1,857    20,315
SECURITIES HELD-TO-MATURITY(4):
   Investment securities, net...........    28,768       22,929    22,476    18,482     7,498     7,502
   Mortgage-backed securities, net......   122,633      130,174   113,254   100,032    89,300    49,695
Deposits................................   239,120      238,192   179,946   178,392   164,181   168,004
Borrowed money..........................    42,300       30,300    23,650    17,000    10,000     5,000
Retained earnings.......................    29,801       29,275    28,452    26,856    24,477    21,838
</TABLE>

<TABLE>
<CAPTION>
                                             AT OR FOR THE THREE
                                                MONTHS ENDED
                                                  MARCH 31,            AT OR FOR THE YEARS ENDED DECEMBER 31,
                                             --------------------  ----------------------------------------------
                                             1998(1)     1997(1)     1997      1996     1995      1994      1993
                                             --------  ----------  --------  --------  -------  --------  -------
                                                                      (IN THOUSANDS)
<S>                                          <C>       <C>         <C>       <C>       <C>      <C>       <C> 
SELECTED OPERATING DATA:
Interest income............................  $5,115      $4,252     $18,116  $16,467   $15,735  $13,235   $13,819
Interest expense...........................   2,870       2,152       9,656    8,300     7,618    5,121     5,882
                                             ------      ------     -------  -------   -------  -------   -------
    Net interest income....................   2,245       2,100       8,460    8,167     8,117    8,114     7,937
Provision for loan losses..................     (22)         55         487      232       510     (247)     (200)
                                             ------      ------     -------  -------   -------  -------   -------
    Net interest income after
      provision for loan losses............   2,267       2,045       7,973    7,935     7,607    8,361     8,137
Noninterest income.........................     140         113         373      476       332       32       399
Noninterest expense(5).....................   1,636       1,351       7,173    4,821     4,446    4,648     4,492
                                             ------      ------     -------  -------   -------  -------   -------
    Income before income taxes(5)..........     771         807       1,173    3,590     3,493    3,745     4,044
Income taxes(5)............................     260         284         436    1,231     1,221      977     1,744
                                             ------      ------     -------  -------   -------  -------   -------
Income before SAIF Special
  Assessment and cumulative
  effect of change in accounting for
   income taxes............................     511         523         737    2,359     2,272    2,768     2,300
Cumulative effect of change in
  accounting for income taxes..............      --          --          --       --        --       --     1,096
SAIF Special Assessment, net of
    income taxes(5)........................      --          --          --     (703)       --       --        --
                                             ------      ------     -------  -------   -------  -------   -------
Net income.................................  $  511      $  523     $   737  $ 1,656   $ 2,272  $ 2,768   $ 3,396
                                             ======      ======     =======  =======   =======  =======   =======
</TABLE>

                                                        (continued on next page)

                                       12
<PAGE>
 
<TABLE>
<CAPTION>
                                                      AT OR FOR THE THREE
                                                         MONTHS ENDED
                                                           MARCH 31,            AT OR FOR THE YEARS ENDED DECEMBER 31,
                                                    ----------------------   -------------------------------------------
                                                      1998(1)     1997(1)     1997     1996     1995     1994     1993
                                                    -----------  ---------   -------  -------  -------  -------  -------
                                                                               (DOLLARS IN THOUSANDS)
<S>                                                 <C>          <C>         <C>      <C>      <C>      <C>      <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:
PERFORMANCE RATIOS(6):
   Return on average assets(5)...................       0.68%       0.89%      0.29%    1.05%    1.07%    1.44%    1.74%
   Return on average retained earnings(5)........       6.92        7.29       2.51     8.47     8.84    11.98    16.07
   Average retained earnings
    /average assets..............................       9.88       12.15      11.55    12.37    12.09    11.98    10.82
   Interest rate spread(7).......................       2.77        3.03       2.87     3.15     3.34     3.92     3.78
   Net interest margin(8)........................       3.17        3.66       3.44     3.74     3.93     4.33     4.19
   Non-interest expenses to average assets(5)....       2.19        2.29       2.82     2.14     2.09     2.41     2.30
   Retained earnings to assets...................       9.54       12.27       9.79    12.06    12.03    12.26    11.16
   Efficiency ratio(9)...........................      61.41       53.92      57.04    56.58    52.86    50.37    50.93
REGULATORY CAPITAL RATIOS(6)(10):
   Tangible capital..............................       7.84       12.27       7.98    12.06    12.02    12.26    11.16
   Core capital..................................       7.84       12.27       7.98    12.06    12.02    12.26    11.16
   Risk-based capital............................      19.95       40.13      26.10    39.15    37.50    35.89    25.18
ASSET QUALITY RATIOS(6):
   Non-performing loans to total assets..........       0.74        1.20       0.84     1.26     0.96     1.55     2.72
   Non-performing loans to total loans      
     receivable..................................       1.95        3.36       2.16     3.51     2.46     3.52     5.76
   Non-performing assets to total assets.........       1.10        1.66       1.24     1.85     1.57     2.48     4.38
   Allowance for loan losses to
    non-performing loans.........................      80.79       57.15      75.19    52.70    55.84    40.00    29.12
   Average interest-earning assets to average     
     interest-bearing liabilities................     109.52      116.73     114.39   115.46   115.94   114.86   112.96
   Net interest income after provision for          
     loan losses to non-interest expenses(5).....     138.57      151.37     111.15   164.59   171.10   179.88   181.14
NUMBER OF FULL-SERVICE CUSTOMER
   FACILITIES....................................          8           5          8        5        5        5        5
</TABLE>

______________________________
(1)  The data presented at March 31, 1998 and for the three months ended March
     31, 1998 and 1997 were derived from unaudited consolidated financial
     statements and reflect, in the opinion of management, all adjustments
     (consisting only of normal recurring adjustments) which are necessary to
     present fairly the results for such interim periods. Interim results at and
     for the three months ended March 31, 1998 are not necessarily indicative of
     the results that may be expected for the year ended December 31, 1998. All
     operating results presented for selected financial ratios and other data
     for the three month periods ended March 31, 1998 and 1997 are presented on
     an annualized basis.
(2)  The increase in assets in fiscal 1997 was due primarily to the purchase of
     three branch offices from Summit Bank. See "Management's Discussion and
     Analysis."
(3)  The allowance for loan losses at March 31, 1998 and December 31, 1997,
     1996, 1995, 1994 and 1993 was $1.9 million, $1.9 million, $1.6 million,
     $1.2 million, $1.2 million and $1.5 million, respectively.
(4)  The Bank adopted Statement of Financial Accounting Standards ("SFAS") No.
     115, "Accounting for Certain Investments in Debt and Equity Securities"
     ("SFAS No. 115"), as of December 31, 1993.
(5)  Excludes, for the year ended December 31, 1996, the SAIF Special Assessment
     of $1.1 million and the related income tax benefit of $395,000. If
     included, return on average assets, return on average retained earnings,
     non-interest expenses to average assets and net interest income after
     provision for loan losses to non-interest expenses would be 0.74%, 5.95%,
     2.63% and 134.06%, respectively for the year ended December 31, 1996.
(6)  With the exception of end of period ratios, all ratios are based on average
     monthly balances during the indicated periods and are annualized where
     appropriate.
(7)  The interest rate spread represents the difference between the weighted
     average yield on average interest-earning assets and the weighted average
     cost of average interest-bearing liabilities.
(8)  The net interest margin represents net interest income as a percent of
     average interest-earning assets.
(9)  The efficiency ratio represents non-interest expenses, excluding the SAIF
     Special Assessment, impairment loss and amortization relating to tangible
     assets and loss on REO, divided by the sum of net interest and non-interest
     income excluding income on REO and security gain/loss.
(10) For definitions and further information relating to the Bank's regulatory
     capital requirements, see "Regulation and Supervision - Federal Savings
     Institution Regulation -- Capital Requirements." See "Regulatory Capital
     Compliance" for the Bank's pro forma capital levels as a result of the
     Offerings.

                                       13
<PAGE>
 
                                 RISK FACTORS

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

COMPETITION FOR MORTGAGE LOANS IN MARKET AREA

     The Bank faces significant competition both in making loans and in
attracting deposits. While its lending area extends throughout New Jersey, most
of the Bank's mortgage loans are secured by properties located in Essex, Morris
and Bergen Counties, New Jersey (the Bank's "primary market area"). The State of
New Jersey has a high density of financial institutions, many of which have a
state-wide or regional presence, and, in some cases, a national presence, all of
which are competitors of the Bank to varying degrees. The Bank's competition for
loans comes principally from commercial banks, savings banks, savings and loan
associations, credit unions, mortgage banking companies and insurance companies.
Its most direct competition for deposits has historically come from commercial
banks, savings banks, savings and loan associations and credit unions, many of
which are significantly larger than the Bank and, therefore, have greater
financial and marketing resources than those of the Bank. Limited mortgage
lending opportunities in the Bank's primary market area may exist for the
foreseeable future. In an effort to address the intense competition for mortgage
loans, the Bank is aggressively seeking lending opportunities, including through
using loan brokers, expanding available lending products and aggressively
pricing its loan products. Although the Bank has been successful in
substantially increasing loan originations in the past year, there can be no
assurance the Bank will be able to continue to do so in the future. The Bank
faces additional competition for deposits from short-term money market funds,
common stock funds, other corporate and government securities funds and from
other financial institutions such as brokerage firms and insurance companies.
See "Business of the Bank -- Market Area and Competition."

POTENTIAL IMPACT OF CHANGES IN INTEREST RATES

     The Bank's profitability, like that of most financial institutions, is
dependent to a large extent upon its net interest income, which is the
difference between its interest income on interest-earning assets, such as loans
and investments, and its interest expense on interest-bearing liabilities, such
as deposits and borrowings. One method of analyzing an institution's exposure to
interest rate risk is by measuring the change in the institution's Net Portfolio
Value ("NPV") under various interest rate scenarios. NPV is the present value of
expected cash flows from assets, liabilities and off-balance sheet contracts. An
NPV Ratio, in any interest rate scenario, is defined as the NPV in that scenario
divided by the market value of assets in the same scenario. The sensitivity
measure is the decline in the NPV Ratio, in basis points, caused by a 2%
increase or decrease in rates, whichever produces a larger decline. The higher
an institution's sensitivity measure is, the greater its exposure to interest
rate risk is considered to be. As of March 31, 1998, the most recent date for
which information is available, the Bank's sensitivity measure, as measured by
the OTS, indicated that a 2% increase in interest rates would cause a 206 basis
point decline in the Bank's NPV Ratio. This NPV Ratio sensitivity measure does
not exceed the thresholds at which the Bank could be required to hold additional
risk-based capital under OTS regulation, if so determined by the OTS. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Management of Interest Rate Risk -- Net Portfolio Value" and
"Regulation and Supervision --Federal Savings Institution Regulation -- Capital
Requirements."

     A significant portion of the Bank's assets consist of fixed-rate
residential mortgage loans. At March 31, 1998, the Bank had $89.5 million of 
one- to four-family mortgage loans, or 75.7% of the Bank's total loans
receivable of which $44.6 million, or 49.8%, have fixed-rates of interest. The
Bank emphasizes fixed-rate mortgage loans due to customer preference for fixed-
rate mortgage loans in the Bank's market area. The

                                       14
<PAGE>
 
Bank also retains in its portfolio all of the loans that it originates,
including fixed-rate mortgage loans. Investment in fixed-rate mortgage loans
generally results in increased interest rate risk as such loans do not reprice
as adjustable-rate mortgage loans do during periods of rising interest rates.
The Bank attempts to offset the risks associated with its predominantly fixed-
rate loan portfolio by investing in adjustable-rate mortgage-backed securities
and by maintaining a strong level of capital, although the Bank, to a lesser
extent, also invests in fixed-rate mortgage-backed and other securities. At
March 31, 1998, the Bank had $78.3 million of adjustable-rate mortgage-backed
securities and $44.3 million of fixed-rate mortgage-backed securities.

     Increases in the level of interest rates also may adversely affect the
amount of loans originated by the Bank. Increases in interest rates can
adversely affect the type (fixed-rate or adjustable-rate) of loans originated by
the Bank and the average life of loans and securities owned by the Bank, which
can adversely impact the yields earned on the Bank's loan portfolio. In periods
of decreasing interest rates, the average life of loans held by the Bank may be
shortened to the extent increased prepayment activity occurs during such
periods, which may result in the Bank investing funds from such prepayments in
lower yielding assets. Accordingly, the Bank's results of operations and
financial condition are largely dependent on movements in market interest rates
and its ability to manage its assets and liabilities in response to such
movements. However, management believes its substantial investment in 
adjustable-rate mortgage-backed securities will help offset that risk. In
addition, fluctuations in interest rates may also result in disintermediation,
which is the flow of funds away from depository institutions into direct
investments which pay a higher rate of return, and may adversely affect the
value of the Bank's investment securities and other interest-earning assets. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Management of Interest Rate Risk" and "Regulation and 
Supervision -- Federal Savings Institution Regulation --Capital Requirements."

CONSIDERATIONS RESULTING FROM MUTUAL HOLDING COMPANY STRUCTURE

     GENERAL.  The mutual holding company structure is a relatively new form of
corporate organization, originally authorized for OTS regulated savings
institutions by the Competitive Equality Banking Act of 1987 ("CEBA"), and
confirmed and clarified under the Financial Institutions Reform, Recovery and
Enforcement Act of 1989. Final mutual holding company regulations were adopted
by the OTS, effective March 1993 and those final regulations were revised on
April 1, 1998 to allow for the two-tier mutual holding company structure that
the Bank is utilizing. Accordingly, prospective investors should be aware that
there is limited historical experience for the market of the common stock of a
subsidiary of a mutual holding company, and there can be no assurance as to the
regulatory requirements regarding the treatment of the stockholders of the Bank
in the event of a subsequent mutual-to-stock conversion of the Holding Company.
See "Market for the Common Stock" and "Conversion of Mutual Company to Stock
Form."

     ANTITAKEOVER CONDITIONS.  Pursuant to OTS regulations, the Mutual Company
must own more than 50% of the outstanding voting stock of Bancorp as long as the
Mutual Company remains in existence. This effectively precludes the possibility
of a sale of Bancorp separate and apart from the Mutual Company. At the
conclusion of the Reorganization and Offering, and assuming the contributions to
the Foundation, the Mutual Company will own 55.2% of Bancorp's Common Stock
(based on the maximum of the Offering Range). As the majority owner of Bancorp,
the Mutual Company will elect Bancorp's directors and direct the affairs and
business operations of Bancorp. The directors of the Mutual Company are the
current directors of Bancorp. The Mutual Company's members consist of depositors
of the Bank. Accordingly, the purchasers of the Common Stock in the Offering
will be Minority Stockholders of Bancorp who will have limited influence in
electing directors or otherwise directing the affairs of Bancorp. Moreover, such
Minority Stockholders have no influence over the affairs of the Mutual Company,
except to the extent that they are also members of the Mutual Company. No
assurance can be given that the Mutual Company and

                                       15
<PAGE>
 
Minority Stockholders will have the same interest in matters affecting Bancorp,
and, therefore, no assurance can be given that the Mutual Company will not take
actions which the Minority Stockholders believe to be adverse to their
interests. For example, the Mutual Company could prevent the sale of control of
Bancorp, or defeat a candidate for election to the Board of Directors of
Bancorp, prevent a conversion transaction or other proposals put forth by
Minority Stockholders. As long as the Mutual Company remains in the mutual form
of organization, the Mutual Company will always own at least a majority of
Bancorp's common stock and purchasers of the Common Stock will always be
Minority Stockholders.

     WAIVER OF DIVIDENDS BY THE MUTUAL COMPANY. The Board of Directors of the
Mutual Company will determine whether the Mutual Company will waive the receipt
of dividends declared by Bancorp each time Bancorp declares a dividend. The
Board of Directors of the Mutual Company presently intends to waive the receipt
of dividends declared by Bancorp. OTS regulations with respect to a mutual
holding company's waiver of dividends state that the Mutual Company may not
waive its right to receive any dividend declared by Bancorp unless either: (1)
no insider of the Mutual Company, associate of an insider, or tax-qualified or
non-tax-qualified employee stock benefit plan of the Mutual Company holds any
share of stock in the class of stock to which the waiver would apply; or (2) the
Mutual Company provides the OTS with written notice of its intent to waive its
right to receive dividends 30 days prior to the proposed date of payment of the
dividend, and the OTS does not object. The regulations further state that the
OTS shall not object to a notice of intent to waive dividends if: (1) the waiver
would not be detrimental to the safe and sound operation of the Bank; and (2)
the Board of Directors of the Mutual Company expressly determines that waiver of
the dividend by the Mutual Company is consistent with the Directors' fiduciary
duties to the mutual members of the Mutual Company. In addition, a dividend
waiver notice shall include a copy of the resolution of the Board of Directors
of the Mutual Company, in form and substance satisfactory to the OTS, together
with any supporting material relied upon by the Board, concluding that the
proposed dividend waiver is consistent with the Board's fiduciary duties to the
mutual members of the Mutual Company. Finally, the OTS has announced that the
value of any waived dividends be retained for the benefit of the members of a
mutual holding company to prevent potential windfalls to the minority
shareholders in a subsequent conversion of the mutual holding company.

     The Mutual Company's Board of Directors may conclude that a dividend waiver
by the Mutual Company, which permits retention of capital by Bancorp, is in the
best interest of the Mutual Company's members because, among other reasons: (i)
the Mutual Company has no need for the dividend for its business operations,
(ii) the cash that would be received could be invested by Bancorp more
effectively; and (iii) such waiver preserves the retained earnings of the Mutual
Company through its principal asset (Bancorp), which would be available for
distribution in the unlikely event of a voluntary liquidation of Bancorp after
satisfaction of claims of depositors and other 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 Company. There is no assurance
that the Mutual Company will waive the receipt of the dividends.

     Immediately after consummation of the Reorganization and the Offering, it
is expected that the Mutual Company's operations will consist of activities
relating to its investment in, and control of, a majority of the Common Stock of
Bancorp and maintenance of books and records relating to members of the Mutual
Company. In the future, the Mutual Company may accept dividends paid by Bancorp
to be used for the payment of operating expenses and other purposes, including
purchasing Common Stock from time to time in the open market or from Bancorp.
There can be no assurance that the Mutual Company will accept dividends paid by
Bancorp, or if such dividends are accepted, that the Mutual Company will
purchase shares of Common Stock in the open market. Any purchase of Common Stock
other than from the Mutual Company will increase the percentage of Bancorp's
outstanding shares of Common Stock held by the Mutual Company and increase the
number of shares eligible to be sold in any subsequent secondary offering or
mutual to stock conversion of the Mutual Company. Any waiver of dividends by the
Mutual Company is

                                       16
<PAGE>
 
likely to result in an adjustment to the ratio pursuant to which shares of
Common Stock are exchanged for shares of the converted Mutual Company in a
Conversion Transaction, which adjustment will have the effect of diluting
Minority Stockholders' percentage ownership interest in the converted Mutual
Company's shares.

POTENTIAL DILUTION TO MINORITY STOCKHOLDERS RESULTING FROM ANY MUTUAL TO STOCK
CONVERSION OF THE MUTUAL COMPANY

     In the event of a Conversion Transaction, the Plan provides that, subject
to written OTS approval, (i) the stockholders of Bancorp will be entitled to
exchange their shares of stock for shares of the newly converted holding company
in a manner that is fair and reasonable to such stockholders and maintains
approximately the same percentage ownership interest in the newly converted
holding company after the Conversion Transaction as such stockholders held in
the Bank immediately prior to the Conversion Transaction or, (ii) the holding
company may purchase all shares not owned by it simultaneously with the
consummation of the Conversion Transaction at the fair market value of such
shares. The OTS's policy with respect to dividends waived by mutual holding
companies requires that in the case of mutual to stock conversion of recently
formed mutual holding companies, the aggregate amount of cash dividends waived
by a mutual holding company must be considered when establishing a fair and
reasonable basis for exchanging subsidiary savings institution common stock for
converted holding company common stock, and that the OTS will not permit a pro
rata exchange if the mutual holding company has waived the receipt of cash
dividends paid by the subsidiary savings institution. ACCORDINGLY, ANY WAIVER OF
DIVIDENDS BY THE MUTUAL COMPANY IS LIKELY TO RESULT IN AN ADJUSTMENT TO THE
RATIO PURSUANT TO WHICH SHARES OF COMMON STOCK ARE EXCHANGED FOR SHARES OF THE
NEWLY CONVERTED HOLDING COMPANY IN A CONVERSION TRANSACTION, WHICH ADJUSTMENT
WILL HAVE THE EFFECT OF DILUTING MINORITY STOCKHOLDERS' PERCENTAGE OWNERSHIP
INTEREST IN NEWLY CONVERTED HOLDING COMPANY SHARES. See "Conversion of the
Mutual Company to Stock Form."

ABSENCE OF A MARKET FOR THE COMMON STOCK

     The Bank is a mutual savings association and, therefore, has never issued
capital stock. Bancorp has received approval conditioned upon consummation of
the Reorganization and the Offering, to have its Common Stock traded on the
Nasdaq under the symbol "WEBK." However, there can be no assurance that an
established and liquid trading market for the Common Stock will develop or, once
developed, will continue, nor can there by any assurances that purchasers of
Common Stock will be able to resell their shares at or above the Purchase Price.
The absence or discontinuance of a market for the Common Stock would have an
adverse impact on both the price and liquidity of the Common Stock. See "Market
for the Common Stock."

FINANCIAL INSTITUTION REGULATION AND POSSIBLE LEGISLATION

     The Bank is subject to extensive regulation and supervision as a federal
savings institution. Bancorp will be regulated as a federally chartered
corporation and, in addition, the Mutual Company, as a savings institution
mutual holding company, will be subject to extensive regulation and supervision.
Such regulations that affect the Mutual Company, Bancorp and the Bank on a daily
basis, may be changed at any time, and the interpretation of the relevant law
and regulations is also subject to change by the authorities who examine the
Bank and interpret those laws and regulations. Any change in the regulatory
structure or the applicable statutes or regulations, whether by the OTS, the
FDIC or the Congress, could have a material impact on the Mutual Company,
Bancorp, the Bank, its operations or the Bank's Reorganization. See "Regulation
and Supervision."

                                       17
<PAGE>
 
THRIFT RECHARTERING

     The Deposit Insurance Funds Act of 1996 (the "Funds Act"), which was
enacted in September 1996, provides that the BIF (the deposit insurance fund
that covers most commercial bank deposits) and the SAIF will merge on January 1,
1999, if there are no more savings associations as of that date. Several bills
have been introduced in the current Congress that would eliminate the federal
thrift charter and the OTS. A bill originally reported by the House Banking
Committee would have required federal thrifts to become national banks or state
banks within two years of enactment or they would have become national banks by
operation of law. OTS would have been abolished and its functions transferred to
the bank regulatory agencies. The bill as passed by the House of
Representatives, however, did not provide for the elimination of the federal
thrift charter or OTS, but did provide that unitary savings and loan holding
companies existing or applied for after March 31, 1998 would not have the
ability to engage in unlimited activities but would be subject to the activities
restrictions applicable to multiple savings and loan holding companies. Unitary
holding companies existing or applied for before 1998 would be grandfathered and
could continue to engage in unlimited activities and could transfer the
grandfather rights to acquirors of the holding company. The Senate has not acted
on the legislation but if such legislation was enacted, the Company would not
qualify for unlimited activities but would be subject to the activities
restrictions applicable to multiple savings and loan holding companies. The Bank
is unable to predict whether the legislation will be enacted or, given such
uncertainty, determine the extent to which the legislation, if enacted, would
affect its business. The Bank is also unable to predict whether the SAIF and BIF
will eventually be merged or the federal thrift charter eliminated, and what
effect, if any, such legislation would have on the Bank.

POTENTIAL LOW RETURN ON EQUITY FOLLOWING THE REORGANIZATION AND OFFERING

     At March 31, 1998, the Bank's ratio of retained earnings to assets was
9.5%. Bancorp's equity position will be significantly increased as a result of
the Offering. On a pro forma basis as of March 31, 1998, assuming the sale of
Common Stock at the midpoint of the Estimated Price Range, Bancorp's ratio of
equity to assets would exceed 14.0%. Bancorp's ability to deploy this new
capital through investments in interest-earning assets, such as loans and
securities which bear rates of return comparable to its current loans and
securities investments, will be significantly affected by industry competition.
Bancorp currently anticipates that it will take time to prudently deploy such
capital. As a result, Bancorp's return on equity initially is expected to be
below its historical return on equity and may be below peer group institutions
after the Conversion. No assurances can be made as to when or if Bancorp will
achieve returns on its equity that are comparable to industry peers or industry
averages. Additionally, due to implementation of stock-based benefit plans such
as the ESOP and Stock-Based Incentive Plan, Bancorp's future compensation
expense will be increased, thereby, adversely affecting its net income and
return on equity.

ESTABLISHMENT OF THE CHARITABLE FOUNDATION

     Pursuant to the Plan, the Company intends to establish a charitable
foundation in connection with the Reorganization and Offering. The Plan provides
that the Bank, Bancorp and the Mutual Company will establish the Foundation,
which will be incorporated under Delaware law as a non-stock corporation and
will be funded with $100,000 in cash and with shares of Common Stock contributed
by Bancorp. Establishment of the Foundation is subject to the approval of the
Bank's members at the Special Meeting. If approved by members, the establishment
of the Foundation will have an adverse impact on the operating results of
Bancorp in fiscal 1998, resulting in a reduction of earnings for the year in
which the Foundation is established.

                                       18
<PAGE>
 
     NEGATIVE IMPACT ON EARNINGS.  Assuming receipt of approval of the Bank's
members, establishment of the Foundation will have an adverse impact on
Bancorp's earnings in the year in which the contribution is made. Bancorp will
recognize an expense in the amount of the contribution to the Foundation in the
quarter in which it occurs, which is expected to be the fourth quarter of fiscal
1998. Such expense will reduce earnings and have a material adverse impact on
Bancorp's earnings for the year. The amount of the contribution will range from
$641,675 to $868,149, depending on the amount of Common Stock sold in the
Offering. The contribution expense will be partially offset by the tax
deductibility of the expense. Bancorp has been advised by its independent
accountants that the contribution to the Foundation will be deductible for
federal income tax purposes, subject to a limitation based on 10% of Bancorp's
annual taxable income. Assuming a contribution of $868,149 in Common Stock plus
the $100,000 cash, based on the maximum of the Offering Range, Bancorp estimates
a net tax effected expense of $619,000. If the Foundation had been established
at December 31, 1997, the Bank would have reported net income of $118,000 for
fiscal 1997 rather than reporting net income of $737,000.

     POSSIBLE NONDEDUCTIBILITY OF THE CONTRIBUTION.  Bancorp, the Bank and the
Mutual Company have been advised by their tax accountants that an organization
created for charitable purposes will qualify as a Section 501(c)(3) exempt
organization under the Code, and will be classified as a private foundation. In
this regard, the Foundation will submit a request to the Internal Revenue
Service ("IRS") to be recognized as a tax-exempt organization. Bancorp, the Bank
and the Mutual Company have received an opinion of their tax accountants that
the Foundation will qualify as a Section 501(c)(3) exempt organization under the
Code, except that such opinion does not consider the impact of the regulatory
condition on the gift imposed by the OTS which requires the shares of Common
Stock of Bancorp held by the Foundation to be voted in the same ratio as all
other shares of Bancorp's Common Stock on all proposals considered by
stockholders of Bancorp. See "The Reorganization and Stock Offering--
Establishment of the Charitable Foundation--Regulatory Conditions Imposed on the
Foundation." In the event that Bancorp or the Foundation receives an opinion of
their tax counsel satisfactory to OTS that compliance with the voting
restriction would have the effect of causing the Foundation to lose its tax
exempt status, otherwise have material adverse tax consequences on the
Foundation or subject the Foundation to an excise tax under Section 4941 of the
Code, the OTS will waive such voting restriction upon submission of such
opinion(s) by the Company or the Foundation. The tax accountants' opinion
further provides that Bancorp's contribution of its own stock to the Foundation
will not constitute an act of self-dealing, and that Bancorp will be entitled to
a deduction in the amount of the fair market value of the stock at the time of
the contribution less the nominal par value that the Foundation is required to
pay to Bancorp for such stock, subject to an annual limitation based on 10% of
Bancorp's annual taxable income. Bancorp, however, would be able to carry
forward any unused portion of the deduction for five years following the year in
which the contribution is initially made for federal tax purposes, subject to
the 10% annual limitation. Thus, while Bancorp expects, based on the maximum of
the Offering Range, to be able to utilize for federal income tax purposes a
charitable contribution deduction of approximately $_______ in fiscal year 1998,
Bancorp is permitted under the Code to carryover the excess of the total
contribution over such 1998 deduction over a five-year period for federal tax
purposes. For New Jersey state income tax purposes, Bancorp also will be able to
deduct its contributions and to carry forward the unused portion of the
deduction for a five-year period following the year in which the contribution is
initially made, subject to limitations based on 10% of Bancorp's unconsolidated
annual taxable income, and provided Bancorp generates sufficient state taxable
income on an unconsolidated basis. Assuming the sale of Common Stock at the
maximum of the Offering Range, Bancorp estimates that substantially all of the
contribution should be deductible for federal tax purposes over the combined 
six-year period. However, no assurances can be made that Bancorp will have
sufficient pre-tax income over the five-year period following the year in which
the contribution is initially made to fully utilize the carryover related to the
excess contribution. Although Bancorp, the Bank and the Mutual Company have
received an opinion of their independent accountants that Bancorp will be
entitled to the deduction for the charitable contribution, there can be no
assurances that the IRS will recognize the Foundation as a Section 501(c)(3)
exempt organization

                                       19
<PAGE>
 
or that the deduction will be permitted. In such event, there would be no tax
benefit related to the Foundation.

     COMPARISON OF VALUATION AND OTHER FACTORS ASSUMING THE FOUNDATION IS NOT
ESTABLISHED AS PART OF THE REORGANIZATION. The establishment of the Foundation
was taken into account by FinPro in determining the estimated pro forma market
value of Bancorp. The aggregate price of the shares of Common Stock being
offered in the Subscription is based upon the independent appraisal conducted by
FinPro of the estimated pro forma market value of Bancorp. The pro forma
aggregate price of the shares being offered for sale in the Offering is
currently estimated to be between $15.3 million and $20.7 million, with a
midpoint of $18.0 million. Based on the appraisal, the pro forma market
capitalization of the Bank at the midpoint, including shares contributed to the
Foundation, is $18.8 million. The pro forma price to book ratio and the pro
forma price to earnings ratio are 93.46% and 17.86x, respectively, at the
midpoint of the Offering Range. In the event that the Reorganization did not
include the Foundation, FinPro has estimated that the estimated pro forma market
capitalization of the Bank would be approximately $19.5 million at the midpoint
based on the pro forma price to book ratio and the pro forma price to earnings
ratio of 98.52% and 19.2x, respectively. If the Foundation was not part of the
Reorganization and Offering, the pro forma market value of the shares being
offered is estimated to be between $16.6 million and $22.5 million. See
"Comparison of Valuation and Pro Forma Information with No Foundation." This
estimate by FinPro was prepared at the request of the OTS and is solely for
purposes of providing depositors with sufficient information with which to make
an informed decision on the Foundation. There is no assurance that if the
Foundation is not approved the appraisal prepared at that time would conclude
that the pro forma market value of Bancorp would be the same as the amount
estimated herein. Any appraisal prepared at that time would be based on the
facts and circumstances existing at that time, including, among other things,
market and economic conditions.

     The Bank believes that the establishment of the Foundation is in the best
interests of the Bank, its depositors, its prospective stockholders and the
communities in which it operates. The Foundation is integrally tied to the
Bank's business of operating a community banking institution and the Bank
believes that, based upon the additional goodwill and visibility expected to be
generated by the Foundation and the expected benefits it will provide the
communities in which the Bank's customers reside, the Foundation will have a
positive impact on the Bank's long-term franchise value. The amount of Common
Stock being offered in the Offering at the midpoint of the Offering Range is
approximately $1.5 million less than the estimated amount of Common Stock that
would be offered in the Offering without the Foundation based on the estimate
provided by FinPro. Accordingly, certain depositors of the Bank who subscribe to
purchase Common Stock in the Subscription Offering may receive fewer shares
depending on the appraisal valuation at that time, the number of shares sold
based on that appraisal, the size of a depositor's stock order, the amount of
his or her qualifying deposits in the Bank and the overall level of
subscriptions. The decrease in the amount of Common Stock being offered will not
have a significant effect on Bancorp or the Bank's capital position. The Bank's
regulatory capital is significantly in excess of its regulatory capital
requirements and will further exceed such requirements following the Offering.
The Bank's tangible, leverage and risk-based capital ratios at March 31, 1998
were 7.84%, 7.84% and 19.95%, respectively. Assuming the sale of shares at the
midpoint of the Offering Range, the Bank's pro forma tangible, leverage and 
risk-based capital ratios at March 31, 1998 would be 10.9%, 10.9% and 27.11%,
respectively. On a consolidated basis, Bancorp's pro forma stockholders' equity
would be $44.9 million or approximately 13.7% of pro forma consolidated assets,
assuming the sale of shares at the midpoint of the Offering Range. Pro forma
stockholders' equity per share and pro forma net earnings per share would be
$10.70 and $0.14, respectively. If the Foundation was not being established in
the Reorganization, based on the FinPro estimate, Bancorp's pro forma
stockholders' equity would be approximately $46.1 million or approximately 14.0%
of pro forma consolidated assets at the midpoint of the estimate and pro forma
stockholders' equity per share and pro

                                       20
<PAGE>
 
forma net earnings per share would be $10.15 and $0.13, respectively. See
"Comparison of Valuation and Pro Forma Information with No Foundation."

     POTENTIAL CHALLENGES.  The establishment and funding of a charitable
foundation as part of a conversion is innovative and has been done in a limited
number of instances in connection with a mutual holding company reorganization.
As such, the Foundation may be subject to potential challenges notwithstanding
that the Boards of Directors of the Mutual Company, Bancorp and the Bank have
carefully considered the various factors involved in the establishment of the
Foundation in reaching its determination to establish the Foundation as part of
the Reorganization. See "The Reorganization and Stock Offering--Establishment of
the Charitable Foundation--Purpose of the Foundation." In conjunction with its
approval of the Reorganization, the Bank determined to submit the Foundation for
a vote of members so that members have a right to vote on whether the Foundation
should be established as part of the Reorganization. If certain parties were to
institute an action seeking to require the Bank to eliminate establishment of
the Foundation in connection with the Reorganization, no assurances can be made
that the resolution of such action would not result in a delay in the
consummation of the Reorganization or that any objecting persons would not be
ultimately successful in obtaining such removal or other equitable relief or
monetary damages against the Mutual Company, Bancorp or the Bank. Additionally,
if the Mutual Company, Bancorp and the Bank are forced to eliminate the
Foundation, Bancorp may be required to resolicit subscribers in the Offerings.

     APPROVAL OF MEMBERS.  Establishment of the Foundation is subject to the
approval of a majority of the total outstanding votes of the Bank's members
eligible to be cast at the Special Meeting. The Foundation will be considered as
a separate matter from approval of the Plan. If the Bank's members approve the
Plan, but not the establishment of the Foundation, the Bank intends to complete
the Reorganization and Stock Offering without the establishment of the
Foundation. Failure to approve the Foundation may materially increase the pro
forma market value of the Common Stock being offered for sale in the Offerings
since the Valuation Range, as set forth herein, takes into account the dilutive
impact of the issuance of shares to the Foundation. If the pro forma market
value of the Common Stock without the Foundation is either greater than $23.8
million or less than $15.3 million, the Bank will establish a new Offering Range
and commence a resolicitation of subscribers (i.e., subscribers will be
permitted to continue their orders, in which case they will need to
affirmatively reconfirm their subscriptions prior to the expiration of the
resolicitation offering or their subscriptions funds will be promptly refunded
with interest at the Bank's passbook rate of interest, or be permitted to
increase, decrease, or cancel their subscriptions). Any change in the Estimated
Price Range must be approved by the OTS. See "The Reorganization and Stock
Offering--Stock Pricing and Number of Shares Issued." A resolicitation, if any,
following the conclusion of the Subscription and Community Offerings would not
exceed 45 days unless further extended by the OTS for periods of up to 90 days
not to extend beyond ___________, 2000.

STOCK-BASED BENEFITS TO MANAGEMENT AND DIRECTORS, EMPLOYMENT CONTRACTS AND
CHANGE IN CONTROL PAYMENTS

     STOCK-BASED INCENTIVE PLAN.  Bancorp intends to adopt a Stock-Based
Incentive Plan which would provide for the granting of options to purchase
common stock ("Stock Options"), awards of common stock ("Stock Awards"), and
certain related rights to eligible officers, employees and directors of the
Company and Bank. While Bancorp currently anticipates granting Stock Options and
Stock Awards under a single plan, it may establish separate plans to provide for
such awards. In the event such plan is adopted within one year after the
Reorganization and Offering, OTS regulations require the plan to be approved by
stockholders at a meeting of stockholders which may be held no earlier than six
months after completion of the Offering. It is anticipated the Stock-Based
Incentive Plan will provide for the granting of options to purchase shares of
Common Stock equal to 10% of the shares of Common Stock issued in the Offering,
including shares

                                       21
<PAGE>
 
issued to the Foundation (159,561 shares and 215,877 shares at the minimum and
maximum of the Offering Range, respectively) and the granting of Stock Awards in
an amount equal to 4% of the shares of Common Stock issued in the Offering,
including shares issued to the Foundation (63,825 shares and 86,350 shares at
the minimum and maximum of the Offering Range, respectively). Shares of common
stock used to satisfy such awards will be acquired by the Plan or a trust
established for the Plan either through open market purchases or from authorized
but unissued Common Stock. See "--Possible Dilutive Effect of Stock-Based
Incentive Plan."

     Under the Stock-Based Incentive Plan, Stock Awards would be granted in the
form of non-transferable, non-assignable shares of Common Stock. The Board of
Directors intends to appoint an independent trustee who will vote unallocated
stock awards in the same proportion as it receives instructions from recipients
with respect to allocated shares which have not been earned and distributed. The
trustee will not vote allocated shares which have not been distributed if it
does not receive instructions from the recipient.

     It is anticipated that the exercise price of Stock Options granted under
the Stock-Based Incentive Plan will be equal to the fair market value of the
underlying Common Stock on the date of grant. Such options will permit such
officers and directors to benefit from any increase in the market value of the
shares in excess of the exercise price at the time of exercise. Officers and
directors receiving Stock Options will not be required to pay for the shares
until the date of exercise. The granting of Stock Awards and the exercise of 
non-statutory stock options (and disqualifying dispositions of stock acquired
through the exercise of incentive stock options) will result in additional
compensation expense to Bancorp and, accordingly, may result in an increase in
the overall compensation expense in future periods. See "Management of the 
Bank -- Other Benefit Plans."

     Although no specific award determinations have been made, Bancorp
anticipates that it will provide Stock Awards and/or Stock Options to directors,
officers and employees to the extent permitted by applicable regulations.
Current OTS regulations provide that, with respect to any non-tax qualified
stock benefit plan, such as the Stock-Based Incentive Plan, which is implemented
within one year after consummation of the Reorganization and Offering, no
individual may receive more than 25% of the shares or options of any such plan
and non-employee directors may not receive more than 5% individually, or 30% in
the aggregate, of the shares or options awarded under any such plan. Such
regulations also provide that any awards granted under such a Plan may not vest
at a rate greater than 20% per year except in limited circumstances. It is also
anticipated that the Stock-Based Incentive Plan will provide for cash payments
to participants in the event of a change in control of Bancorp or the Bank.

     The Board of Directors, in determining specific allocations and grants of
Stock Awards and Stock Options, will consider various factors, including but not
limited to, the financial condition of Bancorp, current and past performance of
plan participants and tax and securities law and regulation requirements.

     EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL PROVISIONS. Employment and
change in control agreements with certain officers and the employee severance
compensation plan provide for benefits and cash payments in the event of a
change in control of Bancorp or the Bank. The provisions in such agreements and
plan would provide the recipient with a change in control payment in the event
of the recipient's involuntary or, in certain circumstances, voluntary
termination of employment subsequent to a change in control of Bancorp or the
Bank. In addition to any payments which may be made under the Stock-Based
Incentive Plan upon a change in control, these provisions may have the effect of
increasing the cost of acquiring Bancorp, thereby discouraging future attempts
to take over Bancorp or the Bank. Based on current salaries, cash payments to be
paid in the event of a change in control pursuant to the terms of the employment
agreements, change in control agreements and an employee severance compensation
plan would

                                       22
<PAGE>
 
be approximately $____ million. However, the actual amount to be paid in the
event of a change in control of Bancorp or the Bank cannot be estimated at this
time because the actual amount is based on the average salary of the employee
and other factors existing at the time of the change in control. See "Certain
Restrictions on Acquisition of Bancorp," "Management of the Bank--Employment
Agreements," "-- Change in Control Agreements," and "-- Benefits."

POSSIBLE DILUTIVE EFFECT OF STOCK-BASED INCENTIVE PLAN

     Following the Reorganization, the Stock-Based Incentive Plan will acquire
an amount of shares equal to 4% of the shares of Common Stock issued in the
Offering, including shares issued to the Foundation, either through open market
purchases or the issuance of authorized but unissued shares of Common Stock from
Bancorp. If the Stock-Based Incentive Plan is funded by the issuance of
authorized but unissued shares, the voting interests of existing stockholders at
that time will be diluted by 1.86%. Also following the Offering, directors,
officers and employees will be granted stock options under the Stock-Based
Incentive Plan in an amount equal to 10% of the Common Stock issued in the
Offering, including shares issued to the Foundation. The exercise of such stock
options may be satisfied by the issuance of authorized but unissued shares.
Under certain circumstances, such options may be exercised and sold on the same
day, thereby eliminating any risk to officers and directors in exercising
options in the event that the market price exceeds the exercise price. If all of
the stock options were to be exercised using authorized but unissued Common
Stock and the stock awards granted under the Stock-Based Incentive Plan were
funded with authorized but unissued shares, the voting interests of existing
stockholders at that time would be diluted at that time by 4.66%.

POSSIBLE INCREASE IN OFFERING RANGE AND NUMBER OF SHARES ISSUED

     The number of shares to be issued in the Offering, including shares issued
to the Foundation may be increased as a result of an increase in the Offering
Range of up to 15% to reflect changes in market and financial conditions
following the commencement of the Subscription Offering. In the event that the
Offering Range is so increased, it is expected that Bancorp will offer up to
2,382,748 shares of Common Stock at the Purchase Price for an aggregate purchase
price of up to $23.8 million. An increase in the number of shares issued will
decrease a subscriber's pro forma net earnings per share and stockholders'
equity per share and will increase Bancorp's pro forma consolidated
stockholders' equity and net earnings. Such an increase will also increase the
Purchase Price as a percentage of pro forma stockholders' equity per share and
net earnings per share.

POSSIBLE ADVERSE INCOME TAX CONSEQUENCES OF THE DISTRIBUTION OF SUBSCRIPTION
RIGHTS

     The Bank has received an opinion of FinPro that, pursuant to FinPro's
Valuation, subscription rights granted to Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members have no value. However, such
valuation is not binding on the IRS. If the subscription rights granted to
Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members are deemed to have an ascertainable value, receipt of such rights could
result in taxable gain to those Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members who receive and/or exercise the subscription
rights in an amount equal to such value. Additionally, the Bank could recognize
a gain for tax purposes on such distribution. Whether subscription rights are
considered to have ascertainable value is an inherently factual determination.
See "The Reorganization and Stock Offering-- Tax Aspects of Reorganization."

                                       23
<PAGE>
 
YEAR 2000 COMPLIANCE

     As the year 2000 approaches, an important business issue has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. Many existing application software products were
designed to accommodate only two-digits. For example, "98" is stored on the
system and represents 1998. Bancorp has been identifying potential problems
associated with the "Year 2000" issue and has implemented a plan designated to
ensure that all software used in connection with Bancorp's business will manage
and manipulate data involving the transition with data from 1999 to 2000 without
functional or data abnormality and without inaccurate results related to such
data. The Bank has prepared a critical issues schedule with a timeline and
assigned responsibilities. In addition, the Bank recognizes that its ability to
be Year 2000 compliant is dependent upon the cooperation of its vendors. The
Bank is requiring its computer systems and software vendors to represent that
the products provided are or will be Year 2000 compliant and has planned a
program of testing for compliance. The Bank has received representations from
its primary third party vendors that they will have resolved any Year 2000
problems in their software by December 31, 1998 and anticipates that all of its
vendors also will have resolved any Year 2000 problems in their software by that
same date. All Year 2000 issues for the Bank, including testing, are expected to
be addressed by December 31, 1998 and any problems would be remedied by March
31, 1999. The Bank will also prepare contingency plans in the event there are
any system interruptions. The Bank believes that its costs related to Year 2000
will be approximately $135,000. There can be no assurances, however, that such
plan or the performance by the Bank's vendors will be effective to remedy all
potential problems. To the extent Bancorp's systems are not fully Year 2000
compliant, there can be no assurance that potential systems interruptions or the
cost necessary to update software would not have a materially adverse effect on
Bancorp's business, financial condition, results of operations and business
prospects. Further, any Year 2000 failure on the part of the Bank's customers
could result in additional expense or loss to the Bank. The Bank plans also to
work with its customers to address any potential Year 2000 problems.

                          WEST ESSEX BANCORP, M.H.C.

     The Bank has submitted a Notice of Reorganization ("Notice") to the OTS
pursuant to which the Bank has requested approval to reorganize into a mutual
holding company structure. It is anticipated that the Bank will receive approval
of the Notice, however it is unknown prior to actual receipt of the OTS's final
approval of the Notice as to what conditions, if any, the OTS may impose on the
Reorganization. In the event the OTS approval contains conditions which, in the
opinion of the Board of Directors of the Bank, are unacceptable, the Bank may
determine to terminate the Reorganization and the Stock Issuance and return all
funds collected in connection with the minority stock offering. As part of the
Reorganization, the Bank will establish a federal mutual holding company under
the laws of the United States with the powers set forth in its proposed charter
and bylaws. As long as they remain depositors of the Bank, Members of the Bank
as of February 28, 1997 shall continue to have ownership and liquidation rights
solely with respect to the Mutual Company after the Reorganization. Such persons
shall elect the directors of the Mutual Company until the Mutual Company
converts to stock form. There can be no assurances, however, that the Mutual
Company will convert to stock form in the future. In connection with the
Reorganization, the Bank will capitalize the Mutual Company with $100,000. The
Mutual Company will be a mutual corporation chartered and regulated by the OTS.
The Mutual Company shall be subject to the limitations and restrictions imposed
on savings and loan holding companies by Section 10(o)(5) of Home Owners' Loan
Act, as amended ("HOLA"). Following the Reorganization, the Mutual Company will
hold a majority of the outstanding Common Stock of Bancorp, the subsidiary
holding company. See "Regulation and Supervision -- Holding Company Regulation."

                                       24
<PAGE>
 
     Immediately after consummation of the Reorganization, it is expected that
the Mutual Company will not engage in any business activity other than to hold a
majority of the Common Stock of Bancorp and to invest the funds retained at the
Mutual Company level.

     The Mutual Company's principal executive office will be located at 417
Bloomfield Avenue, Caldwell, New Jersey 07006, and its telephone number at that
address will be (973) 226-7911.

                           WEST ESSEX BANCORP, INC.

     Bancorp has not yet been incorporated. As part of the Bank's
Reorganization, Bancorp will be organized as a federally chartered corporation.
Following the Reorganization and Offering, Bancorp will own 100% of the Bank's
outstanding capital stock. The Mutual Company will own 55.2% of Bancorp's Common
Stock. Bancorp expects to retain at least 25% of the net proceeds obtained in
the Offering and will contribute the remaining net proceeds to the Bank in
return for its capital stock. Immediately after consummation of the
Reorganization and Offering, Bancorp will have no significant liabilities. The
management of Bancorp is set forth under "Management of Bancorp." Initially,
Bancorp will neither lease nor own any property, but will instead use the
premises, equipment and furniture of the Bank. At the present time, Bancorp does
not expect to employ any persons other than officers of Bancorp who are also
officers of the Bank, but will use the support staff of the Bank from time to
time.

     As a holding company, Bancorp will have greater flexibility than the Bank
to diversify its business through existing or newly formed subsidiaries or
through an acquisition or merger with other financial institutions, although
Bancorp does not currently have any plans, agreements, arrangements or
understandings with respect to such diversification, acquisitions or mergers.
After the Reorganization and Offering, Bancorp will be a savings and loan
holding company subsidiary of a mutual holding company and will be subject to
regulation by the OTS.

     Bancorp's executive offices are located at 417 Bloomfield Avenue, Caldwell,
New Jersey 07006.

                                WEST ESSEX BANK

     The Bank was originally organized in 1915 as a New Jersey chartered
building and loan association and, in 1995, became a federally chartered savings
bank. The Bank conducts business from its administrative/branch office located
in Caldwell, New Jersey and its seven other full service banking branch offices
located in West Orange, Franklin Lakes, River Vale, Pine Brook, Old Tappan and
Northvale, New Jersey. See "Business of the Bank -- Market Area and
Competition." At March 31, 1998, the Bank had total assets of $312.5 million,
total deposits of $239.1 million and retained earnings of $29.8 million. The
Bank's deposits are insured up to the maximum allowable amount by FDIC.

     The Bank is a community-oriented savings institution whose business
primarily consists of accepting deposits from customers and investing those
funds primarily in mortgage-backed securities and mortgage loans secured by one-
to four-family residences located in the Bank's primary market area. To a
significantly lesser extent, the Bank originates commercial real estate, home
equity, construction and development, multi-family and consumer and commercial
loans and invests in debt obligations of the federal government and federal
agencies as well as obligations of states and municipalities. The Bank generally
retains for its portfolio all one- to four-family mortgage loans which it
originates. At March 31, 1998 the Bank's securities portfolio totalled $158.5
million, or 50.7% of total assets, and its gross loan portfolio totalled $118.2
million, or 37.8% of total assets, of which $89.5 million were one- to four
family mortgage loans, $10.3 million were commercial real estate loans, $8.4
million were home equity loans, $7.1 million were construction and development
loans, $2.1 million were multi-family loans, and $801,000 were consumer loans.
Of the Bank's

                                       25
<PAGE>
 
total mortgage-backed securities portfolio, 36.1% are secured by fixed-rate
loans and 63.9% are secured by adjustable-rate loans. The Bank generally retains
for its portfolio all mortgage loans which it originates. Subsequent to the
Reorganization and the Offering, the Bank intends to continue to seek means to
increase its loan portfolio. At March 31, 1998, the Bank's deposit accounts
totalled $239.1 million, or 84.6% of total liabilities, of which $95.9 million,
or 40.3%, were core deposits, which included all of the Bank's savings and club
accounts and demand accounts. From time to time, the Bank has utilized
borrowings from the Federal Home Loan Bank ("FHLB") of New York ("FHLB-NY") as a
source of funds, and may utilize such borrowings to a greater extent in the
future. At March 31, 1998, such borrowings totalled $42.3 million, or 15.0% of
total liabilities. See "Business of the Bank."

     The Bank's executive offices are located at 417 Bloomfield Avenue,
Caldwell, New Jersey 07006.

                                       26
<PAGE>
 
                         REGULATORY CAPITAL COMPLIANCE

     At March 31, 1998, the Bank exceeded all regulatory capital requirements.
See "Regulation and Supervision -- Federal Savings Institution Regulation --
Capital Requirements." Set forth below is a summary of the Bank's compliance
with regulatory capital standards as of March 31, 1998, on a historical and pro
forma basis assuming that the indicated number of shares of Common Stock were
sold at $10.00 per share as of such date and receipt by the Bank of up to 75% of
the net proceeds. For purposes of the table below, the amount expected to be
borrowed by the ESOP and the cost of the shares expected to be acquired by the
Stock Programs are deducted from pro forma regulatory capital. In addition, the
table assumes that the Mutual Company will be capitalized with $100,000 of
proceeds of the Offering.

<TABLE>
<CAPTION>
                                                                                               WEST ESSEX BANK
                                                                  PRO FORMA AT MARCH 31, 1998 BASED UPON SALE AT $10.00 PER SHARE
                                                                  ---------------------------------------------------------------
                                                                   1,531,445 SHARES       1,801,700 SHARES     2,071,955 SHARES   
                                                                     (MINIMUM OF            (MIDPOINT OF          (MAXIMUM OF     
                                               HISTORICAL AT          ESTIMATED               ESTIMATED            ESTIMATED      
                                               MARCH 31, 1998        PRICE RANGE)           PRICE RANGE)          PRICE RANGE)    
                                           --------------------   --------------------   ------------------   -------------------
                                                      PERCENT               PERCENT               PERCENT              PERCENT    
                                                         OF                    OF                    OF                   OF      
                                             AMOUNT    ASSETS(2)  AMOUNT    ASSETS(2)    AMOUNT   ASSETS(2)   AMOUNT   ASSETS(2)  
                                            ---------  ---------- --------  ----------   -------- ----------  -------- -----------
                                                                           (DOLLARS IN THOUSANDS)                                 
<S>                                          <C>         <C>      <C>        <C>       <C>        <C>       <C>        <C>
GAAP Capital(3) ...........................  $29,801     9.54%    $38,647    12.03%    $40,307    12.48%    $41,969    12.93%
                                             =======              =======              =======              =======
Tangible Capital:
   Capital Level...........................  $24,040     7.84%    $32,886    10.42%    $34,546    10.89%    $36,208    11.36%
   Requirement.............................    4,600     1.50       4,733     1.50       4,758     1.50       4,783     1.50
                                             -------    -----     -------    -----     -------    -----     -------    -----
   Excess..................................  $19,440     6.34%    $28,153     8.92%    $29,788     9.39%    $31,425     9.86%
                                             =======              =======              =======              =======
Core Capital:
   Capital Level...........................  $24,040     7.84%    $32,886    10.42%    $34,546    10.89%    $36,208    11.36%
   Requirement(4)..........................   12,268     4.00     $12,622     4.00      12,688     4.00      12,755     4.00
                                             -------    -----     -------    -----     -------    -----     -------    -----
   Excess..................................  $11,772     3.84%    $20,264     6.42%    $21,858     6.89%    $23,453     7.36%
                                             =======              =======              =======              =======
Risk-Based Capital:
   Capital Level(5)(6).....................  $25,292    19.95%    $34,138    26.01%    $35,798    27.11%    $37,460    28.19%
   Requirement.............................   10,144     8.00      10,498     8.00      10,564     8.00      10,631     8.00
                                             -------    -----     -------    -----     -------    -----     -------    -----
   Excess..................................  $15,148    11.95%    $23,640    18.01%    $25,234    19.11%    $26,829    20.19%
                                             =======              =======              =======              =======                

<CAPTION> 
                                               2,382,748 SHARES       
                                                  (15% ABOVE   
                                                    MAXIMUM    
                                                  OF ESTIMATED 
                                                PRICE RANGE)(1)  
                                             ---------------------
                                                          PERCENT        
                                                             OF          
                                             AMOUNT      ASSETS(2)      
                                             -------     ---------
<S>                                          <C>         <C> 
GAAP Capital(3) ...........................  $43,879      13.44%
                                             =======                     
Tangible Capital:                                             
   Capital Level...........................  $38,118      11.88%   
   Requirement.............................    4,812       1.50    
                                              -------     -----    
   Excess..................................  $33,307      10.38%   
                                             =======               
Core Capital:                                                      
   Capital Level...........................  $38,118      11.88%   
   Requirement(4)..........................   12,831       4.00    
                                             -------      -----    
   Excess..................................  $25,287       7.88%   
                                             =======               
Risk-Based Capital:                                                
   Capital Level(5)(6).....................  $39,370      29.42%   
   Requirement.............................   10,707       8.00    
                                             -------      -----    
   Excess..................................  $28,663      21.42%    
                                             =======                
</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 or changes in market or general
     financial and economic conditions following the commencement
     of the Subscription and Community Offerings.
(2)  Tangible capital levels are shown as a percentage of 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)  Generally accepted accounting principles ("GAAP") Capital includes
     unrealized gain on available-for-sale securities, net, which is not
     included as regulatory capital.
(4)  The current OTS core capital requirement for savings associations is 3% of
     total adjusted assets. The OTS has proposed core capital requirements which
     would require a core capital ratio of 3% of total adjusted assets for
     thrifts that receive the highest supervisory rating for safety and
     soundness and a 4% to 5% core capital ratio requirement for all other
     thrifts. See "Regulation and Supervision--Federal Savings Institution
     Regulation-- Capital Requirements."
(5)  Assumes net proceeds are invested in assets that carry a 50% risk-
     weighting.
(6)  The difference between equity under GAAP and regulatory risk-based capital
     is attributable to the addition of the general valuation allowance of
     $1,252,000 at March 31 1998, the subtraction of intangibles of $5,681,000
     and the subtraction of the unrealized gain on available-for-sale
     securities, net of $80,000.

                                      27
<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 that the net proceeds from the sale of the Common Stock will
      be between $15.3 million and $20.7 million (or $23.8 million if the
      Offering Range is increased by 15%).  See "Pro Forma Data" and "The
      Reorganization and Stock Offering--Stock Pricing and Number of Shares
      Issued" as to the assumptions used to arrive at such amounts.  Bancorp
      will be unable to utilize any of the net proceeds of the Offerings until
      the consummation of the Conversion.

           Bancorp will purchase all of the outstanding capital stock of the
      Bank to be issued upon Reorganization in exchange for up to 75% of the net
      proceeds, with the remaining net proceeds to be retained by Bancorp.
      Based on the midpoint of the Offering Range, Bancorp expects to utilize
      $12.8 million of net proceeds to purchase the common stock of the Bank.
      Such portion of net proceeds will be added to the Bank's general funds
      which the Bank currently intends to utilize for general corporate
      purposes, including investments in loans, mortgage-backed and investment
      securities, the possible repayment of FHLB borrowings under appropriate
      market conditions, and the funding of stock-based benefit plans.  The Bank
      may also use such funds for the expansion of its facilities, and to expand
      operations through acquisitions of other financial institutions, branch
      offices or other financial services companies.  The Bank has not yet
      determined the approximate amount of net proceeds to be used for any of
      the purposes mentioned above.

           Bancorp intends to use a portion of the net proceeds to make a loan
      directly to the ESOP to enable the ESOP to purchase 8% of the Common Stock
      issued in the Offering, including shares issued to the Foundation.
      Bancorp and the Bank may alternatively choose to fund the ESOP's stock
      purchases through a loan by a third-party financial institution.  The
      remaining net proceeds retained by Bancorp will initially be invested in
      mortgage-related securities and federal agency obligations.  Based upon
      the sale of 1,531,445 shares or 2,071,955 shares at the minimum and
      maximum of the Offering Range, and the issuance of shares to the
      Foundation, the amount of the loan to the ESOP (assuming a per share price
      of $10.00) would be $1.3 million or $1.7 million, respectively (or $2.0
      million if the Offering Range is increased by 15%) to be repaid over a 10-
      year period at the prevailing prime rate of interest, which currently is
      ___%.  See "Management of the Bank -- Other Benefit Plans--Employee Stock
      Ownership Plan."

           The net proceeds retained by Bancorp may also be used to support the
      future expansion of operations through branch acquisitions, the
      establishment of branch offices and the acquisition of other financial
      institutions or their assets, including those located within the Bank's
      market area or diversification into other banking related businesses.
      Bancorp has no current arrangements, understandings or agreements
      regarding any such opportunities or transactions.

           Upon completion of the Reorganization and Offering, the Board of
      Directors of Bancorp will have the authority to adopt stock repurchase
      plans, subject to statutory and regulatory requirements.  Unless approved
      by the OTS, Bancorp, pursuant to OTS regulations, will be prohibited from
      repurchasing any shares of the Common Stock for three years except:  (i)
      for an offer to all stockholders on a pro rata basis (except that the
      Mutual Company may be excluded from the repurchase without the OTS'
      approval); or (ii) for the repurchase of qualifying shares of a director.

           Based upon facts and circumstances following 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 are not 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

                                       28
<PAGE>
 
      in terms of the rate of return and risk involved in the investment, the
      ability to increase the book value and/or earnings per share of the
      remaining outstanding shares, and the opportunity to improve Bancorp'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 Bancorp and its
      shareholders.  Although Bancorp has no current plans to repurchase its
      stock, in the event Bancorp does determine to repurchase stock, such
      repurchases may be made at market prices which may be in excess of the
      Purchase Price in the Offering.

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

                                DIVIDEND POLICY

           Upon completion of the Offering, the Board of Directors of Bancorp
      will have the authority to declare dividends on the Common Stock, subject
      to statutory and regulatory requirements.  In the future, the Board of
      Directors intends to consider a policy of paying cash or stock dividends
      on the Common Stock. However, no decision has been made with respect to
      the payment of dividends.  Declarations of dividends by the Board of
      Directors, if any, will depend upon a number of factors, including the
      amount of net proceeds retained by Bancorp in the Offering, investment
      opportunities available to Bancorp or the Bank, capital requirements,
      regulatory limitations, Bancorp's and the Bank's financial condition and
      results of operations, tax considerations and general economic conditions.
      No assurances can be given, however, that any dividends will be paid or,
      if commenced, will continue to be paid.

           The Bank's ability to pay dividends to Bancorp on its capital stock
      is subject to certain regulatory regulations.  For information concerning
      federal regulations which apply to the Bank in determining the amount of
      proceeds which may be retained by Bancorp and regarding a savings
      institution's ability to make capital distributions, including payment of
      dividends to its holding company, see "Federal and State Taxation--Federal
      Taxation--Distributions" and "Regulation and Supervision--Federal Savings
      Institution Regulation--Limitation on Capital Distributions."

                   WAIVER OF DIVIDENDS BY THE MUTUAL COMPANY

           The Board of Directors of the Mutual Company will determine whether
      the Mutual Company will waive the receipt of dividends declared by Bancorp
      each time Bancorp declares a dividend.  The Board of Directors of the
      Mutual Company presently intends to waive the receipt of dividends
      declared by Bancorp. OTS regulations with respect to a mutual holding
      company's waiver of dividends state that the Mutual Company may not waive
      its right to receive any dividend declared by Bancorp unless either:  (1)
      no insider of the Mutual Company, associate of an insider, or tax-
      qualified or non-tax-qualified employee stock benefit plan of the Mutual
      Company holds any share of stock in the class of stock to which the waiver
      would apply; or (2) the Mutual Company provides the OTS with written
      notice of its intent to waive its right to receive dividends 30 days prior
      to the proposed date of payment of the dividend, and the OTS does not
      object.  The regulations further state that the OTS shall not object to a
      notice of intent to waive dividends if: (1) the waiver would not be
      detrimental to the safe and sound operation of the Bank; and (2) the Board
      of Directors of the Mutual Company expressly determines that waiver of the
      dividend by the Mutual Company is consistent with the Directors' fiduciary
      duties to the mutual members of the Mutual Company.  It is the OTS'

                                       29
<PAGE>
 
      recent practice to review dividend waiver notices on a case-by-case basis,
      and, in general, not to object to any such waiver if: (1) 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; (2) for as long as the subsidiary holding company is
      controlled by the mutual holding company, the dollar amount of dividends
      waived by the mutual holding company is considered to be a restriction on
      the stockholders' equity of the subsidiary holding company, which
      restriction, if material, is disclosed in the public financial statements
      of the subsidiary holding company as a note to the financial statement;
      (3) 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 subsidiary holding
      company determines that the payment of such dividend to the mutual holding
      company is probable, an appropriate dollar amount is recorded as a
      liability; (4) the amount of any waived dividend is considered as having
      been paid by the subsidiary holding company in evaluating any proposed
      dividend under OTS capital distribution regulations; and (5) in the event
      the mutual holding company converts to stock form, the appraisal submitted
      to the OTS in connection with the Conversion Transaction takes into
      account the amount of the dividends waived by the mutual holding company.
      In addition, the OTS has announced that the dividends waived by mutual
      holding companies will affect the ratio pursuant to which shares of Common
      Stock of a subsidiary holding company held by Minority Stockholders would
      be exchanged for shares of common stock of the converted holding company
      in a Conversion Transaction.

           The Mutual Company's Board of Directors may conclude that a dividend
      waiver by the Mutual Company, which permits retention of capital by
      Bancorp, is in the best interest of the Mutual Company's members because,
      among other reasons: (i) the Mutual Company has no need for the dividend
      for its business operations, (ii) the cash that would be received could be
      invested by Bancorp more effectively; and (iii) such waiver preserves the
      retained earnings of the Mutual Company through its principal asset
      (Bancorp), which would be available for distribution in the unlikely event
      of a voluntary liquidation of Bancorp after satisfaction of claims of
      depositors and other 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 Company.  There is no assurance
      that the Mutual Company will waive the receipt of the dividends.

           Immediately after consummation of the Reorganization and the
      Offering, it is expected that the Mutual Company's operations will consist
      of activities relating to its investment in, and control of, a majority of
      the Common Stock of Bancorp and maintenance of books and records relating
      to members of the Mutual Company.  In the future, the Mutual Company may
      accept dividends paid by Bancorp to be used for the payment of operating
      expenses and other purposes, including purchasing Common Stock from time
      to time in the open market or from Bancorp.  There can be no assurance
      that the Mutual Company will accept dividends paid by Bancorp, or if such
      dividends are accepted, that the Mutual Company will purchase shares of
      Common Stock in the open market.  Any purchase of Common Stock other than
      from the Mutual Company will increase the percentage of Bancorp's
      outstanding shares of Common Stock held by the Mutual Company and increase
      the number of shares eligible to be sold in any subsequent secondary
      offering or mutual to stock conversion of the Mutual Company.  Any waiver
      of dividends by the Mutual Company is likely to result in an adjustment to
      the ratio pursuant to which shares of Common Stock are exchanged for
      shares of the converted Mutual Company in a Conversion Transaction, which
      adjustment will have the effect of diluting Minority Stockholders'
      percentage ownership interest in the converted Mutual Company's shares.

                CONVERSION OF THE MUTUAL COMPANY TO STOCK FORM

           As long as the Mutual Company remains a mutual holding company, it
      must own at least a majority of the outstanding voting stock of Bancorp.
      OTS regulations specifically authorize mutual holding companies to (i)
      convert to stock form pursuant to the conversion regulations of the OTS
      (the "Conversion Transaction"), and (ii) exchange stock issued by the
      converted holding company for stock issued by a

                                       30
<PAGE>
 
subsidiary holding company or subsidiary stock savings bank. The Bank's Plan
provides that any such exchange will maintain approximately the same percentage
ownership interest in the newly converted holding company after the Conversion
Transaction as such stockholders held in Bancorp immediately prior to the
Conversion Transaction. OTS regulations require that such exchange be "fair and
reasonable" but do not specify the basis for such exchange. Although the Mutual
Company may conduct a Conversion Transaction in the future, the Bank has no
current plans to do so and there can be no assurance as to when, if ever, such a
Conversion Transaction will occur. Any Conversion Transaction would be subject
to federal securities laws and regulations of the OTS in effect at the time of
the Conversion Transaction. A decision by the Mutual Company to convert to stock
form would require the approval of its members prior to the Conversion
Transaction. It is expected that these members will have subscription rights to
purchase stock of the converted Mutual Company. Under OTS regulations, the
Mutual Company, Bancorp or the Bank will have to demonstrate to the OTS that the
terms of such exchange are fair and reasonable. The fairness of the exchange may
be supported by an opinion from an independent third party.

     The OTS policy with respect to dividends waived by mutual holding companies
requires that, in the case of mutual-to-stock conversions of recently formed
mutual holding companies, such as the Mutual Company, the aggregate amount of
cash dividends waived by a mutual holding company must be considered when
establishing a fair and reasonable basis for exchanging subsidiary holding
company common stock for converted mutual holding company common stock. The OTS
will not permit a pro rata exchange if the mutual holding company has waived the
receipt of cash dividends paid by the subsidiary holding company. Accordingly,
the precise treatment of any Conversion Transaction cannot be assured. ANY
WAIVER OF DIVIDENDS BY THE MUTUAL COMPANY IS LIKELY TO RESULT IN AN ADJUSTMENT
TO THE RATIO PURSUANT TO WHICH SHARES OF COMMON STOCK ARE EXCHANGED FOR SHARES
OF THE CONVERTED MUTUAL COMPANY IN A CONVERSION TRANSACTION, WHICH ADJUSTMENT
WOULD HAVE THE EFFECT OF DILUTING THE OWNERSHIP INTERESTS OF MINORITY
STOCKHOLDERS.

     In addition to the possible adjustment to the exchange ratio due to waived
dividends, the percentage of the converted Mutual Company's common stock
received by Minority Stockholders in any Conversion Transaction may be affected
by a number of other factors including any purchases of Common Stock by the
Mutual Company, any other stock issuances by Bancorp, any acquisitions by the
Mutual Company of other savings associations or Bancorp's dividend policy and
the amount of regular or special dividends paid by Bancorp.

     As an alternative to the exchange of shares discussed above, the Plan of
Reorganization provides that if the stockholders of Bancorp do not receive, for
any reason, shares of the Converted Mutual Company or the stock institution
resulting from the Conversion Transaction based upon a fair and reasonable
exchange ratio, or cash from the resulting institution in an amount equal to the
fair market value of their stock given the circumstances of the Conversion
Transaction, Bancorp or the Mutual Company (and its successors) may purchase all
shares not owned by it simultaneously with the consummation of the Conversion
Transaction at the fair market value of the stock on the date of the Conversion
Transaction, subject to OTS approval and compliance with the limitations of the
OTS regulations governing capital distributions and other conditions that the
OTS may impose.  The fair market value of the common stock of the Converted
Mutual Company shall be established by the independent appraisal utilized in the
Conversion Transaction pursuant to OTS regulations governing conversions.
Moreover, if the Common Stock is traded and has an established and liquid
trading market, of which there is no assurance, the fair market value of the
Common Stock, as established by the independent appraisal, may be greater than
or less than the trading price of such stock.

     In addition, the Plan of Reorganization provides, in the event that the
Mutual Company converts to stock form in a Conversion Transaction, that any
options or other convertible securities held by any officer, director or
employee of Bancorp, convertible into shares of Common Stock shall be
convertible into shares

                                       31
<PAGE>
 
of the converted Mutual Company; provided, however, that if such shares cannot
be so converted, the holders of such options or other convertible securities
shall be entitled to receive a cash payment for such shares in an amount equal
to the offering price of the number of shares of the converted Holding Company
into which such securities would otherwise be converted, less the exercise price
of such options or other convertible securities. Any such exchange or redemption
of these securities will be subject to the written approval of the OTS, and
there can be no assurance that such approval would be obtained.

     Management of the Mutual Company may consider a Conversion Transaction in
the future. However, there is no plan, agreement or understanding with respect
to a Conversion Transaction and there can be no assurance that such a conversion
will occur.

                          MARKET FOR THE COMMON STOCK

     Bancorp and the Bank have not previously issued capital stock and,
consequently, there is no established market for the Common Stock. Bancorp has
received conditional approval to have its Common Stock listed on the Nasdaq
under the symbol "WEBK" upon completion of the Reorganization and Offering. Such
approval is subject to various conditions, including completion of the
Reorganization and Offering and the satisfaction of applicable listing criteria.
There can be no assurance that the Common Stock will be able to meet the
applicable listing criteria in order to maintain its listing on the Nasdaq or
that an active and liquid trading market will develop or, if developed, will be
maintained. A public market having the desirable characteristics of depth,
liquidity and orderliness, however, depends upon the presence in the marketplace
of both willing buyers and sellers of Common Stock at any given time, which is
not within the control of Bancorp. No assurance can be given that an investor
will be able to resell the Common Stock at or above the purchase price of the
Common Stock after the Offering.

                                       32
<PAGE>
 
                                CAPITALIZATION

     The following table presents the unaudited historical capitalization of the
Bank at March 31, 1998, and the pro forma capitalization of Bancorp after giving
effect to the Offering, including the issuance of shares to the Foundation,
based upon the sale of the number of shares indicated in the table and the other
assumptions set forth under "Pro Forma Data."

<TABLE>
<CAPTION>
                                                         BANK PRO FORMA BASED UPON SALE AT $10.00 PER SHARE
                                                      ------------------------------------------------------
                                                                                                  2,382,748
                                                        1,531,445     1,801,700      2,071,955      SHARES
                                                          SHARES        SHARES         SHARES     (15% ABOVE
                                                      (MINIMUM OF    (MIDPOINT OF   (MAXIMUM OF   MAXIMUM OF
                                             BANK       OFFERING      OFFERING       OFFERING      OFFERING
                                          HISTORICAL     RANGE)         RANGE)         RANGE)     RANGE)(1)
                                          ----------  -----------   ------------    ----------  ------------ 
                                                                     (IN THOUSANDS)
<S>                                       <C>         <C>           <C>             <C>         <C> 
Deposit accounts(2)...................      $239,120   $  239,120     $  239,120    $  239,120   $  239,120
Total deposits and escrow funds.......       239,915      239,915        239,915       239,915      239,915
Stockholders' equity:
 Preferred Stock, $.01 par value,                 
    1,000,000 shares authorized;
    none to be issued.................            --           --             --            --           --
 Common Stock, $.01 par value,                    
    9,000,000 shares authorized;
    shares to be issued as
    reflected.........................            --           36             42            48           55
 Additional paid-in capital(3)........            --       15,053         17,825        20,598       23,786
 Retained earnings(4).................        29,721       29,721         29,721        29,721       29,721
 Less:Expense of contribution                   
      to Foundation...................            --          742            855           968        1,098
 Plus:Tax effect of                               
       Foundation(5)..................            --          267            308           349          395
      Net unrealized gain/(loss)            
       on AFS, net....................            80           80             80            80           80
 Less:Common Stock acquired                     
       by the ESOP(6).................            --        1,276          1,502         1,727        1,986
      Common Stock acquired                      
       by the Stock-Based                         --          638            751           864          993     
       Incentive Plan(7)..............      --------   ----------     ----------    ----------   ----------
 
 Total stockholders' equity...........       $29,801   $   42,501     $   44,868    $   47,237   $   49,960
                                            ========   ==========     ==========    ==========   ==========
</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 or changes in market or general
     financial and economic conditions following the commencement of the
     Subscription and Community Offerings.
(2)  Does not reflect withdrawals from deposit accounts for the purchase of
     Common Stock in the Offering. Such withdrawals would reduce pro forma
     deposits by the amount of such withdrawals.
(3)  No effect has been given to the issuance of additional shares of Common
     Stock to the Foundation at a value of $10.00 per share or to the issuance
     of additional shares for option grants under Bancorp's Stock-Based
     Incentive Plans intended to be adopted by Bancorp and presented for
     approval of Minority Stockholders at a meeting of stockholders following
     the Reorganization. If approved by the Minority Stockholders of Bancorp, an
     amount equal to __% of the shares of Common Stock issued in the Offering,
     including shares issued to the Foundation, will be reserved for issuance
     upon the exercise of options to be granted under the Stock-Based Incentive
     Plans. See "Risk Factors -- Possible Dilutive Effect of the ESOP and Stock-
     Based Incentive Plans," Footnotes 5 and 4 to the tables under "Pro Forma
     Data" at or for the three months ended March 31, 1998 and at or for the
     year ended March 31, 1997, respectively, and "Management of the Bank --
     Benefits -- Stock-Based Incentive Plans."
(4)  The retained earnings of the Bank will be substantially restricted after
     the Offering. See "The Reorganization and Stock Offering". Assumes that the
     Mutual Company will be capitalized by the Bank with $100,000.
(5)  Represents the value of the contribution of Common Stock to the Foundation
     at $10.00 per share reduced by the associated tax benefit of $267,000,
     $308,000, $349,000 and $395,000 at the minimum, midpoint, maximum and 15%
     above the maximum of the range, respectively. The realization of the
     federal tax benefit is limited annually to 10% of Bancorp's annual taxable
     income, subject to the ability of Bancorp to carry forward any unused
     portion of the deduction for five years following the year in which the
     contribution is made. For state income tax purposes, Bancorp will be able
     to deduct the contribution and to carry forward any unused portion of the
     deduction for a five-year period following the year in which the
     contribution is initially made. Such deductions by Bancorp for New Jersey
     income tax purposes can be utilized only if Bancorp generates sufficient
     state taxable income on an unconsolidated basis, and also are subject to
     the limitation of 10% of unconsolidated income of Bancorp.
(6)  Assumes that 8% of the shares issued in the Offering, including shares
     issued to the Foundation, will be purchased by the ESOP and that the funds
     used to acquire such shares will be borrowed from Bancorp. The Common Stock
     acquired by the ESOP is reflected as a reduction of stockholders' equity.
     See "Management of the Bank--Benefits--Employee Stock Ownership Plan."
(7)  Assumes that no sooner than six months following the Reorganization and
     Offering, an amount equal to 4% of the shares of Common Stock sold in the
     Offering and issued to the Foundation, is purchased by the Stock-Based
     Incentive Plan through open market purchases at the offering price of
     $10.00 per share. The Common Stock purchased by the Stock-Based Incentive
     Plan is reflected as a reduction of stockholders' equity. See "Risk 
     Factors--Possible Dilutive Effect of Stock-Based Incentive Plan," Footnote
     3 to the tables under "Pro Forma Data" and "Management of the Bank--Other
     Benefit Plans."

                                       33
<PAGE>
 
                                PRO FORMA DATA

     The actual net proceeds from the sale of the Common Stock cannot be
determined until the Offering is completed. However, net proceeds are currently
estimated to be between $14.3 million and $19.7 million (or $22.7 million in the
event the Offering Range is increased by 15%) based upon the following
assumptions: (i) 100% of the shares of Common Stock offered will be sold in the
Subscription Offering to Eligible Account Holders, the ESOP and Supplemental
Eligible Account Holders; (ii) directors, officers and employees of the Bank and
members of their immediate families (collectively, "Insiders") will purchase an
aggregate of $2,880,000 of Common Stock and the ESOP will purchase 8% of the
Common Stock issued in connection with the Offering including shares issued to
the Foundation; (iii) Sandler O'Neill will receive an advisory, management and a
marketing fee equal to 1.5% of the aggregate Purchase Price of shares sold in
the Subscription and Community Offerings, excluding shares purchased by
directors, officers, employees and any immediate family member thereof and the
ESOP and shares contributed to the Foundation, for which Sandler O'Neill will
not receive a fee; and (iv) Offering expenses, excluding the marketing fees paid
to Sandler O'Neill, will be approximately $600,000. Actual Offering expenses may
vary from those estimated. As part of the Reorganization and Offering, the
Mutual Company will be capitalized at $100,000 and the Foundation will receive
$100,000 in cash, which will result in a reduction of the Bank's assets and
retained earnings by the same amount.

     Pro forma net income of Bancorp for the three months ended March 31, 1998,
and for the year ended December 31, 1997, have 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 an average yield of 5.41% which is equivalent to
the one year Treasury rate at March 31, 1998.  The table also reflects $100,000
being utilized to capitalize the Mutual Company in connection with the
Reorganization.  The tables below do not reflect the effect of withdrawals from
deposit accounts for the purchase of Common Stock or the effect of any possible
use of the net proceeds.  The pro forma after-tax yield for Bancorp and the Bank
is assumed to be 3.46% for the three months ended March 31, 1998 and 3.46% for
the year ended December 31, 1997, based on an effective tax rate of 36%.
Historical and pro forma net earnings per share amounts have been calculated by
dividing historical and pro forma amounts by the indicated number of shares of
Common Stock issued as adjusted to give effect to the purchase of shares by the
ESOP and the issuance of shares to the Foundation.  Historical and pro forma
stockholders' equity per share amounts have been calculated by dividing
historical and pro forma amounts by the indicated number of shares of Common
Stock issued.

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

     The following tables summarize historical data of the Bank and pro forma
data of Bancorp at or for the three months ended March 31, 1998, based on the
assumptions set forth above and in the table 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 Stock Awards reserved for grant under the Stock-
Based Incentive Plan, which is expected to be adopted by Bancorp following the
Reorganization and Offering.  See Footnote 3 to the tables and "Management of
the Bank-- Benefits."  No effect has been given in the tables to the possible
issuance of additional shares of Common Stock upon the exercise of stock options
to be granted under the Stock-Based Incentive Plan, nor does book value give any
effect to the liquidation account to be established for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders or, in the event of
liquidation of the Bank, to the tax effect of the bad debt reserve and other
factors.  See Footnote 5 to the 

                                       34
<PAGE>
 
tables below, "The Reorganization and Stock Offering" and "Management of the
Bank-- Benefits." THE FOLLOWING TABLE ASSUMES THAT THE FOUNDATION IS APPROVED AS
PART OF THE REORGANIZATION AND THEREFORE GIVES EFFECT TO THE ISSUANCE OF
AUTHORIZED BUT UNISSUED SHARES OF BANCORP'S COMMON STOCK TO THE FOUNDATION
CONCURRENTLY WITH THE COMPLETION OF THE OFFERING. THE VALUATION RANGE, AS SET
FORTH HEREIN AND IN THE TABLE BELOW, TAKES INTO ACCOUNT THE DILUTIVE IMPACT OF
THE ISSUANCE OF SHARES TO THE FOUNDATION.

                                       35
<PAGE>
 
<TABLE>
<CAPTION>
                                                                   AT OR FOR THE THREE MONTHS ENDED MARCH 31, 1998
                                                              ----------------------------------------------------------
                                                              1,531,445        1,801,700     2,071,955       2,382,748
                                                              SHARES SOLD      SHARES SOLD   SHARES SOLD   SHARES SOLD
                                                              AT $10.00        AT $10.00     AT $10.00     AT $10.00 PER
                                                              PER SHARE        PER SHARE     PER SHARE     SHARE (15%
                                                              (MINIMUM         (MIDPOINT     (MAXIMUM      ABOVE MAXIMUM
                                                              OF OFFERING      OF OFFERING   OF OFFERING   OF OFFERING
                                                              RANGE)(8)        RANGE)        RANGE)        RANGE)(8)
                                                              -----------      -----------   ----------    ------------
                                                                      (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                           <C>              <C>           <C>           <C> 
Gross proceeds............................................... $   15,314       $   18,017    $   20,720      $   23,827
Plus:  Shares issued to Foundation (equal to 4.19% of the
       stock sold in the Offering)...........................        642              755           868             998
                                                              ----------       ----------    ----------      ----------
Pro forma market capitalization..............................     15,956           18,772        21,588          24,825
                                                              ----------       ----------    ----------      ----------
Gross proceeds...............................................     15,314           18,017        20,720          23,827
Less:  Offering expenses and commission......................        767              805           842             884
                                                              ----------       ----------    ----------      ----------
Estimated net proceeds.......................................     14,547           17,212        19,878          22,943
Less:  Cash to Foundation....................................        100              100           100             100
Less:  Cash to Mutual Company................................        100              100           100             100
Less:  Common Stock purchased by ESOP........................      1,276            1,502         1,727           1,986
       Common Stock purchased by Stock-Based Incentive
       Plan..................................................        638              751           864             993
                                                              ----------       ----------    ----------      ----------
   Estimated net proceeds, as adjusted.......................     12,433           14,759        17,087          19,764
Consolidated net earnings:(1)
   Historical................................................        511              511           511             511
   Pro forma earnings on net proceeds........................        108              128           148             171
   Less:  Pro forma ESOP adjustment(2).......................         20               24            28              32
          Pro forma Stock-Based Incentive Plan
          adjustment(3)......................................         20               24            28              32
                                                              ----------       ----------    ----------      ----------
       Pro forma net earnings................................        579              591           603             618
Per share net earnings:(1)
   Historical................................................       0.15             0.13          0.11            0.10
   Pro forma earnings on net proceeds........................       0.03             0.03          0.03            0.03
   Less:  Pro forma ESOP adjustment(2).......................       0.01             0.01          0.01            0.01
          Pro forma Stock-Based Incentive Plan
          adjustment(3)......................................       0.01             0.01          0.01            0.01
                                                              ----------       ----------    ----------      ----------
       Pro forma net earnings per share......................       0.16             0.14          0.12            0.11
Stockholders' equity:
   Historical (4)............................................     29,801           29,801        29,801          29,801
   Estimated net proceeds....................................     14,347           17,012        19,678          22,743
   Plus:  Shares issued to the Foundation....................        267              308           349             395
   Less:  After tax cost to Foundation (5)
          Common Stock acquired by ESOP(2)...................      1,276            1,502         1,727           1,986
          Common Stock acquired by Stock-Based
           Incentive Plan(3).................................        638              751           864             993
                                                              ----------       ----------    ----------      ----------
       Pro forma stockholders' equity(3)(4)(5)(6)(7).........     42,501           44,868        47,237          49,960
Stockholders' equity per share:
   Historical(4).............................................       8.37             7.11          6.18            5.38
   Estimated net proceeds....................................       4.03             4.06          4.08            4.10
   Plus:  Shares issued to the Foundation....................       0.07             0.07          0.07            0.07
   Less:  After tax cost to Foundation (5)
          Common Stock acquired by ESOP(2)...................       0.36             0.36          0.36            0.36
          Common Stock acquired by Stock-Based
           Incentive Plan(3).................................       0.18             0.18          0.18            0.18
                                                              ----------       ----------    ----------      ----------
       Pro forma stockholders' equity........................      11.93            10.70          9.79            9.01
          per share(3)(4)(5)(6)(7)
Offering price as a percentage of pro forma
   stockholders' equity per share............................      83.82%           93.46%       102.15%         110.99%
Offering price to pro forma annualized net
  earnings per share.........................................      15.63x           17.86x        20.83x        22.73x
</TABLE>

                                      36
<PAGE>
 
_____________________
(1) Does not give effect to the non-recurring expense that is expected to be
    recognized in the fourth quarter of fiscal 1998 if the establishment of the
    Foundation is approved. In that event, Bancorp will recognize an after-tax
    expense for the amount of the contribution to the Foundation which is
    expected to be $475,000, $547,000, $619,000 and $703,000 at the minimum,
    midpoint, maximum, and maximum as adjusted, of the Estimated Price Range,
    respectively.

(2) It is assumed that 8% of the shares of Common Stock issued in the Offering,
    including shares issued to the Foundation, 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 Bancorp. The amount to be
    borrowed is reflected as a reduction of stockholders' equity. The Bank
    intends to make annual contributions to the ESOP in an amount at least equal
    to the principal and interest requirement of the debt. The Bank's total
    annual payment of the ESOP debt is based upon ten equal annual installments
    of principal, with an assumed interest rate at ___%. The pro forma net
    earnings assume: (i) that the Bank's contribution to the ESOP is equivalent
    to the debt service requirement for the three months ended March 31, 1998,
    and was made at the end of the period; (ii) that 3,063, 3,603, 4,144 and
    4,765 shares at the minimum, midpoint, maximum and 15% above the maximum of
    the range, respectively, were committed to be released during the three
    months ended March 31, 1998 at an average fair value of $10.00 per share in
    accordance with Statement of Position ("SOP") 93-6; and (iii) only the ESOP
    shares committed to be released were considered outstanding for purposes of
    the net earnings per share calculations. See "Management of the Bank--
    Benefits--Employee Stock Ownership Plan."

(3) Gives effect to the Stock Awards available for grant under the Stock-Based
    Incentive Plan expected to be adopted by Bancorp following the Offering and
    presented for approval at a meeting of stockholders. The Stock-Based
    Incentive Plan intends to acquire an amount of Common Stock equal to 4% of
    the shares of Common Stock sold in the Offering and issued to the
    Foundation, or 63,825, 75,088, 86,351 and 99,303 shares of Common Stock at
    the minimum, midpoint, maximum and 15% above the maximum of the Offering
    Range, respectively, either through open market purchases, if permissible,
    or from authorized but unissued shares of Common Stock or treasury stock of
    the Company, if any. Funds used by the Stock-Based Incentive Plan to
    purchase the shares will be contributed to the Stock-Based Incentive Plan by
    the Bank. In calculating the pro forma effect of the Stock-Based Incentive
    Plan, it is assumed that the shares were acquired by the Stock-Based
    Incentive Plan at the beginning of the period presented in open market
    purchases at the Purchase Price and that 20% of the amount contributed was
    an amortized expense during such period. The issuance of authorized but
    unissued shares of Bancorp's Common Stock to the Stock-Based Incentive Plan
    instead of open market purchases would dilute the voting interests of
    existing stockholders by approximately 1.86% and pro forma net earnings per
    share would be $0.17, $0.15, $0.13, and $0.12 at the minimum, midpoint,
    maximum, and 15% above the maximum of the range, respectively, and pro forma
    stockholders' equity per share would be $11.72, $10.52, $9.63 and $8.86 at
    the minimum, midpoint, maximum, and 15% above the maximum of the range,
    respectively. There can be no assurance that stockholder approval of the
    Stock-Based Incentive Plan will be obtained, or that the actual purchase
    price of the shares will be equal to the Purchase Price. See "Management of
    the Bank--Benefits."

(4) Historical Stockholders' Equity has been decreased by $100,000 to reflect
    the capitalization of the Mutual Company.

(5) Assumes a combined federal and state effective income tax rate of 36%.

(6) No effect has been given to the issuance of additional shares of Common
    Stock upon the exercise of options to be granted under the Stock-Based
    Incentive Plan. An amount equal to 10% of the Common Stock issued in the
    Offering, including shares issued to the Foundation, or 159,561, 187,719,
    215,877 and 248,259 shares at the minimum, midpoint, maximum and 15% above
    the maximum of the Offering Range, respectively, will be reserved for future
    issuance upon the exercise of options to be granted under the Stock-Based
    Incentive Plan. The issuance of Common Stock pursuant to the exercise of
    options under the Stock-Based Incentive Plan will result in the dilution of
    existing stockholders' interests. Assuming all options were exercised at the
    end of the period at an exercise price of $10.00 per share, the pro forma
    net earnings per share would be $0.18, $0.16, $0.14, and $0.13,
    respectively, and the pro forma stockholders' equity per share would be
    $11.85, $10.68, $9.81 and $9.06, respectively. See "Management of the Bank--
    Benefits."

(7) The retained earnings of the Bank will continue to be substantially
    restricted after the Reorganization. See "Dividend Policy," "The
    Reorganization and Stock Offering" and "Regulation and Supervision--Federal
    Savings Institution Regulation--Limitation on Capital Distributions."

(8) 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 or changes in market or general
    financial and economic conditions following the commencement of the
    Subscription and Community Offerings.

                                       37
<PAGE>
 
<TABLE>
<CAPTION>
                                                                       AT OR FOR THE YEAR ENDED DECEMBER 31, 1997
                                                            -----------------------------------------------------------
                                                               1,531,445        1,801,700     2,071,955       2,382,748
                                                             SHARES SOLD      SHARES SOLD   SHARES SOLD   SHARES SOLD
                                                             AT $10.00        AT $10.00     AT $10.00     AT $10.00 PER
                                                             PER SHARE        PER SHARE     PER SHARE     SHARE (15%
                                                             (MINIMUM         (MIDPOINT     (MAXIMUM      ABOVE MAXIMUM
                                                             OF OFFERING      OF OFFERING   OF OFFERING   OF OFFERING
                                                             RANGE)(8)        RANGE)        RANGE)        RANGE)(8)
                                                           ------------     ---------     ---------     -------------- 
                                                                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                        <C>              <C>           <C>           <C>
Gross proceeds........................................        $   15,314       $   18,017    $   20,720      $   23,827
Plus:  Shares issued to Foundation (equal to 4.19%                                                                     
         of the stock sold in the Offering)...........               642              755           868             998
                                                              ----------       ----------    ----------      ----------
Pro forma market capitalization.......................            15,956           18,772        21,588          24,825
Gross proceeds........................................            15,314           18,017        20,720          23,827
Less:  Offering expenses and commission...............               767              805           848             884
                                                              ----------       ----------    ----------      ----------
Estimated net proceeds................................            14,547           17,212        19,872          22,943
Less:  Cash to Foundation.............................               100              100           100             100
Less:  Cash to Mutual Company.........................               100              100           100             100
Less:  Common Stock purchased by ESOP.................             1,276            1,502         1,727           1,986
       Common Stock purchased by Stock-Based                                                                               
         Incentive Plan...............................               638              751           864             993
                                                              ----------       ----------    ----------      ----------
   Estimated net proceeds, as adjusted................            12,433           14,759        17,087          19,764
Consolidated net earnings:(1)
   Historical.........................................               737              737           737             737
   Pro forma earnings on net proceeds.................               430              511           592             684
   Less:  Pro forma ESOP adjustment(2)................                82               96           111             127
          Pro forma Stock-Based Incentive Plan                                                                         
            adjustment(3).............................                82               96           111             127
                                                              ----------       ----------    ----------      ----------
          Pro forma net earnings......................             1,003            1,056         1,107           1,167
Per share net earnings:(1)
   Historical.........................................              0.21             0.18          0.16            0.14
   Pro forma earnings on net proceeds.................              0.12             0.13          0.13            0.13
   Less:  Pro forma ESOP adjustment(2)................              0.02             0.02          0.02            0.02
          Pro forma Stock-Based Incentive Plan                                                                         
            adjustment(3).............................              0.02             0.02          0.02            0.02
                                                              ----------       ----------    ----------      ----------
         Pro forma net earnings per share.............              0.29             0.27          0.25            0.23
Stockholders' equity:
   Historical (4).....................................            29,275           29,275        29,275          29,275
   Estimated net proceeds.............................            14,347           17,012        19,678          22,743
   Plus:  Shares issued to the Foundation.............               267              308           349             395
   Less:  After tax cost to Foundation (5)............
          Common Stock acquired by ESOP(2)............             1,276            1,502         1,727           1,986
          Common Stock acquired by Stock-Based                                                                         
            Incentive Plan(3).........................               638              751           864             993
                                                              ----------       ----------    ----------      ----------
       Pro forma stockholders' equity(3)(4)(5)(6)(7)..            41,975           44,342        46,711          49,434
Stockholders' equity per share:
   Historical(4)......................................              8.22             6.99          6.07            5.28
   Estimated net proceeds.............................              4.03             4.06          4.08            4.10
   Plus:  Shares issued to the Foundation.............              0.07             0.07          0.07            0.07
   Less:  After tax cost to Foundation (5)............
          Common Stock acquired by ESOP(2)............              0.36             0.36          0.36            0.36
          Common Stock acquired by Stock-Based                                                                         
            Incentive Plan(3).........................              0.18             0.18          0.18            0.18
                                                              ----------       ----------    ----------      ----------
       Pro forma stockholders' equity                                                                                  
         per share(3)(4)(5)(6)(7).....................             11.78            10.58          9.68            8.91
Offering price as a percentage of pro forma                                                                             
   stockholders' equity per share.....................             84.89%           94.52%       103.31%         112.23%
Offering price to pro forma annualized net                                                                      
  earnings per share..................................             34.48x           37.04x        40.00x          43.48x
</TABLE>

                                       38
<PAGE>
 
_____________________
(1) Does not give effect to the non-recurring expense that is expected to be
    recognized in the fourth quarter of fiscal 1998 if the establishment of the
    Foundation is approved. In that event, Bancorp will recognize an after-tax
    expense for the amount of the contribution to the Foundation which is
    expected to be $475,000, $547,000, $619,000 and $703,000 at the minimum,
    midpoint, maximum, and maximum as adjusted, of the Estimated Price Range,
    respectively.

(2) It is assumed that 8% of the shares of Common Stock issued in the Offering,
    including shares issued to the Foundation, 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 Bancorp. The amount to be
    borrowed is reflected as a reduction of stockholders' equity. The Bank
    intends to make annual contributions to the ESOP in an amount at least equal
    to the principal and interest requirement of the debt. The Bank's total
    annual payment of the ESOP debt is based upon ten equal annual installments
    of principal, with an assumed interest rate at ___%. The pro forma net
    earnings assume: (i) that the Bank's contribution to the ESOP is equivalent
    to the debt service requirement for the year ended December 31, 1997, and
    was made at the end of the period; (ii) that 12,252, 14,414, 16,576 and
    19,861 shares at the minimum, midpoint, maximum and 15% above the maximum of
    the range, respectively, were committed to be released during the year ended
    December 31, 1997 at an average fair value of $10.00 per share in accordance
    with Statement of Position ("SOP") 93-6; and (iii) only the ESOP shares
    committed to be released were considered outstanding for purposes of the net
    earnings per share calculations. See "Management of the Bank-- Benefits--
    Employee Stock Ownership Plan."

(3) Gives effect to the Stock Awards available for grant under the Stock-Based
    Incentive Plan expected to be adopted by Bancorp following the Offering and
    presented for approval at a meeting of stockholders. The Stock-Based
    Incentive Plan intends to acquire an amount of Common Stock equal to 4% of
    the shares of Common Stock sold in the Offering and issued to the
    Foundation, or 63,825, 75,088, 86,351 and 99,303 shares of Common Stock at
    the minimum, midpoint, maximum and 15% above the maximum of the Offering
    Range, respectively, either through open market purchases, if permissible,
    or from authorized but unissued shares of Common Stock or treasury stock of
    the Company, if any. Funds used by the Stock-Based Incentive Plan to
    purchase the shares will be contributed to the Stock-Based Incentive Plan by
    the Bank. In calculating the pro forma effect of the Stock-Based Incentive
    Plan, it is assumed that the shares were acquired by the Stock-Based
    Incentive Plan at the beginning of the period presented in open market
    purchases at the Purchase Price and that 20% of the amount contributed was
    an amortized expense during such period. The issuance of authorized but
    unissued shares of Bancorp's Common Stock to the Stock-Based Incentive Plan
    instead of open market purchases would dilute the voting interests of
    existing stockholders by approximately 1.86% and pro forma net earnings per
    share would be $0.29, $0.26, $0.24, and $0.22 at the minimum, midpoint,
    maximum, and 15% above the maximum of the range, respectively, and pro forma
    stockholders' equity per share would be $11.58, $10.40, $9.52 and $8.76 at
    the minimum, midpoint, maximum, and 15% above the maximum of the range,
    respectively. There can be no assurance that stockholder approval of the
    Stock-Based Incentive Plan will be obtained, or that the actual purchase
    price of the shares will be equal to the Purchase Price. See "Management of
    the Bank--Benefits."

(4) Historical Stockholders' Equity has been decreased by $100,000 to reflect
    the capitalization of the Mutual Company.

(5) Assumes a combined federal and state effective income tax rate of 36%.

(6) No effect has been given to the issuance of additional shares of Common
    Stock upon the exercise of options to be granted under the Stock-Based
    Incentive Plan. An amount equal to 10% of the Common Stock issued in the
    Offering, including shares issued to the Foundation, or 159,561, 187,719,
    215,877 and 248,259 shares at the minimum, midpoint, maximum and 15% above
    the maximum of the Offering Range, respectively, will be reserved for future
    issuance upon the exercise of options to be granted under the Stock-Based
    Incentive Plan. The issuance of Common Stock pursuant to the exercise of
    options under the Stock-Based Incentive Plan will result in the dilution of
    existing stockholders' interests. Assuming all options were exercised at the
    end of the period at an exercise price of $10.00 per share, the pro forma
    net earnings per share would be $0.29, $0.26, $0.24, and $0.22,
    respectively, and the pro forma stockholders' equity per share would be
    $11.71, $10.56, $9.71 and $8.97, respectively. See "Management of the Bank--
    Benefits."

(7) The retained earnings of the Bank will continue to be substantially
    restricted after the Reorganization. See "Dividend Policy," "The
    Reorganization and Stock Offering" and "Regulation and Supervision--Federal
    Savings Institution Regulation--Limitation on Capital Distributions."

(8) 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 or changes in market or general
    financial and economic conditions following the commencement of the
    Subscription and Community Offerings.

                                       39
<PAGE>
 
                          COMPARISON OF VALUATION AND
                   PRO FORMA INFORMATION WITH NO FOUNDATION

     In the event that the Foundation was not established as part of the
Reorganization, FinPro has estimated that the pro forma market capitalization of
Bancorp would be approximately $45.4 million, at the midpoint, which is
approximately $3.5 million greater than the pro forma market capitalization of
Bancorp if the Foundation is approved by members of Bancorp and would result in
approximately a $1.5 million increase, or 8.4%, in the amount of Common Stock
offered for sale in the Offering. Assuming the midpoint of the Offering Range,
pro forma stockholders' equity per share and pro forma earnings per share would
be substantially the same with the Foundation as without the Foundation. In this
regard, pro forma stockholders' equity and pro forma net income per share would
be $10.15 and $0.13 respectively, at the midpoint of the estimate, assuming no
Foundation, and $10.70 and $0.14, respectively, with the Foundation. The pro
forma price to book ratio and the pro forma price to earnings ratio are 98.52%
and 19.23x, respectively, at the midpoint of the estimate, assuming no
Foundation and are 93.46% and 17.86x, respectively, with the Foundation. This
estimate by FinPro was prepared at the request of the OTS and is solely for
purposes of providing members with sufficient information with which to make an
informed decision on the Foundation. There is no assurance that in the event the
Foundation is not approved at the Special Meeting of Members that the appraisal
prepared at that time would conclude that the pro forma market value of Bancorp
would be the same as that estimated herein. Any appraisal prepared at that time
would be based on the facts and circumstances existing at that time, including,
among other things, market and economic conditions.

     For comparative purposes only, set forth below are certain pricing ratios
and financial data and ratios, at the minimum, midpoint, maximum and maximum, as
adjusted, of the Offering Range, assuming the Offering was completed at March
31, 1998.

<TABLE>
<CAPTION>
                                                                                                              AT THE MAXIMUM,
                                  AT THE MINIMUM           AT THE MIDPOINT           AT THE  MAXIMUM            AS ADJUSTED
                            ------------------------- ------------------------- ------------------------- -------------------------
                                WITH          NO          WITH          NO          WITH          NO          WITH          NO
                             FOUNDATION   FOUNDATION   FOUNDATION   FOUNDATION   FOUNDATION   FOUNDATION   FOUNDATION   FOUNDATION
                            ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
                                                                     (DOLLARS IN THOUSANDS)
<S>                         <C>          <C>          <C>          <C>          <C>          <C>          <C>          <C>  
Estimated offering 
 amount..................      $ 15,314     $ 16,594     $ 18,017     $ 19,522     $ 20,720     $ 22,450     $ 23,827     $ 25,818
Pro forma market                                                                                                                  
 capitalization..........        15,956       16,594       18,772       19,522       21,588       22,450       24,825       25,818
Total assets.............       324,955      326,238      327,281      328,775      329,609      331,311      332,256      334,229
Total liabilities........       282,721      282,721      282,721      282,721      282,721      282,721      282,721      282,721
Pro forma stockholders'                                                                                                           
 equity..................        42,493       43,517       44,868       46,054       47,237       48,590       49,960       51,508
Pro forma consolidated 
 net earnings............           579          588          591          602          603          616          618          633
Pro forma stockholders'                                                                                                           
 equity per share........         11.93        11.28        10.70        10.15         9.79         9.31         9.01         8.58
Pro forma consolidated                                                                                                            
 net earnings per share..          0.16         0.15         0.14         0.13         0.12         0.11         0.11         0.10
Pro Forma Pricing Ratios:
 Offering Price as a                                                                                                               
  percentage of pro      
  forma stockholders'
  equity per share.......         83.82%       88.65%       93.46%       98.52%      102.15%      107.41%      110.99%      116.55%
 Offering price to pro            
  forma net earnings per 
  share..................         15.63x       16.67x       17.86x       19.23x       20.83x       22.73x       22.73x       25.00x
 Offering price to                
  assets.................         10.96%       11.83%       12.80%       13.81%       14.62%       15.76%       16.68%       17.96%
Pro Forma Financial Ratios:
 Return on Assets........          0.71%        0.72%        0.72%        0.73%        0.73%        0.74%        0.74%        0.76%
 Return on stockholders'                                                                                                           
  equity.................          5.45%        5.40%        5.27%        5.23%        5.11%        5.07%        4.95%        4.92%
 Stockholders' equity                                                                                                              
  to assets..............         13.08%       13.34%       13.71%       14.01%       14.33%       14.66%       15.04%       15.41%
</TABLE>

                                       40
<PAGE>
 
                     CONSOLIDATED STATEMENTS OF INCOME FOR
                       WEST ESSEX BANK AND SUBSIDIARIES

     The following Consolidated Statements of Income of the Bank and
subsidiaries for each of the years in the three year period ended December 31,
1997 have been audited by Radics & Co., LLC, independent certified public
accountants, whose report thereon is included elsewhere in this Prospectus. With
respect to the information for the three months ended March 31, 1998 and 1997,
which is unaudited, in the opinion of management, all adjustments necessary for
a fair presentation of such interim periods have been included and are of a
normal recurring nature. Results for the three months ended March 31, 1998 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. These Statements of Income should be read in
conjunction with the Financial Statements and notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this Offering Circular.

<TABLE>
<CAPTION>
                                                      FOR THE THREE MONTHS                        FOR THE YEARS               
                                                        ENDED MARCH 31,                          ENDED DECEMBER 31,           
                                                 -----------------------------      ----------------------------------------- 
                                                    1998             1997             1997           1996             1995    
                                                 -----------      ------------      ---------     -----------     ----------- 
                                                         (UNAUDITED)                                                          
<S>                                              <C>              <C>               <C>           <C>             <C>         
Interest income:
   Loans.....................................   $ 2,298,412      $ 1,744,900        $ 7,908,541   $ 7,268,237     $ 7,603,186
   Mortgage-backed securities................     2,117,926        1,930,007          7,908,940     6,982,443       6,559,192
   Investment securities.....................       602,150          465,039          1,897,153     1,700,819       1,188,096
   Other interest-earning assets.............        96,925          112,324            400,842       515,475         384,395
                                                -----------      -----------        -----------   -----------     -----------
        Total interest income................     5,115,413        4,252,270         18,115,476    16,466,974      15,734,869
                                                -----------      -----------        -----------   -----------     -----------
Interest expense:
   Deposits..................................     2,433,347        1,809,177          8,089,473     7,148,794       6,551,335
   Borrowed money............................       436,628          343,500          1,566,165     1,151,419       1,066,987
                                                -----------      -----------        -----------   -----------     -----------
        Total interest expense...............     2,859,975        2,152,677          9,655,638     8,300,213       7,618,322
                                                -----------      -----------        -----------   -----------     -----------
Net interest income..........................     2,245,438        2,099,593          8,459,838     8,166,761       8,116,547
Provision for loan losses....................       (22,050)          55,000            487,015       232,103         509,729
                                                -----------      -----------        -----------   -----------     -----------
     Net interest income after...............     2,267,488        2,044,593          7,972,823     7,934,658       7,606,818
     provision for loan losses...............   -----------      -----------        -----------   -----------     -----------

Non-interest income:
   Fees and service charges..................        94,162           64,042           273,443        210,286         157,183
   (Loss) gain on sale of securities.........            --               --           (20,245)       102,752         (22,014)
     available for sale
   Income on real estate owned...............            --               --                --         20,563          58,933
   Other.....................................        45,749           49,714           120,039        141,996         138,328
                                                -----------      ------------       ----------    -----------     -----------
        Total noninterest income.............       139,911          113,756           373,237        475,597         332,430
                                                -----------      -----------        ----------    -----------     -----------
Non-interest expense:
   Salaries and employee benefits............       767,131          705,818         2,847,886      2,621,753       2,439,036
   Occupancy expense of premises.............        85,578           66,563           245,879        228,411         219,771
   Equipment.................................       162,626          113,711           495,742        426,179         385,802
   Loss on real estate owned.................        23,748          157,321           379,870             --              --
   Advertising...............................        49,956           17,202           127,732         78,395          87,621
   Federal insurance premiums................        29,079           28,219           114,755      1,478,029         381,317
   Amortization of intangible................       148,192               --         1,743,062             --              --
   Other.....................................       370,389          261,974         1,218,015      1,085,529         932,929
                                                -----------      -----------        ----------    -----------     -----------
        Total noninterest expenses...........     1,636,699        1,350,808         7,172,941      5,918,296       4,446,476
                                                -----------      -----------        ----------    -----------     -----------
Income before income taxes...................       770,700          807,541         1,173,119      2,491,959       3,492,772
Income taxes.................................       259,559          284,485           436,279        835,951       1,220,817
                                                -----------      -----------        ----------    -----------     -----------
Net income...................................    $  511,141       $  523,056        $  736,840    $ 1,656,008     $ 2,271,955
                                                ===========      ===========        ==========    ===========     ===========
</TABLE>

See accompanying notes to Consolidated Financial Statements.

                                       41
<PAGE>
 
                     MANAGEMENT'S DISCUSSION AND ANALYSIS
               OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

     Bancorp has not yet been formed and, accordingly, has no results of
operations. The Bank's results of operations are dependent primarily on net
interest income, which is the difference between the income earned on interest-
earning assets, primarily its loan and investment portfolios, and its cost of
funds, consisting of interest paid on deposits and borrowings. Results of
operations are also affected by the Bank's provision for loan losses and non-
interest expense. The Bank's non-interest expense principally consists of
salaries and employee benefits, office occupancy and equipment expense,
amortization of intangibles, advertising, federal deposit insurance premiums,
expenses of real estate owned and other expenses. Results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in interest rates, government policies and actions of
regulatory authorities.

MANAGEMENT STRATEGY

     The Bank's current strategic plan is to maintain profitability and its 
well-capitalized position to take advantage of future expansion or growth
opportunities, while managing growth, maintaining asset quality, controlling
expenses and reducing exposure to credit and interest rate risk. Management
seeks to accomplish these goals by: (1) emphasizing its retail banking services
through its network of branch offices, which includes the origination of one- to
four-family mortgage loans, as well as commercial real estate, home equity,
multi-family, construction and development and consumer loans, in the
communities it serves as market conditions permit; (2) enhancing earnings and
offsetting the effects of the extreme competition for real estate loans in the
Bank's market area through the purchase of primarily adjustable rate mortgage-
backed securities, which provide a source of liquidity, low credit risk and low
administrative cost as well as helping to manage interest rate risk; and (3)
continuing to monitor interest rate risk. Management has aggressively sought to
increase loan originations in recent years and was successful in increasing
total loans receivable, net, from $82.1 million at December 31, 1996 to $112.7
million and $114.3 million at December 31, 1997 and March 31, 1998,
respectively. Competition, however, has remained intense in the Bank's market
area, which has resulted in the Bank's total securities portfolio representing a
greater percentage of total assets than its loan portfolio in each of the last
five years. Management believes that continuing to seek lending opportunities,
as well as investing in mortgage-backed securities, the majority of which are
adjustable rate, enables the Bank to effectively control its interest rate risk
while at the same time enabling it to maintain a balance of high quality,
diversified investments, provide for collateral for short and long-term
borrowings and lessen exposure to credit risk.

MANAGEMENT OF INTEREST RATE RISK

     The Bank continues to seek opportunities to originate for its portfolio 
one- to four-family residential mortgage loans, as well as other loans, in its
primary market area of Essex, Morris and Bergen Counties, New Jersey. The Bank's
total loan portfolio had decreased as a percent of the Bank's total assets from
1993 through 1996 when loan origination began to increase. The decrease in loan
originations occurred primarily due to intense competition in the Bank's market
area for loan originations. Further, due to the relatively low interest rate
environment that has existed in recent years, the Bank has originated primarily
fixed-rate one- to four-family mortgage loans. The Bank's purchase of primarily
adjustable rate mortgage-backed securities, as well as various debt obligations
of federal, state and local governments, has enabled the Bank to effectively
manage its interest rate risk. At March 31, 1998, the Bank had $122.6 million or
39.2% of total assets in mortgage-backed securities classified as held-to-
maturity, and $35.9 million or 11.5% of total assets

                                       42
<PAGE>
 
in investment securities, of which $7.1 million or 2.3% of total assets were
classified as available for sale. At the same date, the Bank's total loans
receivable, net, totalled $114.3 million or 36.6% of total assets.

     NET PORTFOLIO VALUE. The Bank's interest rate sensitivity is monitored by
management through the use of the OTS model which estimates the change in the
Bank's NPV over a range of interest rate scenarios. NPV is the present value of
expected cash flows from assets, liabilities, and off-balance sheet contracts.
The NPV ratio, under any interest rate scenario, is defined as the NPV in that
scenario divided by the market value of assets in the same scenario. The OTS
produces its analysis based upon data submitted on the Bank's quarterly Thrift
Financial Reports. See "Regulation and Supervision -- Federal Savings
Institution Regulation." The following table sets forth the Bank's NPV as of
March 31, 1998, as calculated by the OTS.

<TABLE>
<CAPTION>
                                                                 NPV AS % OF PORTFOLIO
                  CHANGE IN             NET PORTFOLIO VALUE         VALUE OF ASSETS
                INTEREST RATES     --------------------------- -------------------------
               IN BASIS POINTS                   $         %      NPV
                 (RATE SHOCK)       AMOUNT    CHANGE    CHANGE   RATIO     CHANGE (1)
               ----------------    --------  --------  -------- --------  --------------    
                                             (DOLLARS IN THOUSANDS)
               <S>                 <C>       <C>       <C>      <C>       <C>         
                       400         $17,365   $(17,782)     (51)    5.98       (512)  
                       300          22,615    (12,533)     (36)    7.60       (350)  
                       200          27,535     (7,613)     (22)    9.04       (206)  
                       100          31,846     (3,301)      (9)   10.24        (86)  
                    Static          35,147         --       --    11.10         --   
                     (100)          37,179      2,032        6    11.57         47  
                     (200)          38,104      2,956        8    11.71         61  
                     (300)          38,911      3,764       11    11.81         71  
                     (400)          40,920      5,773       16    12.21        111   
</TABLE>

________________
(1)  Expressed in basis points.

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

ANALYSIS OF NET INTEREST INCOME

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

                                       43
<PAGE>
 
     AVERAGE BALANCE SHEET. The following table sets forth certain information
relating to the Bank at March 31, 1998, for the three months ended March 31,
1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995. The
average yields and costs are derived by dividing income or expense by the
average balance of interest-earning assets or interest-bearing liabilities,
respectively, for the periods shown except where noted otherwise and reflect
annualized yields and costs. Average balances are derived from average month-end
balances except for the average balances of Other interest-earning assets and
Borrowed money, which are derived from average daily balances. Management does
not believe that the use of average monthly balances instead of average daily
balances has caused any material differences in the information presented. The
yields and costs include fees which are considered adjustments to yields.

<TABLE>
<CAPTION>
                                                                      FOR THE THREE MONTHS ENDED MARCH 31,
                                                     ---------------------------------------------------------------------
                               AT MARCH 31, 1998                   1998                              1997
                            ----------------------- --------------------------------- ----------------------------------
                                                                             AVERAGE                            AVERAGE
                                          YIELD/     AVERAGE                 YIELD/     AVERAGE                 YIELD/  
                              BALANCE      COST      BALANCE     INTEREST     COST      BALANCE     INTEREST     COST 
                            ----------   -------   ----------  -----------  --------  ----------  -----------  --------
                                                               (DOLLARS IN THOUSANDS)
<S>                          <C>         <C>        <C>         <C>         <C>        <C>         <C>         <C>   
ASSETS:
 Interest-earning assets:
   Loans receivable.........  $116,165       7.96%   $115,308    $  2,298       7.97%   $ 84,353    $  1,745       8.27%
   Mortgage-backed                                                                                                      
    securities..............   122,633       6.75     126,510       2,118       6.70     111,406       1,930       6.93 
   Investment securities....    35,874       6.98      32,889         602       7.32      25,851         465       7.20
   Other interest-earning                                                                                               
    assets..................    22,771       5.69       8,156          97       4.76       8,093         112       5.54 
                              --------               --------    --------               --------    --------            
     Total interest-
      earning assets........   297,443       7.17     282,863       5,115       7.23     229,703       4,252       7.40
                                                                 --------                           --------            
   Allowance for loan                                                                                        
    losses..................    (1,863)                (1,880)                            (1,518)
   Non-interest-earning                                                                                      
    assets..................    16,942                 18,240                              8,089 
                              --------               --------                           --------             
     Total assets...........  $312,522               $299,223                           $236,274
                              ========               ========                           ========
LIABILITIES AND RETAINED
 EARNINGS:
 Interest-bearing
  liabilities:
   Interest-bearing
    deposits:
     Demand deposits........  $ 22,256       1.69    $ 21,560          94       1.74    $ 15,171          67       1.77
     Savings and club                                                                                                   
      accounts..............    61,840       2.58      62,849         407       2.59      50,260         314       2.50 
     Certificates of                                                                                                    
      deposit...............   143,591       5.49     142,728       1,932       5.41     108,699       1,428       5.25 
                              --------               --------    --------               --------    --------            
       Total interest-
       bearing deposits.....   227,687       4.33     227,137       2,433       4.28     174,130       1,809       4.16 
   Borrowed money...........    42,300       5.86      30,144         437       5.80      22,650         343       6.06
                              --------               --------    --------               --------    --------
     Total interest-
      bearing liabilities...   269,987       4.57     257,281       2,870       4.46     196,780       2,152       4.37
                                                                 --------                           --------            
 Non-interest bearing                                                                                        
  deposits..................    11,433                 11,471                              7,106 
 Other non-interest-                                                                                         
  bearing liabilities.......     1,301                    921                              3,674 
                              --------               --------                           -------- 
     Total liabilities......   282,721                269,673                            207,560
 Retained earnings..........    29,801                 29,550                             28,714
                              --------               --------                           --------
   Total liabilities and      $312,522               $299,223                           $236,274
    retained earnings.......  ========               ========                           ========
 Net interest income/                                                                                                   
  interest rate spread .....                 2.60%               $  2,245       2.77%               $  2,100       3.03%
                                          =======                ========    =======                ========    ======= 
 Net interest-earning                                                                                                   
  assets/net yield on                                                                                                   
  interest-earning
  assets....................  $ 27,456               $ 25,582                   3.17%   $ 32,923                   3.66%
                              ========               ========                =======    ========                ======= 
   Ratio of average          
    interest-earning         
    assets to average
    interest-bearing
    liabilities                   1.10x                  1.10x                              1.17x     
                              ========               ========                           ======== 
</TABLE> 

                                       44
<PAGE>
 
<TABLE> 
<CAPTION> 
                                                                                   FOR THE YEARS ENDED DECEMBER 31,                
                                                              ---------------------------------------------------------------------
                                                                            1997                                 1996              
                                                              ------------------------------------  -------------------------------
                                                                                      AVERAGE                             AVERAGE  
                                                                  AVERAGE               YIELD/       AVERAGE                YIELD/ 
                                                                  BALANCE   INTEREST     COST        BALANCE   INTEREST      COST  
                                                              ------------ ---------- ------------  --------- ---------- ----------
                                                                                       (DOLLARS IN THOUSANDS)                
<S>                                                           <C>          <C>        <C>           <C>       <C>        <C>      
ASSETS:                                                                              
   Interest-earning assets:                                   
       Loans receivable.....................................  $ 97,277     $ 7,908     8.13%        $ 85,973  $ 7,268      8.45%
       Investment securities................................   114,996       7,909     6.88          101,196    6,983      6.90
       Mortgage-backed securities...........................    26,774       1,897     7.09           23,035    1,701      7.38
       Other interest-earning assets........................     7,019         401     5.71            8,130      515      6.33
                                                              --------     -------                  --------  -------
          Total interest-earning assets.....................   246,016      18,115     7.36          218,334   16,467      7.54
                                                                           -------                            -------
       Allowance for loan losses............................    (1,739)                               (1,354)
       Other non-interest earning assets....................    10,422                                 8,126
                                                              --------                              --------
          Total assets......................................  $254,699                              $225,106
                                                              ========                              ========
LIABILITIES AND RETAINED EARNINGS:
   Interest-bearing liabilities:
       Interest-bearing deposits:
          Demand............................................  $ 16,360         293     1.79%        $ 14,736      269      1.83%
          Savings and club..................................    53,221       1,357     2.55           51,138    1,278      2.50
          Certificates of deposit...........................   119,272       6,439     5.40          105,141    5,602      5.33
                                                              --------     -------                  --------  -------
             Total interest-bearing deposits................   188,853       8,089     4.28          171,015    7,149      4.18
       Borrowed money.......................................    26,223       1,566     5.97           18,092    1,151      6.36
                                                              --------    --------                  --------  -------
          Total interest-bearing liabilities................   215,076       9,655     4.49          189,107    8,300      4.39
                                                                          --------                   -------  -------
   Non-interest-bearing deposits............................     8,503                                 6,943
   Other non-interest bearing liabilities...................     1,711                                 1,203
                                                              --------                              --------
          Total liabilities.................................   225,290                               197,253
   Retained earnings........................................    29,409                                27,853
                                                              --------                              --------
          Total liabilities and retained earnings...........  $254,699                              $225,106
                                                              ========                              ========
   Net interest income/interest rate spread.................              $  8,460     2.87%                  $ 8,167      3.15%
                                                                          ========     ====                   =======      =====
   Net interest-earning assets/net yield on interest-earning
     assets.................................................  $ 30,940                 3.44%        $ 29,227               3.74%
                                                              ========                 ====         ========               =====
   Ratio of interest-earning assets to interest-bearing
     liabilities............................................      1.14x                                 1.15x
                                                                  ====                                  ====

<CAPTION>                                                                                                                         
                                                              -----------------------------------
                                                                            1995                       
                                                              -----------------------------------
                                                                                      AVERAGE      
                                                                 AVERAGE               YIELD/      
                                                                 BALANCE  INTEREST      COST       
                                                              -----------------------------------
<S>                                                           <C>         <C>         <C>  
ASSETS:                                                                                                    
   Interest-earning assets:
       Loans receivable.....................................  $ 86,379    $ 7,603      8.80%
       Investment securities................................    96,865      6,559      6.77
       Mortgage-backed securities...........................    15,926      1,188      7.46
       Other interest-earning assets........................     7,251        385      5.31
                                                              --------    -------
          Total interest-earning assets.....................   206,421     15,735      7.62
                                                                          -------
       Allowance for loan losses............................    (1,161)
       Other non-interest earning assets....................     7,342
                                                              ---------
          Total assets......................................  $ 212,602
                                                              =========
LIABILITIES AND RETAINED EARNINGS:
   Interest-bearing liabilities:
       Interest-bearing deposits:
          Demand............................................  $  13,601       311      2.29%
          Savings and club..................................     55,888     1,397      2.50
          Certificates of deposit...........................     92,938     4,843      5.21
                                                              ---------   -------
             Total interest-bearing deposits................    162,427     6,551      4.03
       Borrowed money.......................................     15,615     1,067      6.83
                                                              ---------   -------
          Total interest-bearing liabilities................    178,042     7,618      4.28
                                                                          -------
   Non-interest-bearing deposits............................      7,937
   Other non-interest bearing liabilities...................        916
                                                              ---------
          Total liabilities.................................    186,895
   Retained earnings........................................     25,707
                                                              ---------
          Total liabilities and retained earnings...........  $ 212,602
                                                              =========
   Net interest income/interest rate spread.................              $ 8,117      3.34%
                                                                          =======      ====
   Net interest-earning assets/net yield on interest-earning
     assets.................................................  $ 28,379                 3.93%
                                                              ========                 ====
   Ratio of interest-earning assets to interest-bearing
     liabilities............................................      1.16x
</TABLE>

                                       45
<PAGE>
 
      RATE/VOLUME ANALYSIS.  The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected the Bank's interest income and
interest expense during the periods indicated. Information is provided in each
category with respect to: (i) changes attributable to changes in volume (changes
in volume multiplied by prior rate); (ii) changes attributable to changes in
rate (changes in rate multiplied by prior volume); and (iii) the net change. The
changes attributable to the combined impact of volume and rate have been
allocated on a proportional basis between changes in rate and volume.

<TABLE>
<CAPTION>
                                THREE MONTHS ENDED            YEAR ENDED                   YEAR ENDED                        
                                  MARCH 31, 1998           DECEMBER 31, 1997            DECEMBER 31, 1996                    
                                   COMPARED TO                COMPARED TO                  COMPARED TO                      
                                THREE MONTHS ENDED            YEAR ENDED                   YEAR ENDED                       
                                  MARCH 31, 1997           DECEMBER 31, 1996            DECEMBER 31, 1995         
                              -----------------------   -------------------------   -------------------------        
                              INCREASE (DECREASE)       INCREASE (DECREASE)         INCREASE (DECREASE)      
                                     DUE TO                  DUE TO                       DUE TO          
                              ------------------        ------------------          --------------------
                               VOLUME     RATE   NET     VOLUME    RATE      NET     VOLUME     RATE     NET   
                              -------    ------- ----   --------  --------   ----   ------     -------   ---- 
                                                             (IN THOUSANDS)
<S>                           <C>        <C>     <C>    <C>       <C>      <C>      <C>       <C>      <C>
Interest income:
   Loans receivable..........  $  618    $ (65)  $553    $  923   $(283)   $  640    $ (35)   $(300)   $(335)
   Mortgage-backed...........     254      (66)   188       946     (20)      926      296      128      424
    securities
   Investment securities.....     129        8    137       265     (69)      196      526      (13)     513
   Other interest-earning....       1      (16)   (15)      (66)    (48)     (114)      50       80      130
    assets...................  ------    -----   ----    ------   -----    ------    -----    -----    -----
Total........................   1,002     (139)   863     2,068    (420)    1,648      837     (105)     732
                               ------    -----   ----    ------   -----    ------    -----    -----    -----
Interest expense:
   Demand deposits(1)........      28       (1)    27        30      (6)       24       24      (66)     (42)
   Savings and club..........      81       12     93        53      26        79     (119)      --     (119)
    accounts
   Certificates of deposit...     459       45    504       762      75       837      646      113      759
   Borrowed money............     109      (15)    94       489     (74)      415      161      (77)      84
                               ------    -----   ----    ------   -----    ------    -----    -----    -----
Total........................     678       40    718     1,334      21     1,355      712      (30)     682
                               ------    -----   ----    ------   -----    ------    -----    -----    -----

Net change in net interest
 income......................  $  324    $(179)  $145    $  734   $(441)   $  293    $ 125    $ (75)   $  50
                               ======    =====   ====    ======   =====    ======    =====    =====    =====
</TABLE>

______________________
(1)  Includes NOW and Money Market accounts.

                                       46
<PAGE>
 
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1998 AND DECEMBER 31, 1997

     Total assets were $312.5 million at March 31, 1998, compared to $299.0
million at December 31, 1997, an increase of $13.5 million, or 4.5%. The
increase in assets was funded primarily by an increase in FHLB borrowings of
$12.0 million.

     Cash and cash equivalents, primarily interest-bearing deposits with the
FHLB, increased $8.6 million to $17.3 million at March 31, 1998 from $8.7
million at December 31, 1997. Additionally, the Bank invested in term deposits
with the FHLB totalling $5.0 million during the first quarter of 1998. These
term deposits have initial periods to maturity of between three and seven
months. The overall increase of $13.6 million in cash and cash equivalents and
term deposits was funded primarily by the $12.0 million increase in borrowed
money and serves to increase the Bank's liquidity position.

     In the aggregate, mortgage-backed securities and investment securities,
including available for sale and held to maturity issues, totalled $158.5
million at March 31, 1998, a decrease of $1.7 million from $160.2 million at
December 31, 1997. Such decrease was used to fund an increase of $1.6 million in
the loan portfolio. Mortgage-backed securities, all of which are held to
maturity, decreased $7.5 million due to repayments. Investment securities held
to maturity increased $5.8 million, primarily due to security purchases and
investment securities available for sale remained unchanged at $7.1 million. At
March 31, 1998, 99.6% of the Bank's investment securities, including available
for sale and held to maturity, consisted of U.S. Government and Agency
obligations, while virtually all of the mortgage-backed securities portfolio
consisted of GNMA, FNMA and FHLMC issues.

     Loans receivable increased $1.6 million to $114.3 million at March 31, 1998
from $112.7 million at December 31, 1997. The increase was primarily in the one-
to four-family mortgage loan category, which increased $2.0 million. At March
31, 1998, 88.0% of the outstanding balance of loans in the Bank's portfolio
consisted of one- to four-family loans, compared to 87.3% at December 31, 1997.

     Deposits totaled $239.1 million at March 31, 1998, an increase of $928,000,
or 0.4%, over the $238.2 million balance at December 31, 1997.

     Borrowed money increased $12.0 million to $42.3 million at March 31, 1998,
as compared to $30.3 million at December 31, 1997. Based on the lower cost of
wholesale funds as compared to comparable maturity retail deposits, management
chose to fund the asset growth discussed above with additional FHLB borrowings.
During the quarter ended March 31, 1998, short-term borrowings totalling $18.0
million were repaid, while $30.0 million in borrowings with five to ten year
maturities and an average interest rate of 5.62% were incurred.

     Retained earnings increased $526,000, or 1.8%, to $29.8 million, primarily
due to the retention of net income.

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

     Total assets were $299.0 million at December 31, 1997, as compared to
$236.0 million at December 31, 1996, an increase of $63.0 million, or 26.7%. The
increase in assets was funded primarily by deposit growth of $58.2 million and
an increase in FHLB borrowings of $6.6 million. The $58.2 million increase in
deposits was primarily due to the Bank's purchase of three branch offices from
Summit Bank ("Summit") in October 1997, with total deposits of $51.0 million. 

                                       47
<PAGE>
 
     Securities available for sale increased to $7.1 million at December 31,
1997 from $1.6 million at December 31, 1996. The securities owned at December
31, 1996 consisted of a municipal bond which was called and mutual fund shares
which were sold during the year ended December 31, 1997. The complete
liquidation of the December 31, 1996 portfolio resulted in a loss of $20,000.
The Bank purchased $7.0 million in U.S. government obligations for the available
for sale portfolio during 1997, all of which remain at December 31, 1997.

     Investment securities held to maturity increased to $22.9 million at
December 31, 1997 from $22.5 million at December 31, 1996 as $10.0 million of
securities that matured during the period were replaced with $10.4 million in
new securities. The investment securities held to maturity portfolio consists
solely of U.S. Government and Agency securities.

     Mortgage-backed securities held to maturity increased to $130.2 million at
December 31, 1997 from $113.3 million at December 31, 1996. The Bank purchased
$37.0 million in mortgage-backed securities during 1997, which more than offset
$20.1 million in repayments received. The bulk of the issues purchased during
1997 were adjustable rate issues, increasing the level of adjustable-rate
mortgage-backed securities to 63.7% of the portfolio at December 31, 1997 from
55.5% at December 31, 1996. Virtually the entire mortgage-backed securities
portfolio consists of securities issued by GNMA, FNMA and FHLMC.

     Loans receivable increased $30.6 million, or 14.9%, to $112.7 million at
December 31, 1997 from $82.1 million at the prior year end. This increase was
consistent with the Bank's strategy of increasing assets in anticipation of the
deposit purchase consummated in late 1997. To this end, the Bank utilized
mortgage brokers during 1997 to significantly increase the volume of
originations, while continuing to adhere to prudent underwriting standards. The
following significant increases by loan category were experienced: one- to four-
family mortgage loans -- $26.7 million; home equity lines of credit and loans --
$1.9 million; and construction and land loans (net of loans in process) -- $3.4
million. Commercial real estate loans decreased $1.6 million. The Bank remains
predominantly a one- to four-family residential lender. At December 31, 1997,
87.3% of the balance of outstanding loans relates to one- to four-family
lending, up from 81.1% at December 31, 1996.

     Premises and equipment increased to $3.1 million at December 31, 1997 from
$1.6 million at December 31, 1996. Of this increase, $1.4 million is due to the
acquisition of the three branch offices from Summit Bank.

     In conjunction with the branch offices and deposits acquired from Summit, a
premium of $7.6 million was recorded as the excess of cost over assets acquired.
Such amount was based upon the amount of deposits the Bank had agreed to
acquire. However, during the period between the purchase agreement date and the
October 17, 1997 consummation date, the deposits subject to purchase declined
over 18%. By December 31, 1997, the balance of deposits at the three branch
offices had stabilized. Management performed a reassessment of the
recoverability of this asset and, as a result, an impairment loss of $1.6
million was recorded, leaving a balance of $5.8 million at December 31, 1997.

     Deposits totaled $238.2 million at December 31, 1997, an increase of $58.3
million, or 32.4%, over the balance of $179.9 million at December 31, 1996. The
increase resulted primarily from the purchase of the three Summit branches and
the crediting of $8.1 million in interest on deposits.

                                       48
<PAGE>
 
     Borrowings increased $6.6 million to $30.3 million at December 31, 1997, as
compared to $23.7 million at December 31, 1996. The increase was due to the
Bank's increased usage of short-term sales of mortgage-backed securities under
repurchase agreements. All outstanding borrowings are with the FHLB.

     Retained earnings increased $822,000, or 2.9%, to $29.3 million, due
largely to the retention of net income.

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1997

     NET INCOME.  Net income decreased $12,000 or 2.3% to $511,000 for the three
months ended March 31, 1998 compared with $523,000 for the same 1997 period. The
decrease in net income during the 1998 period resulted from an increase in non-
interest expenses, which was partially offset by increases in net interest
income and non-interest income and decreases in provision for loan losses and
income taxes.

     INTEREST INCOME. Total interest income increased $863,000 or 20.3% to $5.1
million for the three months ended March 31, 1998 from $4.3 million for the same
1997 period. The increase was the result of a 23.1 % increase in average
interest-earning assets between the periods, which more than offset a 17 basis
point decline in yield. The increase in the average balance was the result of
increased loan originations and securities purchased during the last three
quarters of 1997 funded by cash received in connection with the deposits
purchased from Summit. The decrease in yield was the result of lower rates
obtained on loans originated and mortgage-backed securities purchased since
March 31, 1997.

     Interest income on loans increased by $553,000 or 31.7% to $2.3 million
during the three months ended March 31, 1998 when compared with $1.7 million for
the same 1997 period. The increase during the 1998 period resulted from an
increase of $31.0 million in the average balance of loans outstanding, which was
sufficient to offset a 30 basis point decrease in the yield earned on the loan
portfolio. The increased average balance was the result of increased lending
volume during the last nine months of 1997. The decreased yield is the result of
lower rates obtained on originations as well as downward interest rate
adjustments on the Bank's adjustable-rate mortgage loans.

     Interest on mortgage-backed securities, all of which are held to maturity,
increased $188,000 or 9.7% to $2.1 million during the three months ended March
31, 1998 when compared with $1.9 million for the same 1997 period. The increase
during the 1998 period resulted from a $15.1 million or 13.6% increase in the
average balance of mortgage-backed securities, which was more than sufficient to
offset a 23 basis point decline in yield. The increased average balance is the
result of purchases of mortgage-backed securities exceeding repayments. The
decrease in yield is the result of lower interest rates obtained on securities
purchased since March 31, 1997, many of which were adjustable rate issues with
customarily low initial interest rates.

     Interest earned on investment securities, including both available for sale
and held to maturity issues, increased by $137,000 or 29.5% to $602,000 during
the three months ended March 31, 1998, when compared to $465,000 during the same
1997 period, primarily due to an increase of $7.0 million in the average balance
of such assets along with a twelve basis point increase in the yield earned. The
increase in average balance was the result of purchases of U.S. Government and
Agency securities exceeding maturities thereof.

     Interest on other interest-earning assets decreased $15,000 or 13.4% to
$97,000 during the three months ended March 31, 1998 as compared to $112,000 for
the same 1997 period. The decrease was

                                       49
<PAGE>
 
primarily due to a 78 basis point decline in yield as the average balance of
such assets increased by $63,000 or 0.8%.

     INTEREST EXPENSE.  Interest expense on deposits increased $624,000 or 34.5%
to $2.4 million during the three months ended March 31, 1998 when compared to
$1.8 million during the same 1997 period. Such increase was primarily
attributable to increases of $53.0 million in the average balance of interest-
bearing deposits and twelve basis points in the cost of interest-bearing
deposits. The increased average balance is the result of the purchase of $51.0
million in deposits from Summit in October 1997. The increase in cost is due to
higher interest rates paid on certificates of deposit, which averaged 5.41 % for
the three months ended March 31, 1998 as compared to 5.25% for the same 1997
period. The cost of non-certificate deposits increased to a lesser degree, to
2.37% for the three months ended March 31, 1998 as compared to 2.33% for the
same prior year period.

     Interest expense on borrowed money increased by $94,000 or 27.4% to
$437,000 during the three months ended March 31, 1998 when compared with
$343,000 during the same 1997 period, primarily due to an increase of $7.5
million in the average balance of borrowings outstanding from the FHLB, which
was sufficient to offset a twenty-six basis point decrease in the cost of
borrowed money. During the three months ended March 31, 1998, the Bank repaid
$18.0 million in short-term borrowings under repurchase agreements having an
average interest rate of 5.82% and obtained $30.0 million in borrowings with
five to ten year maturities with an average interest rate of 5.62%.

     NET INTEREST INCOME.  Net interest income increased $145,000 or 6.9% during
the three months ended March 31, 1998 when compared with the same 1997 period.
Such increase was due to an increase in total interest income of $863,000, which
was sufficient to offset an increase in total interest expense of $718,000. The
Bank's net interest rate spread decreased to 2.77% in 1998 from 3.03% in 1997.
The decrease in the interest rate spread resulted from a decrease of 17 basis
points in the yield earned on interest-earning assets along with a 9 basis point
increase in the cost of interest-bearing liabilities. Despite the decline in
interest rate spread, the Bank improved net interest income due to the
additional income generated by the $53.2 million increase in average interest-
earning assets, which more than offset the additional cost incurred by the $60.5
million increase in average interest-bearing liabilities.

     PROVISION FOR LOAN LOSSES.  During the three months ended March 31, 1998,
the Bank recorded a recapture of the provision for loan losses of $22,000.
During the three months ended March 31, 1997, the Bank provided $55,000 as a
provision for loan losses. The allowance for loan losses is based on
management's evaluation of the risk inherent in its loan portfolio and gives due
consideration to the changes in general market conditions and in the nature and
volume of the Bank's loan activity. The Bank intends to continue to provide for
loan losses based on its periodic review of the loan portfolio and general
market conditions. At March 31, 1998 and 1997, loans delinquent ninety days or
more totalled $2.3 million and $2.7 million, respectively, representing 1.93%
and 3.22%, respectively, of total loans. At March 31, 1998, the allowance for
loan losses stood at $1.9 million, representing 1.58% of total loans and 82.4%
of loans delinquent ninety days or more. At March 31, 1997, the allowance for
loan losses stood at $1.6 million, representing 1.90% of total loans and 59.2%
of loans delinquent ninety days or more. No loans were charged off during the
three month periods ended March 31, 1998 and 1997. The Bank monitors its loan
portfolio on a continuing basis and intends to continue to provide for loan
losses based on its ongoing review of the loan portfolio and general market
conditions.

                                       50
<PAGE>
 
     NON-INTEREST INCOME.  Non-interest income increased $26,000 or 22.8% to
$140,000 during the three months ended March 31, 1998 from $114,000 during the
same 1997 period. The increase resulted from increased fees and service charges.

     NON-INTEREST EXPENSES.  Non-interest expenses increased by $286,000 or
21.2% to $1.64 million during the three months ended March 31, 1998 when
compared with $1.35 million during the same 1997 period. Salaries and employee
benefits, net occupancy expense, equipment, advertising, and miscellaneous
expense increased in the aggregate by $270,000, or 23.2%, to $1.44 million
during the three months ended March 31, 1998 from $1.17 million during the same
prior year period due primarily to the purchase of three branches from Summit.
Such purchase in October 1997 increased the Bank's number of office locations
from 5 to 8 and resulted in increases in the aforementioned expenses. Loss on
REO decreased $133,000 to $24,000 during the three months ended March 31, 1998
from $157,000 during the same prior year period due primarily to a $148,000
reduction in loss provisions recorded during the two periods. During the three
month period ended March 31, 1998, amortization expense of $148,000 was recorded
in connection with the acquisition of deposits from Summit in October 1997. No
comparable expense was recorded during the same 1997 period.

     INCOME TAXES.  Income tax expense totalled $260,000, or 33.7% of income
before income taxes, during the three months ended March 31, 1998 as compared to
$284,000, or 35.2% of income before income taxes, during the comparable 1997
period.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

     NET INCOME.  Net income for 1997 was $737,000, a decrease of $919,000 from
$1.7 million in 1996. The primary factors in the decrease of net income were a
$1.74 million amortization expense, which primarily related to a $1.6 million
impairment loss, on the excess of the cost over assets acquired in connection
with the purchase of deposits from Summit in 1997, the $1.1 million one-time
special assessment in 1996 to recapitalize the SAIF, and a $380,000 loss on REO
in 1997 versus income of $21,000 on REO in 1996. The combined effect of these
three factors was to decrease income before income taxes and net income by $1.05
million and $670,000, respectively. The remaining $249,000 decrease in net
income was the result of increases in provisions for loan losses and non-
interest expense, along with a decrease in non-interest income, which more than
offset an increase in net interest income and a decrease in income taxes.

     INTEREST INCOME. Total interest income increased 10.0% to $18.1 million for
1997 as compared to $16.5 million for 1996. The increase was due to a $27.7
million or 12.7% increase in average interest-earning assets during 1997, which
more than offset a drop of 18 basis points in the yield earned thereon to 7.36%
in 1997 from 7.54% in 1996. Increased average balances and decreased yield were
experienced in all categories of interest-earning assets. The increased average
balances of earning assets were the result of increased loan originations and
securities purchases funded by the Summit deposit purchase and increased FHLB
borrowings.

     Interest income on loans during 1997 increased by $640,000, or 8.8%, to
$7.9 million when compared to $7.3 million during 1996. During the years ended
December 31, 1997 and 1996, the yield earned on the loan portfolio was 8.13% and
8.45%, respectively. The average balance of loans outstanding during the years
ended December 31, 1997 and 1996, totalled $97.2 million and $86.0 million,
respectively. The decreased yield is the result of the lower market interest
rates prevailing during 1997. The increased average balance during 1997 is the
result of increased loan origination efforts, including the use of outside
mortgage brokers. Originations rose to $47.1 million in 1997 from $15.1 million
in 1996.

                                       51
<PAGE>
 
     Interest on mortgage-backed securities, all of which are held to maturity,
increased $926,000 or 13.3%, during 1997 to $7.9 million compared to $7.0
million for 1996. During the year ended December 31, 1997, the average balance
of mortgage-backed securities outstanding increased $13.8 million, or 13.6%, to
$115.0 million when compared to $101.2 million for 1996. The yield earned on the
mortgage-backed securities portfolio decreased marginally to 6.88% in 1997 from
6.90% in 1996. The increase in the average balance of mortgage-backed securities
during 1997 resulted primarily from purchases of mortgage-backed securities
which more than offset principal repayments.

     Interest earned on investment securities, including both available for sale
and held to maturity issues, increased by $196,000, or 11.5%, to $1.9 million
for 1997, when compared to $1.7 million for 1996. The increase resulted from an
increase of $3.7 million, or 16.2%, in the average balance of the investment
securities portfolio, which more than offset a decrease of 29 basis points in
the yield earned on the investment securities portfolio to 7.09% in 1997 from
7.38% in 1996. The increased average balance and decreased yield were both the
result of the purchase during 1997 of $7.0 million in U.S. Government securities
available for sale yielding 6.08%.

     Interest on other interest-earning assets totalled $401,000 and $515,000
during 1997 and 1996, respectively. The yield earned on other interest-earning
assets decreased to 5.71% in 1997 from 6.33% in 1996, which augmented a decrease
of $1.1 million, or 13.7%, in the average balance of other interest-earning
assets outstanding.

     INTEREST EXPENSE. Interest expense on deposits increased $940,000, or 13.1
% to $8.1 million during 1997 compared to $7.1 million for 1996. The increase
during 1997 was attributable to an increase of ten basis points in the Bank's
average cost of interest-bearing deposits to 4.28% for 1997 from 4.18% for 1996,
along with an increase of $17.8 million, or 10.4 %, in the average balance of
interest-bearing deposits outstanding. The increased cost reflects a seven basis
point increase in the cost of certificates of deposit as well as the increase of
such certificates to 63.2% of average interest-bearing deposits in 1997 from
61.5% during 1996. The increased average balance of interest-bearing deposits
primarily reflects the purchase of deposits from Summit during 1997.

     Interest expense on borrowed money increased $415,000, or 36.1%, to $1.6
million during 1997 compared to $1.2 million for 1996. The increase during 1997
was attributable to an increase of $8.1 million in the average balance of
borrowings outstanding, partially offset by a decrease of 39 basis points in the
Bank's cost of borrowings to 5.97% for 1997 from 6.36% for 1996. The increased
average balance reflects management's increased use of borrowed funds to
leverage the balance sheet. The decreased interest rate on borrowings resulted
from the paydown of older debt having higher interest rates as well as the lower
interest rates available on new borrowings obtained in 1997.

     NET INTEREST INCOME.  Net interest income for 1997 increased $293,000, or
3.6%, to $8.5 million in 1997 from $8.2 million in 1996. The Bank's net interest
rate spread decreased to 2.87% in 1997 from 3.15% in 1996 and its interest rate
margin decreased to 3.44% in 1997 from 3.74% in 1996. These decreases primarily
resulted from an 18 basis point decrease in the yield earned on interest earning
assets to 7.36% in 1997 from 7.54% in 1996 coupled with a ten basis point
increase in the cost of average interest-bearing liabilities to 4.49% in 1997
from 4.39% in 1996. Despite the decreases in interest rate spread and margin,
the Bank was able to improve net income by increasing net interest-earning
assets by $1.7 million and by leveraging the balance sheet through a deposit
purchase and increased borrowings.

                                       52
<PAGE>
 
     PROVISION FOR LOAN LOSSES.  During 1997 and 1996, the Bank provided
$487,000 and $232,000, respectively, for loan losses. At December 31, 1997 and
1996, the Bank's loan portfolio included loans totalling $2.5 million and $2.9
million, respectively, which were delinquent ninety days or more. The Bank
maintains an allowance for loan losses based on management's evaluation of the
risks inherent in its loan portfolio which gives due consideration to changes in
general market conditions and in the nature and volume of the Bank's loan
activity. The allowance for loan losses amounted to $1.9 million at December 31,
1997, representing 1.62% of total loans and 75.7% of loans delinquent ninety
days or more compared to an allowance of $1.6 million at December 31, 1996,
representing 1.85% of total loans and 54.5% of loans delinquent ninety days or
more. During 1997, the Bank charged off loans aggregating $166,000. During 1996,
no loans were charged off. The Bank monitors its loan portfolio and intends to
continue to provide for loan losses based on its ongoing periodic review of the
loan portfolio and general market conditions.

     NON-INTEREST INCOME.  Non-interest income decreased by $103,000, or 21.6%,
to $373,000 during 1997 as compared to $476,000 for 1996. The decrease in non-
interest income during 1997 resulted primarily from a $20,000 loss on sales of
securities available for sale during 1997 as compared to a $103,000 gain in
1996, $21,000 in income on REO recorded in 1996 compared to none in 1997, and a
decrease in miscellaneous income of $22,000, which was partially offset by
increases in fees and service charges of $63,000. The increase during the 1997
period in the fees and service charges resulted from a revised service fee
schedule on various depository services.

     NON-INTEREST EXPENSES.  Non-interest expenses increased $1.3 million, or
21.2%, to $7.2 million during 1997 compared to $5.9 million for 1996. During
1997, in conjunction with the purchase of three branches and related deposit
liabilities from Summit, the Bank recorded $7.6 million in excess of cost over
assets acquired. Amortization expense of $1.7 million, including an impairment
loss of $1.6 million, as previously noted, was recorded during 1997 on this
asset. Additionally, on September 30, 1996, legislation was enacted which, among
other things, imposed a one-time special assessment on SAIF member institutions,
including the Bank. The special assessment levied amounted to 65.7 basis points
on SAIF assessable deposits held as of March 31, 1995. The Bank, during the 1996
period, took a charge of $1.1 million as a result of such assessment. Non-
interest expenses, excluding the above-mentioned amortization expense on excess
of cost over assets acquired and the one-time SAIF assessment, increased
$610,000, or 12.7%, to $5.4 million during 1997 compared to $4.8 million for
1996.

     Salaries and employee benefits increased $226,000 or 8.6%, occupancy and
equipment expenses increased $87,000 or 13.2% and miscellaneous expenses
increased $132,000 or 12.2%. The combined $445,000 increase in these areas is
largely attributable to the three branches acquired from Summit during 1997 and
the related increase in operating costs.

     Loss on REO totalled $380,000 in 1997 compared to income of $21,000
recorded in 1996, which resulted primarily from an increase of $328,000 in loss
provisions recorded on properties in the REO portfolio, to $373,000 in 1997 from
$45,000 in 1996, and an $87,000 decrease in gain on sales of properties to
$30,000 in 1997 from $117,000 in 1996. $264,000 of the $373,000 in loss
provisions recorded in 1997 relates to one commercial property and was based
upon a market price opinion given in October 1997 by a major realtor.

     Partially offsetting the increases in salaries and employee benefits,
occupancy and equipment expenses, miscellaneous expenses and loss on real estate
owned was a $265,000 decrease in federal deposit insurance premium related to
the reduction of the deposit insurance assessment rate.

                                       53
<PAGE>
 
     INCOME TAXES. Income tax expense totalled $436,000 and $836,000 during 1997
and 1996, respectively. The increase in 1997 resulted primarily from an increase
in pre-tax income of $1.3 million and from the utilization, in 1996, of a
$103,000 capital loss carryforward. The Bank's effective income tax rate was
37.2% in 1997 and 33.5% in 1996.

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

     NET INCOME.  Net income decreased by $616,000, or 27.1% to $1.7 million
during 1996 compared to $2.3 million for 1995. The decrease in net income during
the 1996 period resulted primarily from a charge of $1.1 million to recapitalize
the SAIF. During the year ended December 31 1996, a one-time special assessment
was levied amounting to 65.7 basis points on SAIF assessable deposits held as of
March 31, 1995. The after-tax effect of this charge was to reduce net income for
1996 by $703,000. Exclusive of the effect of the one-time special assessment,
net income increased $87,000 or 3.8% as increases of $50,000 in net interest
income and $143,000 in non-interest income, along a $278,000 decrease in
provision for loan losses more than offset increases of $374,000 in noninterest
expenses and $10,000 in income taxes.

     INTEREST INCOME. Total interest income increased 4.7% to $16.5 million for
1996 as compared to $15.7 million in 1995. The increase was due to an $11.9
million or 5.8% increase in average interest-earning assets, which more than
offset an 8 basis point decline in the yield earned on such assets to 7.54% in
1996 from 7.62% in 1995.

     Interest income on loans during 1996 decreased $335,000, or 4.4%, to $7.3
million when compared to $7.6 million during 1995, primarily due to a decrease
in yield. During the years ended December 31, 1996 and 1995, the yield earned on
the loan portfolio was 8.45% and 8.80%, respectively. The 35 basis point yield
decline reflects lower interest rates on originated loans as well as downward
rate adjustments on adjustable rate loans. The average balance of loans
outstanding, during the years ended December 31, 1996 and 1995, totalled $86.0
million and $86.4 million, respectively.

     Interest on mortgage-backed securities, all of which were held to maturity,
increased $424,000, or 6.5%, during 1996 to $7.0 million compared to $6.6
million for 1995. During the year ended December 31, 1996, the average balance
of mortgage-backed securities outstanding increased $4.3 million, or 4.5%. The
yield earned on the mortgage-backed securities portfolio increased 13 basis
points to 6.90% in 1996 from 6.77% in 1995. The increase in the average balance
of mortgage-backed securities during 1996 resulted primarily from purchases of
mortgage-backed securities exceeding repayments thereon.

     Interest earned on investment securities, both available for sale and held
to maturity, increased by $513,000, or 43.2%, to $1.7 million for 1996, when
compared to $1.2 million for 1995. The increase resulted primarily from an
increase of $7.1 million or 44.6%, in the average balance of the investment
securities portfolio, which primarily included U.S. Government and agencies
obligations, which more than offset an 8 basis point decrease in the yield
earned on the investment securities portfolio to 7.38% in 1996 from 7.46% in
1995. The increase in average balance reflects purchases of investment
securities exceeding maturities.

     Interest on other interest-earning assets increased $130,000, or 33.8%, to
$515,000 during 1996, compared to $385,000 for 1995. Such increase was
attributable to increases of 102 basis points in the yield earned on other
interest-earning assets to 6.33% in 1996 from 5.31% in 1995, along with an
increase of $829,000 or 12.1%, in the average balance of other interest-earning
assets outstanding. Such increase in the

                                       54
<PAGE>
 
average balance of other interest-earning assets outstanding was primarily a
result of increased levels of interest-earning deposits in other banks.

     INTEREST EXPENSE. Interest on deposits increased $598,000, or 9.1% to $7.15
million during 1996 compared to $6.55 million for 1995. The increase during 1996
was attributable to an increase of 15 basis points in the Bank's average cost of
interest-bearing deposits to 4.18% for 1996 from 4.03% for 1995, along with an
increase of $8.6 million, or 5.3%, in the average balance of interest-bearing
deposits outstanding. The increase in the Bank's cost of interest-bearing
deposits reflected both higher interest rates paid on certificates of deposit,
which averaged 5.33% in 1996, up from 5.1% in 1995, and a trend toward higher-
cost certificates of deposit, which represented 61.5% of average interest-
bearing deposits in 1996, up from 57.2% in 1995.

     Interest on borrowed money increased $84,000, or 7.9%, to $1.2 million
during 1996 compared to $1.1 million for 1995. The increase during 1996 was
attributable to an increase of $2.5 million or 15.9% in the average balance of
borrowings outstanding, partially offset by a decrease of 47 basis points in the
Bank's cost of borrowings to 6.36% for 1996 from 6.83% for 1995. The increased
average balance and decreased cost in 1996 were both due to an increased use of
short-term, lower cost FHLB advances.

     NET INTEREST INCOME. Net interest income for 1996 increased $50,000 or 0.6%
to $8.2 million for 1996 from $8.1 million for 1995. The Bank's net interest
rate spread decreased to 3.15% in 1996 from 3.34% in 1995 and its interest rate
margin decreased to 3.74% in 1996 from 3.93% in 1995. These decreases primarily
resulted from an eleven basis point increase in the cost of average interest-
bearing liabilities to 4.39% in 1996 from 4.28% in 1995, along with an eight
basis point decrease in the yield on interest-earning assets to 7.54% in 1996
from 7.62% in 1995. Despite the decreases in interest rate spread and margin,
the Bank was able to increase net interest income by increasing net interest-
earning assets by $848,000 and by leveraging the balance sheet through increased
deposits and borrowings.

     PROVISION FOR LOAN LOSSES.  During 1996 and 1995, the Bank provided
$232,000 and $510,000, respectively, for loan losses. At December 31, 1996 and
1995, the Bank's loan portfolio included loans totalling $2.9 million and $2.2
million, respectively, which were delinquent ninety days or more. The Bank
maintains an allowance for loan losses based on management's evaluation of the
risks inherent in its loan portfolio which gives due consideration to changes in
general market conditions and in the nature and volume of the Bank's loan
activity. The allowance for loan losses amounted to $1.6 million at December 31,
1996, representing 1.85% of total loans and 54.5% of loans delinquent ninety
days or more compared to an allowance of $1.2 million at December 31, 1995,
representing 1.37% of total loans and 55.0% of loans delinquent ninety days or
more. During the years ended December 31, 1996 and 1995, the Bank charged off
loans aggregating $ - 0 - and $546,000, respectively.

     NON-INTEREST INCOME. Non-interest income increased by $144,000, or 43.4%,
to $476,000 during 1996 as compared to $332,000 for 1995. The increase in non-
interest income during 1996 resulted primarily from a $103,000 gain on sale of
securities available for sale in 1996 as compared to a $22,000 loss in 1995.

     NON-INTEREST EXPENSES. Non-interest expenses increased $1.5 million, or
33.1%, to $5.9 million during 1996 compared to $4.4 million for 1995. The
increase during 1996 was primarily attributable to the one-time SAIF assessment
of $1.1 million. Non-interest expenses other than the one-time SAIF assessment
increased $374,000, or 8.4%, in 1996 over 1995 levels. Salaries and employee
benefits, the major component of non-interest expenses, increased $183,000, or
7.5%, during 1996. The remaining elements of non-interest expenses, exclusive of
the one-time SAIF assessment, increased $192,000 or 9.6% to $2.2

                                       55
<PAGE>
 
million in 1996 from $2.0 million in 1995. The increases, exclusive of the one-
time SAIF assessment, are indicative of the growth of the Bank as well as
general price increases.

     INCOME TAXES. Income tax expense totalled $836,000 and $1.2 million during
1996 and 1995, respectively. The decrease in 1996 resulted primarily from a
decrease in pre-tax income of $1.0 million. The Bank's effective income tax rate
was 33.5% in 1996 and 35.0% in 1995. The 1996 effective tax rate reflects a 1.5%
reduction related to the utilization of a capital loss carryforward.

LIQUIDITY AND CAPITAL RESOURCES

     The Bank's primary sources of funds on a long-term and short-term basis are
deposits, principal and interest payments on loans, mortgage-backed and
investment securities and FHLB borrowings. The Bank uses the funds generated to
support its lending and investment activities as well as any other demands for
liquidity such as deposit outflows. While maturities and scheduled amortization
of loans are predictable sources of funds, deposit flows, mortgage prepayments
and the exercise of call features are greatly influenced by general interest
rates, economic conditions and competition. The Bank has continued to maintain
the required levels of liquid assets as defined by OTS regulations. This
requirement of the OTS, which may be varied at the direction of the OTS
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short-term borrowings. The Bank's currently required liquidity
ratio is 4.0%. At March 31, 1998 and December 31, 1997, 1996, 1995, 1994, and
1993, the Bank's regulatory liquidity ratios were 9.44%, 9.44%, 10.96%, 13.04%,
11.89% and 24.81%, respectively.

     At March 31, 1998, the Bank exceeded all of its regulatory capital
requirements with a tangible capital level of $24.0 million, or 7.84%, of total
adjusted assets, which is above the required level of $4.6 million, or 1.5%;
core capital of $24.0 million, or 7.84%, of total adjusted assets, which is
above the required level of $12.3 million, or 4%; and risk-based capital of
$25.3 million, or 19.95%, of risk-weighted assets, which is above the required
level of $10.1 million, or 8%. See "Regulatory Capital Compliance."

     The Bank's most liquid assets are cash and cash equivalents and its
investment securities available for sale. The levels of these assets are
dependent on the Bank's operating, financing, lending and investing activities
during any given period. At March 31, 1998, cash and cash equivalents and
investment securities available for sale totalled $24.4 million, or 7.8% of
total assets.

     The Bank has other sources of liquidity if a need for additional funds
arises, including FHLB borrowings. At March 31, 1998, the Bank had $42.3 million
in borrowings outstanding from the FHLB. Depending on market conditions, the
pricing of deposit products and FHLB borrowings, the Bank may continue to rely
on FHLB borrowing to fund asset growth.

     At March 31, 1998, the Bank had commitments to originate and purchase loans
and fund unused outstanding lines of credit and undisbursed proceeds of
construction mortgages totaling $19.3 million. The Bank anticipates that it will
have sufficient funds available to meet its current loan origination
commitments. Certificate accounts, including Individual Retirement Account
("IRA") accounts, which are scheduled to mature in less than one year from March
31, 1998, totalled $115.2 million. The Bank expects that substantially all of
the maturing certificate accounts will be retained by the Bank at maturity.

     The initial impact of the Reorganization and the Offering on the liquidity
and capital resources of Bancorp will be significant as it will substantially
increase the liquid assets of Bancorp and the capital base on which Bancorp
operates. Additionally, Bancorp expects the substantial majority of the Offering
proceeds

                                       56
<PAGE>
 
will initially be invested in readily marketable investment grade securities
which, if liquidity needs developed, could be sold by Bancorp to provide
additional liquidity. Further, the additional capital resulting from the
offerings is expected to increase the capital base of Bancorp. At March 31,
1998, the Bank had total equity, determined in accordance with GAAP, of $29.8
million, or 9.5% of total assets. The Bank's regulatory tangible capital at that
date, which excludes intangible assets of $5.7 million and unrealized securities
gains of $80,000, was 7.8%. An institution with a ratio of tangible capital to
total assets of greater than or equal to 5.0% is considered to be "well-
capitalized" pursuant to OTS regulations. Assuming that Bancorp uses 50% of the
net proceeds at the maximum of the Offering Range to purchase the stock of the
Bank, the Bank's GAAP capital will increase to $____ million or a ratio of GAAP
capital to adjusted assets, on a pro forma basis, of ____% after the Offering.
The investment of the net proceeds from the sale of the Common Stock is expected
to provide the Bank with additional income to increase further its capital
position. The additional capital may also assist the Bank in offering new
programs and expanded services to its customers. See "Use of Proceeds."

YEAR 2000 COMPLIANCE

     As the year 2000 approaches, an important business issue has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. Many existing application software products were
designed to accommodate only two-digits. For example, "98" is stored on the
system and represents 1998. Bancorp has been identifying potential problems
associated with the "Year 2000" issue and has implemented a plan designated to
ensure that all software used in connection with Bancorp's business will manage
and manipulate data involving the transition with data from 1999 to 2000 without
functional or data abnormality and without inaccurate results related to such
data. The Bank has prepared a critical issues schedule with a timeline and
assigned responsibilities. In addition, the Bank recognizes that its ability to
be Year 2000 compliant is dependent upon the cooperation of its vendors. The
Bank is requiring its computer systems and software vendors to represent that
the products provided are or will be Year 2000 compliant and has planned a
program of testing for compliance. The Bank has received representations from
its primary third party vendors that they will have resolved any Year 2000
problems in their software by December 31, 1998 and anticipates that all of its
vendors also will have resolved any Year 2000 problems in their software by that
same date. All Year 2000 issues for the Bank, including testing, are expected to
be addressed by December 31, 1998 and any problems would be remedied by March
31, 1999. The Bank will also prepare contingency plans in the event there are
any system interruptions. The Bank believes that its costs related to Year 2000
will be approximately $135,000. There can be no assurances, however, that such
plan or the performance by the Bank's vendors will be effective to remedy all
potential problems. To the extent Bancorp's systems are not fully Year 2000
compliant, there can be no assurance that potential systems interruptions or the
cost necessary to update software would not have a materially adverse effect on
Bancorp's business, financial condition, results of operations and business
prospects. Further, any Year 2000 failure on the part of the Bank's customers
could result in additional expense or loss to the Bank. The Bank plans also to
work with its customers to address any potential Year 2000 problems.

IMPACT OF INFLATION AND CHANGING PRICES

     The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with GAAP, which require the measurement of
financial position and operating results generally in terms of historical dollar
amounts without considering the changes in the relative purchasing power of
money over time due to inflation. The impact of inflation is reflected in the
increased cost of the Bank's operations. Unlike industrial companies, nearly all
of the assets and liabilities of the Bank are monetary in

                                       57
<PAGE>
 
nature. As a result, interest rates have a greater impact on the Bank's
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the
prices of goods and services.

IMPACT OF NEW ACCOUNTING STANDARDS

     ACCOUNTING FOR EARNINGS PER SHARE.  In February 1997, the FASB issued SFAS
No. 128, "Earnings Per Share." This statement establishes standards for
computing and presenting earnings per share ("EPS") and applies to entities with
publicly-held common stock or potential common stock. This statement simplifies
the standards for computing earnings per share previously found in APB Opinion
15, "Earnings per Share," and makes them comparable to international EPS
standards. It replaces the presentation of primary EPS with a presentation of
basic EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures
and requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
This statement is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods; earlier application is not
permitted.

     REPORTING COMPREHENSIVE INCOME. In September 1997, the FASB issued SFAS
No. 130, "Reporting Comprehensive Income." This statement establishes standards
for the reporting and display of comprehensive income and its components in a
full set of general purpose financial statements. SFAS No. 130 requires that all
items that are required to be recognized as components of comprehensive income
be reported in a financial statement that is displayed with the same prominence
as other financial statements. The statement does not require a specific format
for that financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. The Bank implemented SFAS No. 130 in conjunction with the presentation
of its consolidated financial statements at and as of the three months ended
March 31, 1998 and has made the appropriate disclosures in the applicable
consolidated financial statements, as required. The implementation of SFAS No.
130 had no impact on consolidated financial conditions or operations.

     DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. In
September 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. SFAS No. 131
is effective for financial statements for periods beginning after December 15,
1997. Management has determined that this statement does not currently have any
impact on the Bank's information reporting.

     EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS. In
February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement supersedes the
disclosure requirements in FASB statements No. 87, "Employers' Accounting for
Pensions," No. 88, "Employers' accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits," and No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." This
statement addresses disclosures only. It does not address measurement or
recognition and, as such, will not have any impact on consolidated financial
condition or operations. The disclosure requirements of SFAS No. 132 are
effective for fiscal years beginning after December 15, 1997.

                                       58
<PAGE>
 
                              BUSINESS OF BANCORP

     Bancorp will be reorganized, at the direction of the Board of Directors of
the Bank and subject to the approval of the OTS, for the purpose of becoming a
stock holding company to own all of the outstanding capital stock of the Bank.
Upon consummation of the Reorganization, the Bank will be a wholly owned
subsidiary of Bancorp, the majority of whose shares will be held by the Mutual
Company.

     Bancorp is currently not an operating company. Following the
Reorganization, in addition to directing, planning and coordinating the business
activities of the Bank, Bancorp will initially invest net proceeds it retains
from the Offering primarily in mortgage-backed and mortgage-related securities
and other investment-grade marketable securities. In addition, Bancorp intends
to fund the loan to the ESOP to enable the ESOP to subscribe for 8% of the
Common Stock issued in the Offering, including shares issued to the Foundation;
however, a third-party lender may be utilized to lend funds to the ESOP. See
"Use of Proceeds." In the future, Bancorp may acquire or organize other
operating subsidiaries, including other financial institutions and financial
services companies. The Mutual Company will not be an operating company. In
connection with the Reorganization, the Mutual Company will have initial
capitalization of $100,000 Immediately after consummation of the Reorganization,
it is expected that the Mutual Company will not engage in any business activity
other than to hold a majority of the Common Stock of Bancorp and to invest the
funds retained at the Mutual Company level. There can be no assurance that the
Mutual Company will not convert to stock form in the future.

     Presently, there are no agreements or understandings for an expansion of
Bancorp's operations. The Company is not expected to own or lease real or
personal property initially, 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 officers of the Bank, but will utilize the
support staff of the Bank from time to time. Additional employees may be hired
as appropriate to the extent the Company expands its business in the future.

                             BUSINESS OF THE BANK
GENERAL

     The Bank was originally organized in 1915 as a New Jersey chartered
building and loan association and, in 1995, became a federally chartered savings
bank. The Bank conducts business from its administrative/branch office located
in Caldwell, New Jersey and its seven other full service banking branch offices
located in the municipalities of West Orange, Franklin Lakes, River Vale, Pine
Brook, Old Tappan and Northvale, New Jersey, all of which are located in the
Northern New Jersey Counties of Bergen, Essex and Morris. See " -- Market Area
and Competition." At March 31, 1998, the Bank had total assets of $312.5
million, total deposit accounts of $239.1 million and retained earnings of $29.8
million. The Bank's deposits are insured up to the maximum allowable amount by
FDIC.

     The Bank is a community-oriented savings institution whose business
primarily consists of accepting deposits from customers and investing those
funds primarily in mortgage-backed securities and mortgage loans secured by one-
to four-family residences located in the Bank's primary market area. To a
significantly lesser extent, the Bank's invests in commercial real estate loans,
construction and land development loans and home equity loans as well as
consumer loans and obligations of the federal government and federal agencies as
well as states and municipalities. The Bank generally retains for its portfolio
all one- to four-family mortgage loans which it originates. At March 31, 1998
the Bank's securities portfolio totalled $158.5

                                       59
<PAGE>
 
million, or 50.7% of total assets, and its gross loan portfolio totalled $118.2
million, or 37.8% of total assets, of which $89.5 million were one-to four
family mortgage loans, $10.3 million were commercial real estate loans, $8.4
million were home equity loans and lines of credit, $7.1 million were
construction and development loans, $2.1 million were multi-family mortgage
loans, and $801,000 were consumer loans. Of the Bank's total mortgage-backed
securities portfolio, 36.1% are secured by fixed-rate loans and 63.9% are
secured by adjustable-rate loans. Of the Bank's total loan portfolio, 47.6%
carry adjustable rates of interest and 52.4% carry fixed-rates of interest. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Management Strategy."

     The Bank's investment activities primarily consist of investments in
mortgage-backed securities and various federal government and agency obligations
as well as obligations of certain states and municipal subdivisions. At March
31, 1998, the Bank had $122.6 million in mortgage-backed and mortgage-related
securities, or 39.2% of total assets substantially all of which were issued and
guaranteed by the following governmental-sponsored agencies: Fannie Mae
("FNMA"), Freddie Mac ("FHLMC") and Ginnie Mae ("GNMA"). All of the Bank's
mortgage-backed securities are classified as held-to-maturity. The debt
obligations owned by the Bank generally consist of U.S. Government and agency
obligations and obligations of states and municipalities consisting of $7.1
million classified as available-for-sale and $28.8 million classified as 
held-to-maturity. At March 31, 1998, the Bank's deposit accounts totalled $239.1
million, or 84.6% of total liabilities, of which $95.9 million, or 40.3%, were
core deposits. From time to time, the Bank has utilized borrowings from the 
FHLB-NY as a source of funds, and may utilize such borrowings to a greater
extent in the future. At March 31, 1998, such borrowings totalled $42.3 million,
or 15.0% of total liabilities. See "Business of the Bank."

     The Bank's executive offices are located at 417 Bloomfield Avenue,
Caldwell, New Jersey 07006 and its telephone number is (973) 226-7911.

MARKET AREA AND COMPETITION

     The Bank has been, and intends to continue to be, a community-oriented
financial institution, offering a wide variety of financial services to meet the
needs of the communities it serves. The Bank conducts its business through its
administrative and branch office located in Caldwell, New Jersey, and seven
other full service branch offices located in West Orange, Franklin Lakes, River
Vale, Pine Brook, Old Tappan and Northvale, all of which are located in the
Northern New Jersey counties of Essex, Morris and Bergen. The Bank's deposit
gathering base is concentrated in the communities surrounding its offices. While
its lending area extends throughout New Jersey, most of the Bank's mortgage
loans are secured by properties located in Essex, Morris and Bergen Counties in
Northern New Jersey.

     The economy in the Bank's primary market area is based upon a mixture of
service and retail trade. Other employment is provided by a variety of wholesale
trade, manufacturing, federal, state and local government, hospitals and
utilities. The area is also home to commuters working in the greater New York
City metropolitan area. Certain communities in Bergen, Essex and Morris Counties
are among the highest per capita income in the country. Essex County contains
many older residential commuter towns which function partially as business and
service centers. Morris County was once predominantly a rural farming area. It
has experienced rapid growth in the residential, commercial and industrial
sectors. Bergen County has benefitted from its geographical proximity to New
York City. Originally an agricultural region, the county shifted toward
manufacturing and service industries and many foreign firms have set up their
American headquarters in this County.

                                       60
<PAGE>
 
     The Bank faces significant competition both in making loans and in
attracting deposits. The State of New Jersey has a high density of financial
institutions, many of which are branches of significantly larger institutions
which have greater financial resources than the Bank, all of which are
competitors of the Bank to varying degrees. The Bank's competition for loans
comes principally from commercial banks, savings banks, savings and loan
associations, credit unions, mortgage banking companies and insurance companies.
Its most direct competition for deposits has historically come from commercial
banks, savings banks, savings and loan associations and credit unions. The Bank
faces additional competition for deposits from short-term money market funds,
common stock, other corporate and government securities funds and from other
financial service institutions such as brokerage firms and insurance companies.

LENDING ACTIVITIES

     LOAN PORTFOLIO COMPOSITION. The Bank's loan portfolio consists primarily of
first mortgage loans secured by one- to four-family residences. At March 31,
1998, the Bank had total loans receivable of $118.2 million, of which $89.5
million were one- to four-family, residential mortgage loans, equalling 75.7% of
the Bank's total loans receivable. At such date, the remainder of the Bank's
loan portfolio consisted primarily of: $10.3 million of commercial real estate
loans or 8.7% of total loans receivable; $8.4 million of home equity loans and
lines of credit, or 7.1% of total loans receivable; $2.1 million of multi-family
residential loans, or 1.7% of total loans receivable; $7.1 million of
construction and development loans, or 6.0% of total loans receivable; and
$801,000 of consumer loans, or 0.7% of total loans receivable, consisting
primarily of loans on passbook deposit accounts and automobile loans.

     The types of loans that the Bank may originate are subject to federal and
state laws and regulations. Interest rates charged by the Bank on loans are
affected by the demand for such loans and the supply of money available for
lending purposes and the rates offered by competitors. These factors are, in
turn, affected by, among other things, economic conditions, monetary policies of
the federal government, including the Federal Reserve Board, and legislative tax
policies. In recent years, the Bank has aggressively sought to increase its
originations of mortgage loans and has sought to purchase loans and loan
participations. This has resulted in total loans increasing from $84.5 million
at December 31, 1996 to $116.1 million at December 31, 1997 and $118.2 million
at March 31, 1998.

                                       61
<PAGE>
 
           The following table sets forth the composition of the Bank's loan
portfolio in dollar amounts and as a percentage of the portfolio at the dates
indicated.

<TABLE>
<CAPTION>
                                AT MARCH 31,                                                   AT DECEMBER 31, 
                              -------------------  -------------------------------------------------------------------------------
                                   1998                   1997                1996                1995                 1994       
                              -------------------  -------------------  ------------------  ------------------  ------------------
                                         PERCENT               PERCENT             PERCENT             PERCENT             PERCENT
                              AMOUNT    OF TOTAL    AMOUNT    OF TOTAL   AMOUNT   OF TOTAL   AMOUNT   OF TOTAL   AMOUNT   OF TOTAL
                             --------   --------   --------   --------  --------  --------  --------  --------  --------  --------
                                                           (DOLLARS IN THOUSANDS)
<S>                          <C>        <C>        <C>     <C>           <C>      <C>       <C>       <C>       <C>       <C>     
Mortgage Loans:
Residential:
   One- to four-family...... $ 89,451     75.70%   $ 87,489      75.34%  $60,741     71.88%  $65,002     74.50%  $61,747     70.33%
   Multi-family.............    2,050      1.73       2,004       1.73     2,068      2.45     1,115      1.28     1,400      1.59 
  Home equity lines(1)......    8,355      7.07       8,554       7.37     6,653      7.87     4,388      5.03     5,014      5.71 
Commercial real estate......   10,321      8.73      10,695       9.21    12,275     14.53    12,707     14.56    13,815     15.74 
Construction and            
      development...........    7,141      6.04       6,485       5.58     2,080      2.46     3,032      3.47     5,079      5.78 
                             --------    ------    --------     ------   -------    ------   -------    ------   -------    ------ 
 Total mortgage loans.......  117,318     99.27     115,227      99.23    83,817     99.19    86,244     98.84    87,055     99.15 
                             --------    ------    --------     ------   -------    ------   -------    ------   -------    ------ 
Commercial loans............       57      0.05          59       0.05        87      0.10       234      0.27       259      0.29 
                             --------    ------    --------     ------   -------    ------   -------    ------   -------    ------ 
Consumer Loans:             
 Passbook or certificate....      497      0.42         550       0.47       427      0.51       543      0.62       398      0.46 
   Other....................      304      0.26         291       0.25       168      0.20       234      0.27        90      0.10 
                             --------    ------    --------     ------   -------    ------   -------    ------   -------    ------ 
   Total consumer loans.....      801      0.68         841       0.72       595      0.71       777      0.89       488      0.56 
                             --------    ------    --------     ------   -------    ------   -------    ------   -------    ------ 
Total loans receivable......  118,176    100.00%    116,127     100.00%   84,499    100.00%   87,255    100.00%   87,802    100.00%
                                         ======                 ======              ======              ======              ====== 
Less:
   Construction loans in    
    process.................   (2,009)               (1,437)                (440)               (592)             (1,474)          
   Allowance for loan      
    losses..................   (1,863)               (1,885)              (1,564)             (1,200)             (1,236)  
   Deferred loan fees, net..       (2)                  (70)                (361)               (432)               (481)  
                             --------              --------              -------             -------             -------   
Loans receivable, net....... $114,302              $112,735              $82,134             $85,031             $84,611   
                             ========              ========              =======             =======             =======   

<CAPTION> 
                              ----------------------- 
                                       1993
                              ----------------------- 
                                              PERCENT
                               AMOUNT        OF TOTAL
                              --------     ----------
<S>                          <C>           <C>       
Mortgage Loans:
Residential:
   One- to four-family......   $63,352     68.61%
   Multi-family.............     1,865      2.02
  Home equity lines(1)......     5,467      5.92
Commercial real estate......    14,462     15.66
Construction and             
      development...........     6,503      7.04
                               -------    ------
 Total mortgage loans.......    91,649     99.25
                               -------    ------
Commercial loans............       335      0.36
                               -------    ------
Consumer Loans:              
 Passbook or certificate....       309      0.34
   Other....................        46      0.05
                               -------    ------
   Total consumer loans.....       355      0.39
                               -------    ------
   Total loans receivable...    92,339    100.00%
                                          ======
Less:                        
   Construction loans in     
    process.................      (836)
     Allowance for loan      
      losses................    (1,550)
   Deferred loan fees, net..      (534)
                               -------
Loans receivable, net.......   $89,419
                               =======
</TABLE>                    

_________________________
(1)  Includes second mortgage loans other than home equity loans of $60,000, 
     $63,000, $74,000, $91,000, $191,000 and $213,000 at March 31, 1998 and
     December 31, 1997, 1996, 1995, 1994 and 1993, respectively.

                                       62
<PAGE>
 
     LOAN MATURITY.  The following table shows the remaining contractual
maturity of the Bank's loans at March 31, 1998. The table does not include the
effect of future principal repayments or prepayments.

<TABLE>
<CAPTION>
                                                                                AT MARCH 31, 1998
                                                 ------------------------------------------------------------------------------- 
                                                    ONE- TO                                                      CONSTRUCTION    
                                                    FOUR-       MULTI-     SECOND      EQUITY     COMMERCIAL         AND         
                                                    FAMILY      FAMILY    MORTGAGES    LINES      REAL ESTATE    DEVELOPMENT     
                                                 ------------------------------------------------------------------------------- 
                                                                                   (IN THOUSANDS)                                
<S>                                              <C>            <C>       <C>          <C>        <C>            <C>             
Amounts due:                                                                                                                     
   One year or less..............................  $   178      $    --    $    --     $    --      $    --         $ 3,943
                                                   -------      -------    -------     -------      -------         -------

   After one year:
       More than one year to three years.........    1,748           98         --         284          287           2,755
       More than three years to five years.......    1,903           --         60         152        1,442              12
       More than five years to ten years.........    7,551           --         --       2,168          366              36
       More than 10 years to 20 years............   22,274        1,895         --       4,516        7,911             395
       More than 20 years........................   55,797           57         --       1,175          315              --
                                                   -------      -------    -------     -------      -------         -------

   Total due after one year......................   89,273        2,050         60       8,295       10,321           3,198
                                                   -------      -------    -------     -------      -------         -------

   Total due.....................................   89,451        2,050         60       8,295       10,321           7,141
                                                   -------      -------    -------     -------      -------         -------
           Less:
              Loans in process...................       --           --         --          --           --           2,009
              Deferred loan fees.................      (25)          --         --          --           --              27
              Allowance for loan losses..........    1,085           21         --          66          107             578
                                                   -------      -------    -------     -------      -------         -------
                                                     1,060           21         --          66          107           2,614
                                                   -------      -------    -------     -------      -------         -------
     Loans receivable, net.......................  $88,391      $ 2,029    $    60     $ 8,229      $10,214         $ 4,527
                                                   =======      =======    =======     =======      =======         =======

<CAPTION> 
                                                      ----------------------------------
                                                                                   TOTAL
                                                      COMMERCIAL     CONSUMER      LOANS
                                                      ----------------------------------
                                                      <C>            <C>        <C>     
Amounts due:                                           
   One year or less.................................  $    --        $   513    $  4,634
                                                      -------        -------    --------

   After one year:
       More than one year to three years............        9            205       5,386
       More than three years to five years..........       48             83       3,700
       More than five years to ten years............       --             --      10,121
       More than 10 years to 20 years...............       --             --      36,991
       More than 20 years...........................       --             --      57,344
                                                      -------        -------    --------

   Total due after one year.........................       57            288     113,542
                                                      -------        -------    --------

   Total due........................................       57            801     118,176
                                                      -------        -------    --------
           Less:
              Loans in process......................       --             --       2,009
              Deferred loan fees....................       --             --           2
              Allowance for loan losses.............       --              6       1,863
                                                      -------        -------    --------
                                                           --              6       3,874
                                                      -------        -------    --------
       Loans receivable, net........................  $    57        $   795    $114,302
                                                      =======        =======    ========
</TABLE> 

                                       63
<PAGE>
 
     The following table sets forth, at March 31, 1998, the dollar amount of
loans contractually due after March 31, 1999, and whether such loans have fixed
interest rates or adjustable interest rates.

<TABLE>
<CAPTION>
                                                    DUE AFTER MARCH 31, 1999
                                                  ----------------------------
                                                   FIXED   ADJUSTABLE  TOTAL
                                                  -------  ---------- --------
                                                          (IN THOUSANDS)
     <S>                                          <C>      <C>        <C>
     Mortgage loans:

       One- to four-family.....................   $44,487   $44,786   $ 89,273
                                                            
       Multi-family............................     2,050        --      2,050
                                                            
       Second mortgages........................        60        --         60
                                                            
       Equity lines............................     3,976     4,319      8,295
                                                            
       Commercial real estate..................     9,359       962     10,321
                                                            
       Construction and development............        48     3,150      3,198
                                                  -------   -------   --------
          Total mortgage loans.................    59,980    53,217    113,197
                                                            
     Commercial loans..........................        57        --         57
                                                            
     Consumer loans............................       288        --        288
                                                  -------   -------   --------
            Total loans........................   $60,325   $53,217   $113,542
                                                  =======   =======   ========
</TABLE>


     ORIGINATION, PURCHASE AND SERVICING OF LOANS. The Bank's mortgage lending
activities are conducted primarily by its loan personnel operating in all of the
Bank's branch offices. All loans originated by the Bank, either through internal
sources or through loan brokers, are underwritten by the Bank pursuant to the
Bank's policies and procedures. The Bank's underwriting policies, guidelines and
procedures are modeled after those of FNMA and FHLMC. The Bank originates both
adjustable-rate and fixed-rate loans. The Bank's ability to originate fixed- or
adjustable-rate loans is dependent upon the relative customer demand for such
loans, which It is the general policy of the Bank to retain all loans originated
in its portfolio. The Bank currently retains the servicing for all loans
originated in its portfolio. 

     During the years ended December 31, 1997 and December 31, 1996, the Bank
originated $39.3 million and $11.3 million of one- to four-family loans,
respectively, including home equity loans and lines of credit. Based upon the
Bank's investment needs and market opportunities, the Bank has, on occasion,
purchased loans, primarily one- to four-family loans, or participated in loans,
primarily multi-family loans through the Thrift Institutions Community
Investment Corporation of New Jersey ("TICIC"). At March 31, 1998, the Bank had
four loan participations through TICIC totalling $1.7 million. The Bank has in
its loan portfolio loans generated by third-party mortgage companies which were
underwritten pursuant to the Bank's policies, and closed in the name of the
Bank.

                                       64
<PAGE>
 
     The following table sets forth the Bank's loan originations, purchases, and
principal repayments for the periods indicated. The Bank sold no loans during
the periods indicated.

<TABLE>
<CAPTION>
                                                FOR THE THREE
                                                   MONTHS          FOR THE YEARS ENDED DECEMBER
                                               ENDED MARCH 31,                31,
                                             -------------------  ------------------------------
                                               1998      1997       1997       1996       1995
                                             --------  --------   --------   --------   --------
                                                                  (IN THOUSANDS)
<S>                                          <C>        <C>       <C>        <C>        <C>
Beginning balance.........................   $116,127   $84,499   $ 84,499   $ 87,255   $ 87,802
                                             --------   -------   --------   --------   --------
  Purchases - Multi-family mortgage loans.         61        --         --      1,621         --
                                             --------   -------   --------   --------   --------
  Loans originated:                          
   Mortgage  loans:                          
    One- to four-family...................      6,539     3,436     35,017      6,546     10,369
    Multi-family..........................         --        --         --         --         --
    Home equity lines.....................        920       503      4,330      4,726      1,715
    Commercial real estate................         --        85      1,436      2,090        425
    Construction and land development.....      1,550        --      5,610      1,015      2,570
                                             --------   -------   --------   --------   --------
      Total mortgage loans................      9,009     4,024     46,393     14,377     15,079
                                             --------   -------   --------   --------   --------
                                             
   Consumer loans:                           
    Passbook loans........................         61       107        477        660        426
    Automobile............................         46        52        222         65        241
    Credit lines(1).......................         28        --         28         --         --
    Other.................................         --        --         --         --          5
                                             --------   -------   --------   --------   --------
      Total consumer loans................        135       159        727        725        672
                                             --------   -------   --------   --------   --------
   Loans made to facilitate the sale of                                                         
     real estate owned....................         --        --         --         --         73
                                             --------   -------   --------   --------   --------
   Total originations.....................      9,144     4,183     47,120     15,102     15,824
                                             --------   -------   --------   --------   --------
  Loans transferred (to) from real                                                              
    estate owned..........................         --      (157)      (680)      (377)        83
                                             --------   -------   --------   --------   --------
 Principal repayments and other, net......     (7,156)   (3,520)   (14,812)   (19,102)   (16,454)
                                             --------   -------   --------   --------   -------- 
Ending balance............................   $118,176   $85,005   $116,127   $ 84,499   $ 87,255
                                             ========   =======   ========   ========   ========
</TABLE>

     ONE- TO FOUR-FAMILY MORTGAGE LENDING. The Bank offers both fixed-rate and
adjustable-rate mortgage loans ("ARM") secured by one- to four-family residences
with maturities of up to 30 years. In excess of ____%, such loans are secured by
property located in the Bank's primary market area. Loan originations are
generally obtained from the Bank's in-house loan representatives located at all
of the Bank's branch offices, local real estate agents, from wholesale brokers
and their contacts in the Bank's local real estate industry, from existing or
past customers, through referrals from members of the local communities and
advertising. One- to four-family mortgage loans are generally underwritten in
accordance with FHLMC/FNMA standards. At March 31, 1998, one- to four-family
mortgage loans totalled $89.5 million,

                                       65
<PAGE>

or 75.7% of the Bank's total loans receivable. Of the Bank's mortgage loans
secured by one- to four-family residences, $44.6 million, or 49.8%, were fixed-
rate loans and $44.9 million or 50.2% were ARM loans.

     The Bank currently offers fixed-rate mortgage loans with terms from ten to
30 years. The Bank generally retains for its portfolio all loans it originates.
The Bank also offers ARM loan programs made for terms from one to 30 years and
with interest rates, which adjust every 12 months or any other term according to
the loan note. The Bank's ARM loans generally provide for periodic (not more
than 2.0% over the existing interest rate) and overall (not more than 6.0%) caps
on the increase or decrease in the interest rate at any adjustment date and over
the life of the loan. The interest rate adjustment on these loans is indexed to
the one-year U.S. Treasury CMT Index with a repricing margin of 2.75% above the
index.

     The origination of adjustable-rate residential mortgage loans, as opposed
to fixed-rate residential mortgage loans, helps reduce the Bank's exposure to
increases in interest rates. However, adjustable-rate loans generally pose
credit risks not inherent in fixed-rate loans, primarily because as interest
rates rise, the underlying payments of the borrower rise, thereby increasing the
potential for default. Periodic and lifetime caps on interest rate increases
help to reduce the credit risk associated with the Bank's adjustable-rate loans
but also limit the interest rate sensitivity of its adjustable-rate mortgage
loans.

     The Bank's policy generally is to originate one- to four-family residential
mortgage loans in amounts up to 90% of the lower of the appraised value or the
selling price of the property securing the loan, but generally requires private
mortgage insurance if the loan is in an amount in excess of 80% of the lower of
the appraised value or selling price, with the exception of certain loans
secured by condominium units, which require a 70% loan-to-value ("LTV") ratio.
Mortgage loans originated by the Bank include due-on-sale clauses which provide
the Bank with the contractual right to deem the loan immediately due and payable
in the event the borrower transfers ownership of the property without the Bank's
consent. Due-on-sale clauses are an important means of adjusting the rates on
the Bank's fixed-rate mortgage loan portfolio and the Bank has generally
exercised its rights under these clauses. The Bank requires fire, casualty,
title and, in certain cases, flood insurance on all properties securing real
estate loans made by the Bank. 
           
     In an effort to provide financing for first-time home buyers, the Bank
offers its first-time home buyers program. This program offers single-family
residential mortgage loans to qualified individuals. These loans are originated
using the Bank's standard underwriting guidelines with reduced interest rates.
With respect to loans originated under this program, the Bank typically charges
a lower rate of interest, as compared to other residential mortgage loans and
originates these loans in amounts up to 95% of the lower of the appraised value
or selling price of the property securing the loan. In addition, the Bank also
participates in the First Home Club Program through the FHLB-NY, which benefits
low income first time homebuyers.
           
     HOME EQUITY LOANS. The Bank offers fixed rate home equity loans and
floating rate home equity lines of credit in amounts of up to $100,000. Home
equity loans have fixed rates of interest with terms of up to 20 years. Interest
rates on such loans will vary depending on the amortization period chosen by the
borrowers. Home equity lines of credit have adjustable-rates of interest, which
adjust on a monthly basis. The adjustable-rate of interest charged on such loans
is indexed to the prime rate as published in The Wall Street Journal. Currently,
home equity lines of credit originated at this time bear a maximum lifetime
interest rate cap of 14.0%. The maximum combined LTV ratio on home equity loans
and equity lines of credit is 70%. At March 31, 1998, the Bank had in its loan
portfolio an aggregate of $12.6 million of home equity loans and equity lines of
credit, of which $4.0 million were fixed-rate home equity loans and $8.6
      

                                       66
<PAGE>
 
million were equity lines of credit. Of the $8.6 million equity lines of credit,
$4.3 million was drawn upon such loans at March 31, 1998. The underwriting
standards employed by the Bank for home equity loans and lines of credit include
a determination of the applicant's credit history and an assessment of the
applicant's ability to meet existing obligations and payments on the proposed
loan and the value of the collateral securing the loan. The stability of the
applicant's monthly income may be determined by verification of gross monthly
income from primary employment and, additionally, from any verifiable secondary
income. Creditworthiness of the applicant is of primary consideration. The
Bank's home equity loans and lines of credit are secured by first or second
liens on one- to four-family residences located in the Bank's primary market
area.
      
     COMMERCIAL REAL ESTATE AND MULTI-FAMILY LENDING. The Bank also originates
multi-family and commercial real estate loans that are generally secured by five
or more unit apartment buildings and properties used for business purposes such
as small shopping centers located in Northern New Jersey. The Bank's multi-
family and commercial real estate underwriting policy provides that such real
estate loans may be made in amounts up to 65% of the appraised value of the
property; however, this policy provides that management has the discretion to
make such real estate loans in excess of 65% of the appraised value of the
property. The Bank's multi-family and commercial real estate lending is limited
by the regulatory loans-to-one borrower limit which at March 31, 1998 was $3.6
million. The Bank currently originates multi-family and commercial real estate
loans, generally with terms of up to 15 years and has developed a variety of
programs, primarily balloon type mortgages, indexed to the FHLB advance rate,
the Prime Rate and the U.S. Treasury Bill rate. The Bank's multi-family and
commercial real estate loans have fixed or adjustable rates of interest that
adjust periodically and are indexed to either the prime rate as published in The
Wall Street Journal or the U.S. Treasury Bill. In reaching its decision on
whether to make a multi-family or commercial real estate loan, the Bank
considers the net operating income of the property, the borrower's expertise,
credit history and profitability and the value of the underlying property. The
Bank has generally required that the properties securing these real estate loans
have debt service coverage ratios (the ratio of earnings before debt service to
debt service) of at least 1.15x. In addition, environmental impact surveys may
be required for multi-family and commercial real estate loans. Generally, multi-
family and commercial real estate loans made to corporations, partnerships and
other business entities require personal guarantees by the principals. On an
exception basis, the Bank may not require a personal guarantee on such loans
depending on the creditworthiness of the borrower and the amount of the
downpayment and other mitigating circumstances. The Bank's multi-family real
estate loan portfolio at March 31, 1998 was $2.1 million, or 1.7%, of total
loans receivable and the Bank's commercial real estate loan portfolio at such
date was $10.3 million, or 8.7%, of total loans receivable. The largest
commercial real estate loan in the Bank's portfolio at March 31, 1998 was a
$1.12 million loan secured by a commercial warehouse located in Fairfield, New
Jersey.
      
     Loans secured by multi-family and commercial real estate properties are
generally larger and involve a greater degree of risk than one- to four-family
residential mortgage loans. Because payments on loans secured by multi-family
and commercial real estate properties are often dependent on successful
operation or management of the properties, repayment of such loans may be
subject to a greater extent to the then prevailing conditions in the real estate
market or the economy. The Bank seeks to minimize these risks through its
underwriting standards.

     CONSTRUCTION AND DEVELOPMENT LENDING. The Bank originates construction and
development loans exclusively for the development of one-to four-family
residences. Such loans are made principally to licensed and experienced
developers known to the Bank in its primary market area for the construction of
single-family developments. The Bank generally does not originate loans secured
by undeveloped land. Construction loans are originated in amounts up to 70% of
the lesser of the appraised value of the property,
          

                                       67
<PAGE>
 
as improved, or the sales price. Such loans are offered with one year terms and
adjustable interest rates which adjust monthly and float at margins which are
generally 1% to 2% above the Prime Rate of interest as reported in The Wall
Street Journal. Proceeds of construction loans are dispersed as phases of the
construction are completed. Generally, if the borrower is a corporation,
partnership or other business entity, personal guarantees by the principals are
required. The Bank's largest construction loan at March 31,1998 was a $1.6
million performing loan with a carrying balance, net of loans in process, of
$854,000 secured by a 4.54 acre, six lot residential development tract located
in Millburn, New Jersey. At March 31, 1998, the Bank had $7.1 million of
construction loans which amounted to 6.0% of the Bank's total loans receivable.
      
     Construction and development financing is generally considered to involve a
higher degree of credit risk than long-term financing on improved, owner-
occupied real estate. Risk of loss on a construction loan is dependent largely
upon the accuracy of the initial estimate of the property's value at completion
of construction or development compared to the estimated cost (including
interest) of construction and other assumptions, including the estimated time to
sell residential properties. If the estimate of value proves to be inaccurate,
the Bank may be confronted with a project, when completed, having a value which
is insufficient to assure full repayment.
      
     CONSUMER LENDING. Consumer loans at March 31, 1998 amounted to $801,000, or
0.7% of the Bank's total loans receivable, and consisted primarily of $497,000
in loans secured by deposit accounts and $274,000 in automobile loans. Such
loans are generally originated in the Bank's primary market area. These loans
are generally shorter term and have higher interest rates than one- to four-
family mortgage loans.
      
     Loans secured by rapidly depreciable assets such as automobiles or that are
unsecured entail greater risks than one- to four-family mortgage loans. In such
cases, repossessed collateral for a defaulted loan may not provide an adequate
source of repayment of the outstanding loan balance, since there is a greater
likelihood of damage, loss or depreciation of the underlying collateral.
Further, consumer loan collections on these loans are dependent on the
borrower's continuing financial stability and, therefore, are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
Finally, the application of various federal and state laws, including federal
and state bankruptcy and insolvency laws, may limit the amount which can be
recovered on such loans in the event of a default.
      
     COMMERCIAL LENDING. At March 31, 1998, the Bank had $57,000 in commercial
loans, which the Bank originated through a FHLB program over ten years ago. The
Bank does not currently anticipate that commercial lending activity will
increase in the immediate future.
      
     LOAN APPROVAL PROCEDURES AND AUTHORITY. The Board of Directors establishes
the lending policies and loan approval limits of the Bank. All loans originated
by the Bank with principal amounts in excess of $1.0 million require the
approval of the Board of Directors. All loans originated by the Bank with
principal amounts between $350,000 and $1.0 million require the approval of the
Lending Committee. All other loans may be approved by the Bank's Chief Lending
Officer. Pursuant to OTS regulations, loans to one borrower cannot exceed 15% of
the Bank's unimpaired capital and surplus. The Bank will not make loans to one
borrower that are in excess of the regulatory limits.
      
     UNDERWRITING. With respect to all loans originated by the Bank, it is the
general policy of the Bank to retain all such loans in its portfolio. The Bank
has a policy of underwriting its loans in conformance with FNMA or FHLMC
guidelines. Upon receipt of a completed loan application from a prospective
borrower, a credit report is ordered and certain other information is verified
by an independent credit agency. If necessary, additional financial information
may be required. An appraisal of real estate intended to secure
      

                                       68
<PAGE>
 
a proposed loan generally is required to be performed by outside appraisers
approved by the Bank. The Board annually approves independent appraisers used by
the Bank and approves the Bank's appraisal policy. The Bank's policy is to
obtain title and hazard insurance on all mortgage loans and flood insurance when
necessary and the Bank generally requires borrowers to make payments to a
mortgage escrow account for the payment of property taxes. No title or flood
insurance is required, however, for home equity loans.
      
DELINQUENT LOANS, CLASSIFIED ASSETS AND REAL ESTATE OWNED


     DELINQUENCIES AND CLASSIFIED ASSETS. Reports listing all delinquent
accounts are generated and reviewed by management at least twice a month and the
Board of Directors performs a monthly review of all loans or lending
relationships delinquent 60 days or more and all real estate owned ("REO"). The
procedures taken by the Bank with respect to delinquencies vary depending on the
nature of the loan, period and cause of delinquency and whether the borrower is
habitually delinquent. When a borrower fails to make a required payment on a
loan, the Bank takes a number of steps to have the borrower cure the delinquency
and restore the loan to current status. The Bank generally sends the borrower a
written notice of non-payment after the loan is first past due. The Bank's
guidelines provide that telephone, written correspondence and/or face-to-face
contact will be attempted to ascertain the reasons for delinquency and the
prospects of repayment. When contact is made with the borrower at any time prior
to foreclosure, the Bank will attempt to obtain full payment, offer to work out
a repayment schedule with the borrower to avoid foreclosure or, in some
instances, accept a deed in lieu of foreclosure. In the event payment is not
then received or the loan not otherwise satisfied, additional letters and
telephone calls generally are made. If the loan is still not brought current or
satisfied and it becomes necessary for the Bank to take legal action, which
typically occurs after a loan is 90 days or more delinquent, the Bank will
commence foreclosure proceedings against any real property that secures the
loan. If a foreclosure action is instituted and the loan is not brought current,
paid in full, or refinanced before the foreclosure sale, the property securing
the loan generally is sold at foreclosure and, if purchased by the Bank, becomes
real estate owned.
      
     Federal regulations and the Bank's Asset Classification Policy require that
the Bank utilize an internal asset classification system as a means of reporting
problem and potential problem assets. The Bank has incorporated the OTS internal
asset classifications as a part of its credit monitoring system. The Bank
currently classifies problem and potential problem assets 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 insured 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 without the establishment of a specific loss reserve is not warranted.
      
     Management of the Bank, in determining the allowance for loan losses,
considers the risks inherent in its loan portfolio and changes in the nature and
volume of its loan activities, along with the general economic and real estate
market conditions. The Bank utilizes a two tier approach: (i) identification of
impaired loans and the establishment of specific loss allowances on such loans;
and (2) establishment of general valuation allowances on the remainder of its
loan portfolio. The Bank maintains a loan review system which allows for a
periodic review of its loan portfolio and the early identification of potential
impaired loans. Such system takes into consideration, among other things,
delinquency status, size of loans, type and estimated fair value of collateral
and financial condition of the borrowers. Specific loan loss
      

                                       69
<PAGE>
 
allowances are established for identified loans based on a review of such
information. General loan loss allowances are based upon a combination of
factors including, but not limited to, actual loan loss experience, composition
of the loan portfolio, current economic conditions and management's judgment.
Although management believes that adequate loan loss allowances are established,
actual losses are dependent upon future events and, as such, further additions
to the level of the allowance for loan losses may be necessary.
      
     A savings institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
OTS which can order the establishment of additional general or specific loss
allowances. The OTS, in conjunction with the other federal banking agencies, has
adopted an interagency policy statement on the allowance for loan and lease
losses. The policy statement provides guidance for financial institutions on
both the responsibilities of management for the assessment and establishment of
adequate allowances and guidance for banking agency examiners to use in
determining the adequacy of general valuation guidelines. Generally, the policy
statement recommends that institutions have effective systems and controls to
identify, monitor and address asset quality problems; that management has
analyzed all significant factors that affect the collectibility of the portfolio
in a reasonable manner; and that management has established acceptable allowance
evaluation processes that meet the objectives set forth in the policy statement.
Although management believes that, based on information currently available to
it at this time, its allowance for loan losses is adequate, actual losses are
dependent upon future events and, as such, further additions to the level of
allowances for loan losses may become necessary.
      
     The Board reviews classified assets reports prepared by management and
classifies its assets on a quarterly basis. The Bank classifies assets in
accordance with the management guidelines described above. At March 31, 1998,
the Bank had $3.1 million, or 0.99% of total assets, of assets designated as
"Substandard," consisting of thirteen one- to four-family mortgage loans,
totalling $1.5 million, two construction loans totalling $718,000 and real
estate owned totalling $911,000. At March 31, 1998, the largest loan designated
as "Substandard" had a carrying balance of $684,000, and was a construction loan
secured by a partially completed condominium project. At March 31, 1998, no
assets were designated as "Doubtful" or "Loss."
      
                                       70
<PAGE>
 
The following table sets forth delinquencies in the Bank's loan portfolio as of
the dates indicated.

<TABLE>
<CAPTION>
                                            AT MARCH 31, 1998                             AT DECEMBER 31, 1997
                                --------------------------------------------  ---------------------------------------------
                                    60-89 DAYS             90 DAYS OR MORE         60-89 DAYS            90 DAYS OR MORE
                                --------------------- ----------------------  --------------------  -----------------------   
                                            PRINCIPAL              PRINCIPAL             PRINCIPAL                PRINCIPAL
                                 NUMBER      BALANCE    NUMBER      BALANCE    NUMBER     BALANCE    NUMBER        BALANCE
                                OF LOANS    OF LOANS   OF LOANS    OF LOANS   OF LOANS   OF LOANS   OF LOANS     OF LOANS  
                                --------   ---------- ---------   ----------  --------  ----------  --------    -----------
<S>                             <C>        <C>        <C>         <C>         <C>       <C>         <C>         <C>  
Loans:                                                           (DOLLARS IN THOUSANDS)
   Residential Mortgage......         13       $ 878        16       $1,544        10      $  528        19       $1,652
   Commercial Mortgage.......          1         116        --           --        --          --         1          119
   Construction and land              --          --         2          718        --          --         2          718
    development..............       ----       -----      ----       ------      ----      ------      ----       ------
    Total loans..............         14       $ 994        18       $2,262        10      $  528        22       $2,489
                                    ====       =====      ====       ======      ====      ======      ====       ======

Delinquent loans to total           1.03%       0.84%     1.32%        1.93%     0.72%       0.45%     1.59%        2.14%
    loans....................       ====       =====      ====       ======      ====      ======      ====       ======
</TABLE> 
 
 
<TABLE> 
<CAPTION>                                                                                        
                                            AT DECEMBER 31, 1996                        AT DECEMBER 31, 1995         
                                --------------------------------------------  ---------------------------------------------
                                     60-89 DAYS          90 DAYS OR MORE            60-89 DAYS         90 DAYS OR MORE
                                --------------------- ----------------------  --------------------  -----------------------   
                                           PRINCIPAL             PRINCIPAL               PRINCIPAL             PRINCIPAL
                                  NUMBER    BALANCE     NUMBER    BALANCE       NUMBER    BALANCE     NUMBER    BALANCE
                                OF LOANS   OF LOANS    OF LOANS   OF LOANS    OF LOANS   OF LOANS   OF LOANS    OF LOANS
                                --------   ---------- ---------   ----------  --------  ----------  --------    -----------
<S>                             <C>        <C>        <C>         <C>         <C>       <C>         <C>         <C>  
Loans:                                                              (DOLLARS IN THOUSANDS)
   Residential Mortgage......         14       $ 904        14       $1,733        13      $  764        10       $1,069
   Commercial Mortgage.......         --          --         2          431         4         575         2          380
   Construction and land              --          --         2          705        --          --         3          734
    development..............       ----       -----      ----       ------      ----      ------      ----       ------
    Total loans..............         14       $ 904        18       $2,869        17      $1,339        15       $2,183
                                    ====       =====      ====       ======      ====      ======      ====       ======

Delinquent loans to total           1.15%       1.07%     1.48%        3.40%     1.34%       1.53%     1.18%        2.50%
  loans......................       ====       =====      ====       ======      ====      ======      ====       ======
</TABLE>

                                      71
      
<PAGE>
 
     NON-PERFORMING ASSETS AND IMPAIRED LOANS. The following table sets forth
information regarding nonaccrual loans and REO. At March 31, 1998, REO totalled
$1.1 million and consisted of nine properties. It is the policy of the Bank to
cease accruing interest on loans 90 days or more past due and to fully reserve
for all previously accrued interest. For the three months ended March 31, 1998
and the year ended December 31, 1997, the amount of additional interest income
that would have been recognized on non-accrual loans if such loans had continued
to perform in accordance with their contractual terms was $40,000 and $177,000,
respectively. On January 1, 1995, the Bank adopted SFAS No. 114 "Accounting by
Creditors for Impairment of a Loan," as amended by SFAS No. 118. At both March
31, 1998 and December 31, 1997, total impaired loans were $1.6 million All
impaired loans are residential real estate mortgage loans which have been
measured for impairment using the fair value of the collateral method. During
the three months ended March 31, 1998, the average recorded value of impaired
loans was $1.6 million. For these loans, no interest income was recognized.
During the year ended December 31, 1997, the average recorded value of impaired
loans was $1.9 million. For these loans, no interest income was recognized.

<TABLE>
<CAPTION>
                                                          AT MARCH 31,                     AT DECEMBER 31,
                                                        ----------------    ----------------------------------------------
                                                         1998      1997      1997      1996      1995      1994      1993
                                                        ------    ------    ------    ------    ------    ------    ------
                                                                             (DOLLARS IN THOUSANDS)
<S>                                                     <C>       <C>       <C>       <C>       <C>       <C>       <C>
Nonaccrual loans:
  Residential Mortgages.............................    $1,496    $1,679    $1,576    $1,733    $  931    $1,369    $1,287
  Commercial Mortgages..............................        --       352       119       431       380       263       327
  Construction and land development.................       718       705       718       705       734     1,346       737
                                                        ------    ------    ------    ------    ------    ------    ------
     Total nonaccrual loans.........................     2,214     2,736     2,413     2,869     2,045     2,978     2,351

Restructured loans:
  Residential Mortgages.............................        92        97        94        99       104       112     2,971
                                                        ------    ------    ------    ------    ------    ------    ------
     Total non-performing loans.....................     2,306     2,833     2,507     2,968     2,149     3,090     5,322
Real estate owned, net(1)...........................     1,120     1,095     1,215     1,394     1,352     1,864     3,251
                                                        ------    ------    ------    ------    ------    ------    ------
     Total non-performing assets....................    $3,426    $3,928    $3,722    $4,362    $3,501    $4,954    $8,573
                                                        ======    ======    ======    ======    ======    ======    ======

Allowance for loan losses as a
  percent of total loans............................      1.58%     1.92%     1.62%     1.85%     1.38%     1.41%     1.68%
                                                        ======    ======    ======    ======    ======    ======    ======
Allowance for loan losses as a
  percent of non-performing loans(2)................     80.79%    57.15%    75.19%    52.70%    55.84%    40.00%    29.12%
                                                        ======    ======    ======    ======    ======    ======    ======
Non-performing loans as a
  percent of total loans(2).........................      1.95%     3.36%     2.16%     3.51%     2.46%     3.52%     5.76%
                                                        ======    ======    ======    ======    ======    ======    ======
Non-performing assets as
  a percent of total assets(3)......................      1.10%     1.66%     1.24%     1.85%     1.57%     2.48%     4.38%
                                                        ======    ======    ======    ======    ======    ======    ======
</TABLE>

___________________
(1)  REO balances are shown net of related valuation allowances. REO includes
     $209,000 of property that is not considered substandard.
(2)  Non-performing loans consist of all 90 days or more past due and other
     loans which have been identified by the Bank as presenting uncertainty with
     respect to the collectibility of interest or principal.
(3)  Non-performing assets consist of non-performing loans and REO.

                                       72
<PAGE>
 
     ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risks inherent in its loan portfolio and the general economy. The allowance for
loan losses is maintained at an amount management considers adequate to cover
estimated losses in loans receivable which are deemed probable and estimable
based on information currently known to management. The allowance is based upon
a number of factors, including current economic conditions, actual loss
experience and industry trends. 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 make additional
provisions for estimated loan losses based upon judgments different from those
of management. As of March 31, 1998 and December 31, 1997, the Bank's allowance
for loan losses was 1.58% and 1.62%, respectively, of total loans receivable and
84.1% and 78.1%, respectively, of nonaccrual loans. The Bank had non-accrual
loans of $2.2 million and $2.4 million at March 31, 1998 and December 31, 1997,
respectively. The Bank will continue to monitor and modify its allowances for
loan losses as conditions dictate. While management believes the Bank's
allowance for loan losses is sufficient to cover losses inherent in its loan
portfolio at this time, no assurances can be given that the Bank's level of
allowance for loan losses will be sufficient to cover future loan losses
incurred by the Bank or that future adjustments to the allowance for loan losses
will not be necessary if economic and other conditions differ substantially from
the economic and other conditions used by management to determine the current
level of the allowance for loan losses.

                                       73
<PAGE>
 
     The following table sets forth activity in the Bank's allowance for loan
losses for the periods set forth in the following table.

<TABLE>
<CAPTION>
                                                                  AT OR FOR THE
                                                                      THREE
                                                                   MONTHS ENDED
                                                                     MARCH 31,          AT OR FOR THE YEARS ENDED DECEMBER 31,
                                                                 ----------------     ------------------------------------------
                                                                  1998      1997       1997     1996     1995     1994     1993
                                                                 ------    ------     ------   ------   ------   ------   ------
                                                                                       (DOLLARS IN THOUSANDS)
<S>                                                              <C>       <C>        <C>      <C>      <C>      <C>      <C>
Balance at beginning of period................................   $1,885    $1,564     $1,564   $1,200   $1,236   $1,550   $1,811
                                                                 ------    ------     ------   ------   ------   ------   ------
Provision for (recapture of) loan losses......................      (22)       55        487      232      510     (247)    (200)
                                                                 ------    ------     ------   ------   ------   ------   ------
Charge-offs:

   Mortgage loans:

       One- to four-family....................................       --        --         60       --       --       57       36
       Multi-family...........................................       --        --         --       --       56       --       --
   Commercial real estate.....................................       --        --        106       --       --       --       25
   Construction and land development..........................       --        --         --       --      490       10       --
                                                                 ------    ------     ------   ------   ------   ------   ------
       Total mortgage loans...................................       --        --        166       --      546       67       61
                                                                 ------    ------     ------   ------   ------   ------   ------

Recoveries:

   Construction and land development..........................       --        --         --      132       --       --       --
                                                                 ------    ------     ------   ------   ------   ------   ------
Balance at end of period......................................   $1,863    $1,619     $1,885   $1,564   $1,200   $1,236   $1,550
                                                                 ======    ======     ======   ======   ======   ======   ======
Ratio of net charge-offs during
  the period to average gross loans
  during the period(1)........................................     0.00%     0.00%      0.17%   (0.15)%   0.63%    0.08%    0.06%
                                                                 ======    ======     ======   ======   ======   ======   ======
</TABLE>

____________________
(1)  Annualized for the three month periods ended March 31, 1998 and 1997.

                                       74
<PAGE>
 
      The following tables set forth the Bank's percent of allowance for loan
losses to total allowance for loan losses and the percent of loans to total
loans in each of the categories listed at the dates indicated.

<TABLE>
<CAPTION>
                                                                                    AT MARCH 31,                                
                                                     -------------------------------------------------------------------------  
                                                                     1998                                1997     
                                                     -------------------------------------------------------------------------  
                                                             PERCENT OF     PERCENT OF             PERCENT OF     PERCENT OF    
                                                              ALLOWANCE      LOANS IN               ALLOWANCE      LOANS IN     
                                                              TO TOTAL     EACH CATEGORY            TO TOTAL     EACH CATEGORY  
                                                     AMOUNT   ALLOWANCE   TO TOTAL LOANS   AMOUNT   ALLOWANCE   TO TOTAL LOANS  
                                                     ------  -----------  --------------  --------  ---------   --------------  
                                                                                (DOLLARS IN THOUSANDS)
                         <S>                         <C>     <C>          <C>              <C>     <C>          <C>
                         Mortgage loans:
                           Residential.............. $  638       34.25%           84.50%  $  496       30.64%           83.11%
                           Commercial real estate...    107        5.74             8.73      194       11.98            13.81
                           Construction and land....    578       31.03             6.04      424       26.19             2.31
                             development............ ------      ------           ------   ------      ------           ------
                             Total mortgage loans...  1,323       71.02            99.27    1,114       68.81            99.23
                         Commercial loans...........     --          --             0.05       --          --             0.08
                         Consumer loans.............      6        0.32             0.68        4        0.25             0.69
                                                     ------      ------           ------   ------      ------           ------
                                                      1,329       71.34           100.00%   1,118       69.06           100.00%
                                                                                  ======                                ======
                         Unallocated................    534       28.66                       501       30.94
                                                     ------      ------                    ------      ------
                             Total allowance
                               for loan losses...... $1,863      100.00%                   $1,619      100.00%
                                                     ======      ======                    ======      ======
</TABLE>

<TABLE>
<CAPTION>
                                                                                                  AT DECEMBER 31,
                             ----------------------------------------------------------------------------------------------
                                          1997                          1996                          1995
                             ------------------------------ ------------------------------- -------------------------------
                                                   PERCENT                         PERCENT                         PERCENT
                                                  OF LOANS                        OF LOANS                        OF LOANS
                                      PERCENT OF   IN EACH            PERCENT OF   IN EACH            PERCENT OF   IN EACH
                                      ALLOWANCE   CATEGORY            ALLOWANCE   CATEGORY            ALLOWANCE   CATEGORY
                                       TO TOTAL   TO TOTAL             TO TOTAL   TO TOTAL             TO TOTAL   TO TOTAL
                             AMOUNT   ALLOWANCE     LOANS    AMOUNT   ALLOWANCE     LOANS    AMOUNT   ALLOWANCE     LOANS
                             ------  ----------- ---------- -------- ----------- ---------- -------- ------------ ---------
                                                                                               (DOLLARS IN THOUSANDS)
<S>                          <C>      <C>         <C>        <C>      <C>         <C>        <C>      <C>         <C>
Mortgage loans:
   Residential..............  $  621      32.94%     84.44%   $  511      32.67%     82.20%   $  413      34.42%     80.81%
   Commercial real estate...     112       5.94       9.21       184      11.77      14.53       190      15.83      14.56
   Construction and
      land development......     628      33.32       5.58       349      22.31       2.46       141      11.75       3.47
                              ------     ------     ------    ------     ------     ------    ------     ------     ------
   Total mortgage loans.....   1,361      72.20      99.23     1,044      66.75      99.19       744      62.00      98.84
Commercial loans............      --         --       0.05        --         --       0.10         1       0.08       0.27
Consumer loans..............       6       0.32       0.72         4       0.26       0.71         6       0.50       0.89
                              ------     ------     ------    ------     ------     ------    ------     ------     ------
                               1,367      72.52     100.00%    1,048      67.01     100.00%      751      62.58     100.00%
                                                    ======                          ======                          ======
Unallocated.................     518      27.48                  516      32.99                  449      37.42
                              ------     ------               ------     ------               ------     ------
   Total....................  $1,885     100.00%              $1,564     100.00%              $1,200     100.00%
                              ======     ======               ======     ======               ======     ======

<CAPTION>
                             -------------------------------------------------------------
                                         1994                            1993
                             ------------------------------ ------------------------------
                                                   PERCENT                         PERCENT
                                                  OF LOANS                        OF LOANS
                                      PERCENT OF   IN EACH            PERCENT OF   IN EACH
                                      ALLOWANCE   CATEGORY            ALLOWANCE   CATEGORY
                                       TO TOTAL   TO TOTAL             TO TOTAL   TO TOTAL
                             AMOUNT   ALLOWANCE     LOANS    AMOUNT   ALLOWANCE     LOANS
                             ------- ----------- --------- --------- ----------- ---------
<S>                          <C>     <C>         <C>       <C>       <C>         <C>
Mortgage loans:
   Residential..............  $  383      30.99%     77.63%   $  418      26.97%     76.55%
   Commercial real estate...     171      13.84      15.74       218      14.06      15.66
   Construction and
      land development......     223      18.04       5.78       452      29.16       7.04
                              ------     ------     ------    ------     ------     ------
   Total mortgage loans.....     777      62.87      99.15     1,088      70.19      99.25
Commercial loans............       1       0.08       0.29         2       0.13       0.36
Consumer loans..............       2       0.16       0.56         1       0.07       0.39
                              ------     ------     ------    ------     ------     ------
                                 780      63.11     100.00%    1,091      70.39     100.00%
                                                    ======                          ======
Unallocated.................     456      36.89                  459      29.61
                              ------     ------               ------     ------
   Total....................  $1,236     100.00%              $1,550     100.00%
                              ======     ======               ======     ======
</TABLE> 

                                       75
<PAGE>
 
     REAL ESTATE OWNED. At March 31, 1998, the Bank had $1.1 million of real
estate owned consisting of nine properties, eight of which were acquired through
foreclosure. When the Bank acquires property through foreclosure or deed in lieu
of foreclosure, it is initially recorded at the lower of the recorded investment
in the corresponding loan or the fair value of the related assets at the date of
foreclosure, less costs to sell. Thereafter, if there is a further deterioration
in value, the Bank provides for a specific valuation allowance and charges
operations for the diminution in value. It is the policy of the Bank to have
obtained an appraisal on all real estate subject to foreclosure proceedings
prior to the time of foreclosure. It is the Bank's policy to require appraisals
on a periodic basis on foreclosed properties and conduct inspections on
foreclosed properties.

INVESTMENT ACTIVITIES

     Federally chartered savings institutions have the authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certificates of deposit of insured banks
and savings institutions, bankers' acceptances, repurchase agreements and
federal funds. Subject to various restrictions, federally chartered savings
institutions may also invest their assets in commercial paper, investment-grade
corporate debt securities and mutual funds whose assets conform to the
investments that a federally chartered savings institution is otherwise
authorized to make directly. Additionally, the Bank must maintain minimum levels
of investments that qualify as liquid assets under OTS regulations. See
"Regulation and Supervision--Federal Savings Institution Regulation--Liquidity."
Historically, the Bank has maintained liquid assets above the minimum OTS
requirements and at a level considered to be adequate to meet its normal daily
activities.

     The Bank's current policies generally limit securities investments to U.S.
Government and agency securities, municipal bonds and corporate debt obligations
and corporate equities. In addition, the Bank's policies permit investments in
mortgage-backed securities, including securities issued and guaranteed by FNMA,
FHLMC and GNMA. The Bank's current securities investment strategy is to continue
to emphasize the purchase of mortgage-backed securities and U.S. Government and
agency obligations as well as state and municipal obligations for purposes of
interest rate risk management.

     At March 31, 1998, the Bank had $158.5 million in securities, consisting
primarily of mortgage-backed securities, U.S. Government and agency obligations
and one municipal obligation. SFAS No. 115 requires the Bank to designate its
securities as held-to-maturity, available-for-sale or trading depending on the
Bank's intent regarding its investments. The Bank does not currently maintain a
trading portfolio of securities. At March 31, 1998, all of the Bank's mortgage-
backed securities were classified as held-to-maturity. Also at that date, 19.8%
of the Bank's investment securities were classified as available-for-sale and
80.2% were classified as held-to-maturity. Of the Bank's total investment
securities and mortgage-backed securities portfolio, the Bank's securities
classified as held to maturity had an aggregate market value of $153.5 million
and an amortized cost of $151.4 million. The Bank's securities classified as
available-for-sale had an aggregate market value of $7.1 million and an
amortized cost of $7.0 million at March 31, 1998.


     MORTGAGE-BACKED SECURITIES. The Bank purchases mortgage-backed securities
in order to: (i) generate positive interest rate spreads with minimal
administrative expense; (ii) reduce its credit risk as a result of the guarantee
provided by FHLMC, FNMA and GNMA; (iii) utilize these securities as collateral
for borrowings; and (iv) increase the liquidity of the Bank. The Bank has
primarily invested in mortgage-backed securities issued or sponsored by FNMA,
FHLMC and GNMA and private issuers. At March 31, 1998, mortgage-backed
securities totalled $122.6 million, or 39.2% of total assets and 41.2% of total
interest earning assets, and all were classified as held-to-maturity. At March
31, 1998, 63.9% of the mortgage-

                                       76
<PAGE>
 
backed securities were adjustable-rate and 36.1% were fixed-rate. The mortgage-
backed securities portfolio had coupon rates ranging from 5.41% to 15.00% and
had a weighted average yield of 6.75% at March 31, 1998. The estimated fair
value of the Bank's mortgage-backed securities held to maturity at March 31,
1998, was $124.4 million, which is $1.8 million more than the amortized cost of
$122.6 million.

     Mortgage-backed securities are created by the pooling of mortgages and
issuance of a security with an interest rate which is less than the interest
rate on the underlying mortgage. Mortgage-backed securities typically represent
a participation interest in a pool of single-family or multi-family mortgages,
although the Bank focuses its investments on mortgage-backed securities backed
by single-family mortgages. The issuers of such securities (generally U.S.
Government agencies and government sponsored enterprises, including FNMA, FHLMC
and GNMA) 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 investors. Mortgage-backed securities generally yield less than the
loans that underlie such securities because of the cost of payment guarantees
and credit enhancements. In addition, 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 differ from estimated
prepayments used in pricing the security at the time of purchase, which may
require adjustments to the amortization of any premium or accretion of any
discount relating to such instruments thereby changing the net yield on such
securities. There is also reinvestment risk associated with the cash flows from
such securities on in the event such securities are redeemed by the issuer. In
addition, the market value of such securities may be adversely affected by
changes in interest rates. The Bank estimates prepayments for its mortgage-
backed securities at purchase to ensure that prepayment assumptions are
reasonable considering the underlying collateral for the mortgage-backed
securities at issue and current mortgage interest rates and to determine the
yield and estimated maturity of its mortgage-backed security portfolio. Of the
Banks $122.6 million mortgage-backed securities portfolio at March 31, 1998,
$1.6 million with a weighted average yield of 7.82% had contractual maturities
within five years and $121.0 million with a weighted average yield of 6.74% had
contractual maturities over five years. However, the actual maturity of a
mortgage-backed security may be less than its stated 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 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 Bank's 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.

     U.S. GOVERNMENT AND AGENCY OBLIGATIONS AND OBLIGATIONS OF STATES AND
MUNICIPALITIES. At March 31, 1998, the Bank's U.S. Government and Agency
securities portfolio totalled $35.7 million, $28.6 million of which were
classified as held-to-maturity. In addition, the Bank held one $150,000
obligation of a New Jersey municipal subdivision.

                                       77
<PAGE>
 
     The following table sets forth certain information regarding the amortized
cost and fair value of the Bank's securities at the dates indicated.


<TABLE>
<CAPTION>
                                                      AT MARCH 31,                                AT DECEMBER 31,
                                     -----------------------------------------------  ----------------------------------------------
                                              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>
Investment securities
 available-for-sale(1):
   U.S. Government 
    obligations................        $ 6,981   $ 7,105    $ 6,980          $ 7,081  $        --  $        --  $        --  $    --
   Obligations of states and                                                                                                        
    municipal subdivisions.....             --        --         --               --          115          120          306      319
   Mutual fund.................             --        --         --               --        1,554        1,527        1,465    1,441
   Common Stock................             --        --         --               --           --           --          100      172
                                       -------   -------    -------          -------      -------      -------      -------   ------
     Total securities                    
      available-for-sale.......          6,981     7,105      6,980            7,081        1,669        1,647        1,871    1,932
                                       -------   -------    -------          -------      -------      -------      -------   ------

Investment securities
 held-to-maturity (1):
   U.S. Government and                  
    Agency obligations.........         28,618    28,932     22,929           23,339       22,476       22,766       18,482   19,022
   Obligations of states and               
    municipal subdivisions.....            150       150         --               --           --           --           --       --
                                       -------   -------    -------          -------      -------      -------      -------   ------
                                        28,768    29,082     22,929           23,339       22,476       22,766       18,482   19,022
                                       -------   -------    -------          -------      -------      -------      -------   ------

Federal Home Loan Bank of                                                                                                           
 New York stock (2)............          2,282     2,282      2,184            2,184        1,670        1,670        1,509    1,509
                                       -------   -------    -------          -------      -------      -------      -------   ------
     Total.....................        $38,031   $38,469    $32,093          $32,604      $25,815      $26,083      $21,862  $22,463
                                       =======   =======    =======          =======      =======      =======      =======   ======
</TABLE>

________________________
(1) Available for sale securities are carried at fair value while held-to-
    maturity securities are carried at amortized cost.
(2) Investment is required by regulation.  As the security is not readily
    marketable, its cost approximates fair value.
 
                                       78
<PAGE>

The following table sets forth the Bank's investment securities activities for 
the periods indicated.
 
<TABLE>
<CAPTION>
                                                   FOR THE THREE
                                                      MONTHS
                                                  ENDED MARCH 31,   FISCAL YEAR ENDED DECEMBER 31,
                                                 -----------------  -------------------------------
                                                  1998      1997      1997       1996      1995
                                                 -------  --------  ---------  --------  ----------
                                                                  (IN THOUSANDS)
<S>                                              <C>      <C>       <C>        <C>       <C>
INVESTMENT SECURITIES:
Investment securities, beginning 
  of period(1)...............................    $30,009  $24,124   $ 24,124   $20,414   $ 9,355
                                                 -------  -------   --------   -------   -------
Purchases:
   Investment securities - held-to-
     maturity................................      5,790    2,997     10,400    10,998    12,989
   Investment securities - available-for-
    sale.....................................         --    2,023      7,034        88        86
Calls:
   Investment securities - held-to-
     maturity................................         --   (2,000)   (10,000)   (5,000)   (2,000)
   Investment securities - available-for-
     sale....................................         --       --         --        --        --
Maturities:
   Investment securities - held-to-
     maturity................................         --       --         --    (2,000)       --
   Investment securities - available-for-
     sale....................................         --     (105)      (105)     (192)      (94)
Sales of securities available for sale.......
Increase (decrease) in net premium...........         51      (10)        42        (2)        2
Increase (decrease) in unrealized gains......         24       (5)       122       (82)      126
                                                 -------  -------   --------   -------   -------
   Net increase in investment securities.....      5,865    2,900      5,885     3,710    11,059
                                                 -------  -------   --------   -------   -------
Investment securities, end of period.........    $35,874  $27,024   $ 30,009   $24,124   $20,414
                                                 =======  =======   ========   =======   =======
</TABLE>

________________________
(1) Includes investment securities available-for-sale.

                                       79
<PAGE>
 
           The following table sets forth certain information regarding the
amortized cost and fair values of the Bank's mortgage-backed securities,
all of which are held to maturity, at the dates indicated.

<TABLE>
<CAPTION>
                                          AT MARCH 31,                                                     AT DECEMBER 31,        
                                -----------------------------   ------------------------------------------------------------------
                                             1998                              1997                              1996             
                                -----------------------------   ---------------------------------  -------------------------------
                                            PERCENT                          PERCENT                           PERCENT            
                                AMORTIZED      OF        FAIR    AMORTIZED      OF        FAIR     AMORTIZED      OF        FAIR  
                                  COST      TOTAL(1)    VALUE      COST      TOTAL(1)     VALUE      COST      TOTAL(1)     VALUE 
                                --------- ----------  -------   ----------   --------  --------   ----------  ---------  ---------
                                                                (DOLLARS IN THOUSANDS)                                            
<S>                             <C>       <C>         <C>       <C>         <C>        <C>        <C>         <C>        <C>     
By Issuer:                                                                                                                        
  GNMA.......................   $ 73,748    60.14%    $ 74,943   $ 78,657    60.42%     $ 79,775   $ 65,996    58.27%     $ 67,095
  FHLMC......................     25,389    20.70       25,721     26,551    20.40        26,749     32,041    28.29        32,023
  FNMA.......................     23,489    19.15       23,728     24,959    19.17        25,150     15,204    13.43        15,227
  Other......................          7     0.01            7          7     0.01             7         13     0.01            13
                                --------   ------     --------   --------   ------      --------   --------   ------      --------
    Total mortgage-backed                                                                                                         
     securities (1)..........   $122,633   100.00%    $124,399   $130,174   100.00%     $131,681   $113,254   100.00%     $114,358
                                ========   ======     ========   ========   ======      ========   ========   ======      ========
By Coupon Type:                                                                                                                   
  Adjustable-rate............   $ 78,330    63.87%    $ 79,181   $ 82,938    63.71%     $ 83,740   $ 62,849    55.49%     $ 63,693
  Fixed-rate.................     44,303    36.13       45,218     47,236    36.29        47,941     50,405    44.51        50,665
                                --------   ------     --------   --------   ------      --------   --------   ------      --------
     Total mortgage-backed                                                                                                        
      securities (1).........   $122,633   100.00%    $124,399   $130,174   100.00%     $131,681   $113,254   100.00%     $114,358
                                ========   ======     ========   ========   ======      ========   ========   ======      ======== 

<CAPTION>
                               --------------------------------
                                              1995
                               --------------------------------
                                             PERCENT
                                 AMORTIZED      OF        FAIR
                                   COST      TOTAL(1)     VALUE
                               ----------- ---------- ---------
<S>                            <C>         <C>        <C>
By Issuer:
  GNMA.......................    $ 67,243      67.22%   $ 68,790
  FHLMC......................      23,662      23.66      23,937
  FNMA.......................       9,112       9.11       9,188
  Other......................          15       0.01          15
                                 --------     ------    --------
    Total mortgage-backed
     securities (1)..........    $100,032     100.00%   $101,930
                                 ========     ======    ========
By Coupon Type:
  Adjustable-rate............    $ 58,615      58.60%   $ 59,624
  Fixed-rate.................      41,417      41.40      42,306
                                 --------     ------    --------
     Total mortgage-backed
      securities (1).........    $100,032     100.00%   $101,930
                                 ========     ======    ========
</TABLE>

_________________________
(1)  Based on amortized cost.
(2)  Includes net unamortized premiums (discounts) of $236 at March 31, 1998 and
     $243, $193 and $(26) at December 31, 1997, 1996 and 1995, respectively.


                                       80
<PAGE>

     The following table sets forth the Bank's mortgage-backed securities
activities for the periods indicated.

<TABLE>
<CAPTION>
                                                  FOR THE THREE MONTHS               FOR THE YEARS
                                                     ENDED MARCH 31,               ENDED DECEMBER 31,
                                                 ----------------------    ----------------------------------
                                                    1998       1997          1997         1996        1995
                                                 ---------  -----------    ---------  -----------  ----------
                                                                           (IN THOUSANDS)
<S>                                              <C>        <C>            <C>           <C>       <C>
Beginning balance...............................  $130,174   $113,254      $113,254      $100,031    $ 89,300
   Purchases....................................        --      5,244        37,026        30,570      22,443
   Principal repayments.........................    (7,534)    (5,774)      (20,084)      (17,384)    (11,751)
   Net amortization and accretion of discounts
   and premiums.................................        (7)        (1)          (22)           37          40
                                                  --------   --------      --------      --------    --------
Ending balance..................................  $122,633   $112,723      $130,174      $113,254    $100,032
                                                  ========   ========      ========      ========    ========
</TABLE>

 
     The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of the Bank's
investment securities available for sale and held to maturity and mortgage-
backed securities held to maturity as of March 31, 1998.

<TABLE>
<CAPTION>
                                                                                     AT MARCH 31, 1998
                                                        ----------------------------------------------------------------------------
                                                                                       MORE THAN ONE             MORE THAN FIVE 
                                                           ONE YEAR OR LESS         YEAR TO FIVE YEARS         YEARS TO TEN YEARS 
                                                        -----------------------    -----------------------  ------------------------
                                                                      WEIGHTED                   WEIGHTED                   WEIGHTED
                                                         CARRYING     AVERAGE       CARRYING     AVERAGE      CARRYING      AVERAGE
                                                          VALUE        YIELD         VALUE        YIELD         VALUE        YIELD
                                                        ---------    ----------    ---------    ----------  -----------    ---------
                                                                                (DOLLARS IN THOUSANDS) 
<S>                                                     <C>          <C>           <C>          <C>         <C>            <C> 
Investment securities available for sale:
    U.S. Treasury obligations........................   $      --           --%       $7,105         6.08%     $     --          --%
                                                        =========                     ======                   ========
Investment securities held to maturity:
    U.S. Government agency obligations...............      $2,000         7.13%       $4,000         7.38%     $ 17,000        7.05%


    Municipal obligations............................         150         3.55            --           --            --          --
                                                        ---------                     ------                   --------
       Total investment securities held
        to maturity..................................   $   2,150         6.88%       $4,000         7.38%     $ 17,000        7.05%
                                                        =========                     ======                   ========
Mortgage-backed securities held to maturity:

    Adjustable-rate:
       GNMA..........................................   $      --           --%       $   --           --%     $     --          --%

       FHLMC.........................................          --           --            --           --            --          --
       FNMA..........................................          --           --            --           --            --          --
                                                        ---------                    -------                   --------
                Total................................          --           --            --           --            --          --
                                                        ---------                    -------                   --------       -----
    Fixed-rate:
       GNMA..........................................           6        12.00            15        10.46         2,929        7.81
       FHLMC.........................................          --           --         1,108         8.13         2,652        6.74
       FNMA..........................................          --           --           507         7.00           916        7.00
       Other.........................................          --           --            --           --            --          --
                                                        ---------                     ------                   --------
                Total................................           6        12.00         1,630         7.80         6,497        7.26
                                                        ---------                     ------                   --------
Total mortgage-backed securities
   held to maturity..................................   $       6        12.00%       $1,630         7.80%     $  6,497        7.26%
                                                        =========                     ======                   ========            

<CAPTION> 
                                                                                 AT MARCH 31, 1998
                                                                   -------------------------------------------------
                                                                     MORE THAN TEN YEARS              TOTAL
                                                                   -----------------------    ----------------------
                                                                                 WEIGHTED      WEIGHTED
                                                                   CARRYING       AVERAGE       CARRYING    AVERAGE
                                                                     VALUE         YIELD         VALUE       YIELD
                                                                   ---------    ----------    ----------   ---------
<S>                                                                <C>          <C>           <C>          <C>
Investment securities available for sale:
    U.S. Treasury obligations...................................   $     --           --%       $  7,105      6.08%
                                                                   ========                     ========
Investment securities held to maturity:
    U.S. Government agency obligations..........................   $  5,618         7.66%       $ 28,618      7.22%

    Municipal obligations.......................................         --           --             150      3.55
                                                                   --------                     --------
       Total investment securities held
        to maturity.............................................   $  5,618         7.66%       $ 28,768      7.20%
                                                                   ========                     ========
Mortgage-backed securities held to maturity:

    Adjustable-rate:
       GNMA.....................................................   $ 61,245         6.50%       $ 61,245      6.50%
       FHLMC....................................................      2,878         7.75           2,878      7.75
       FNMA.....................................................     14,207         6.34          14,207      6.34
                                                                   --------                     --------
                Total...........................................     78,330         6.52          78,330      6.52
                                                                   --------                     --------
    Fixed-rate:
       GNMA.....................................................      9,553         7.40          12,503      7.50
       FHLMC....................................................     18,751         7.02          22,511      7.04
       FNMA.....................................................      7,859         7.01           9,282      7.01
       Other....................................................          7        11.00               7     11.00
                                                                   --------                     --------
                Total...........................................     36,170         7.12          44,303      7.17
                                                                   --------                     --------
Total mortgage-backed securities
   held to maturity.............................................   $114,500         6.71%       $122,633      6.75%
                                                                   ========                     ========
</TABLE> 

                                       81
<PAGE>
 
SOURCES OF FUNDS

     GENERAL. Deposits, loan repayments and prepayments, security maturities,
cash flows generated from operations and FHLB borrowings are the primary sources
of the Bank's funds for use in lending, investing and for other general
purposes.

     DEPOSITS. The Bank offers a variety of deposit accounts with a range of
interest rates and terms. The Bank's deposits consist of savings, checking
accounts, NOW accounts, money market club accounts, certificate of deposit
accounts and Individual Retirement Accounts. For the three months ended March
31, 1998, average core deposits represented 40.2% of total average deposits. 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. The Bank has historically relied primarily on 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 through print media and generally does not solicit deposits from
outside its market area. The Bank does not actively solicit certificate accounts
in excess of $100,000 or use brokers to obtain deposits. At March 31, 1998,
80.2% of the Bank's certificate of deposit accounts had terms of less than
twelve months.

                                       82
<PAGE>
 
     The following table presents the deposit activity of the Bank for the
periods indicated.

<TABLE>
<CAPTION>
                                                           FOR THE THREE
                                                              MONTHS
                                                           ENDED MARCH 31,        FOR THE YEARS ENDED DECEMBER 31,
                                                        --------------------     ----------------------------------
                                                          1998        1997         1997         1996         1995
                                                        --------    --------     --------     --------     --------
                                                                              (IN THOUSANDS)
<S>                                                     <C>         <C>          <C>          <C>          <C>
Beginning balance....................................   $238,192    $179,946     $179,946     $178,392     $164,181
                                                        --------    --------     --------     --------     --------
  Purchase of deposits from another..................        --           --       51,007           --           --
    institution
  Net deposits (withdrawals).........................     (1,505)       (337)        (850)      (5,595)       7,660
  Interest credited..................................      2,433       1,809        8,089        7,149        6,551
                                                        --------    --------     --------     --------     --------
Increase in deposit accounts.........................        928       1,472       58,246        1,554       14,211
                                                        --------    --------     --------     --------     --------
Ending balance.......................................   $239,120    $181,418     $238,192     $179,946     $178,392
                                                        ========    ========     ========     ========     ========
</TABLE>

     At March 31, 1998, the Bank had $17.6 million in certificate accounts in
amounts of $100,000 or more maturing as follows.

<TABLE>
<CAPTION>
                                                                                                 WEIGHTED
                              MATURITY PERIOD                                 AMOUNT           AVERAGE RATE
          -------------------------------------------------------          ------------     ------------------
                                                                                 (DOLLARS IN THOUSANDS)
          <S>                                                              <C>              <C>
          Three months or less...................................             $ 5,076               5.40%

          Over 3 through 6 months................................               3,878               5.80

          Over 6 through 12 months...............................               5,877               5.66

          Over 12 months.........................................               2,765               6.43
                                                                              -------

          Total..................................................             $17,596               5.74%
                                                                              =======
</TABLE>

                                       83
<PAGE>
 
     The following table sets forth the distribution of the Bank's average
deposit accounts for the periods indicated and the weighted average interest
rates on each category of deposits presented. Averages for the periods presented
utilize month-end balances.

<TABLE>
<CAPTION>
                                         FOR THE THREE MONTHS                                                                     
                                            ENDED MARCH 31,                                         FOR THE YEARS ENDED DECEMBER 31
                                  ----------------------------------  ------------------------------------------------------------
                                                 1998                            1997                              1996           
                                  ----------------------------------  ------------------------------   -------------------        
                                                PERCENT                          PERCENT                          PERCENT         
                                               OF TOTAL   WEIGHTED              OF TOTAL   WEIGHTED              OF TOTAL         
                                     AVERAGE    AVERAGE    AVERAGE    AVERAGE    AVERAGE    AVERAGE    AVERAGE    AVERAGE         
                                     BALANCE   DEPOSITS     RATE      BALANCE   DEPOSITS     RATE      BALANCE   DEPOSITS         
                                  -----------  ---------  ---------   --------  ---------  ---------   --------  ----------        
                                                                    (DOLLARS IN THOUSANDS)                                        
<S>                                 <C>        <C>        <C>         <C>       <C>        <C>         <C>       <C>              
Demand accounts...................   $ 33,031     13.84%      1.14%   $ 24,863     12.60%      1.18%   $ 21,679     12.18%
Savings and Club accounts.........     62,849     26.34       2.59      53,221     26.97       2.50      51,138     28.74
Certificates of deposit...........    142,728     59.82       5.41     119,272     60.43       5.42     105,141     59.08
                                     --------    ------               --------    ------               --------    ------
         Total....................   $238,608    100.00%      4.08%   $197,356    100.00%      4.10%   $177,958    100.00%
                                     ========    ======               ========    ======               ========    ======

Certificate accounts(1):
   Less than six months...........   $ 66,315     46.19%      5.26%   $ 70,186     49.32%      5.24%   $ 51,854     48.17%
   Over six through 12
    months........................     48,853     34.02       5.56      44,047     30.95       5.59      34,720     32.25
   Over 12 months through
    36 months.....................     25,387     17.68       5.92      25,309     17.78       5.96      16,417     15.25
   Over 36 months.................      3,036      2.11       5.83       2,782      1.95       6.96       4,656      4.33
                                     --------    ------               --------    ------               --------    ------
         Total certificate........   $143,591    100.00%      5.49%   $142,324    100.00%      5.51%   $107,647    100.00%
    accounts......................   ========    ======               ========    ======               ========    ======

<CAPTION>
                            -------------------------------------------------
                                                  1995
                            -------------------------------------------------
                                                    PERCENT
                              WEIGHTED             OF TOTAL       WEIGHTED
                              AVERAGE    AVERAGE    AVERAGE        AVERAGE
                               RATE      BALANCE   DEPOSITS         RATE
                            -------------------------------------------------

<S>                         <C>          <C>       <C>            <C>
Demand accounts..............    1.24%   $ 21,538     12.64%          1.45%
Savings and Club accounts....    2.50      55,888     32.81           2.50
Certificates of deposit......    5.33      92,938     54.55           5.21
                                         --------    ------
         Total...............    4.02%   $170,364    100.00%          3.85%
                                         ========    ======

Certificate accounts(1):
   Less than six months......    5.08%   $ 44,548     43.27%          5.07%
   Over six through 12
    months...................    5.45      34,100     33.13           5.54
   Over 12 months through
    36 months................    5.54      18,793     18.26           5.71
   Over 36 months............    6.48       5,497      5.34           6.33
                                         --------    ------
         Total certificate...    5.33%   $102,938    100.00%          5.41%
    accounts.................            ========    ======
</TABLE>

________________________________________
(1) Based on remaining maturity of certificates calculated as of the end of the
    period.
                                       84
<PAGE>
 
     The following table presents, by various rate categories, the amount of
certificate accounts outstanding at the dates indicated and the periods to
maturity of the certificate accounts outstanding at March 31, 1998.

<TABLE>
<CAPTION>
                                                                                                           AT     
                                            PERIOD TO MATURITY FROM MARCH 31, 1998                      MARCH 31, 
                              -----------------------------------------------------------------------   ---------  
                              LESS THAN     ONE TO      TWO TO      THREE TO     FOUR TO     AFTER                
                              ONE YEAR    TWO YEARS   THREE YEARS  FOUR YEARS  FIVE YEARS  FIVE YEARS      1998   
                              ---------   ---------   -----------  ----------  ----------  ----------   ---------   
                                                                 (IN THOUSANDS)                  
<S>                           <C>         <C>         <C>          <C>         <C>         <C>          <C>     
Certificate accounts:                                                                                           
   0 to 4.00% .............    $  2,018     $     4   $      --    $      --   $     --     $    --     $  2,022 
   4.01 to 5.00% ..........      30,316       2,594         138           --         --          --       33,048 
   5.01 to 6.00% ..........      77,081      11,679       1,504          621      1,271         497       92,653 
   6.01 to 7.00% ..........       5,473       4,016       3,367          418        229          --       13,503 
   7.01 to 8.00% ..........          20       1,859         226           --         --          --        2,105 
   Over 9.00% .............          --          --          --           --         --          --           -- 
                               --------     -------     -------       ------     ------     -------     --------    
                               $114,908     $20,152     $ 5,235       $1,039     $1,500     $   497      143,331  
                               ========     =======     =======       ======     ======     =======      
Accrued interest payable ...........................................................................         260   
                                                                                                        --------   
                                               
   Total ...........................................................................................    $143,591   
                                                                                                        ========   
<CAPTION>       
                                                       AT DECEMBER 31, 
                                           ---------------------------------- 
                                              1997        1996        1995   
                                           ----------   ---------   --------- 
<S>                                         <C>         <C>         <C>      
Certificate accounts:                                                          
   0 to 4.00% .............                 $  2,538    $ 11,101    $ 11,846   
   4.01 to 5.00% ..........                   33,593      21,836      20,049   
   5.01 to 6.00% ..........                   88,877      60,352      41,260   
   6.01 to 7.00% ..........                   14,451      11,851      26,627   
   7.01 to 8.00% ..........                    2,069       1,486       2,255   
   Over 9.00% .............                      536        847          749   
                                            --------    --------    -------- 
                                              14,064     107,473     102,786    
Accrued interest payable .................       260         174         152    
                                            --------    --------    --------    
   
   Total .................................  $142,324    $107,647    $102,938    
                                            ========    ========    ========
</TABLE> 

                                       85
<PAGE>
 
     BORROWINGS. The Bank utilizes borrowings from the FHLB as an alternative to
retail deposits to fund its operations as part of its operating strategy. These
FHLB borrowings are collateralized primarily by certain of the Bank's mortgage-
related securities and secondarily by the Bank's investment in capital stock of
the FHLB. FHLB borrowings are made pursuant to several different credit
programs, each of which has its own interest rate and range of maturities. The
maximum amount that the FHLB will advance to member institutions, including the
Bank, fluctuates from time to time in accordance with the policies of the FHLB.
See "Regulation and Supervision -- Federal Home Loan Bank System." At March 31,
1998, the Bank had $42.3 million in outstanding FHLB borrowings, compared to
$21.7 million at March 31, 1997.

     The following table sets forth certain information regarding the Bank's
borrowed funds at or for the periods ended on the dates indicated.

<TABLE>
<CAPTION>
                                                           AT OR FOR THE
                                                         THREE MONTHS ENDED          AT OR FOR THE YEARS
                                                             MARCH 31,                ENDED DECEMBER 31,
                                                        -------------------     ------------------------------
                                                          1998       1997         1997       1996       1995
                                                        --------   --------     --------   --------   --------
                                                                 (DOLLARS IN THOUSANDS)
<S>                                                     <C>        <C>          <C>        <C>        <C>
Average balance outstanding.........................     $30,144    $22,650      $26,223    $18,092    $15,615

Maximum amount outstanding at any
 month-end during the period........................      42,300     23,650       43,675     23,650     19,000

Balance outstanding at end of period................      42,300     21,650       30,300     23,650     17,000

Weighted average interest rate
 during the period..................................        5.80%      6.06%        5.97%      6.36%      6.83%

Weighted average interest rate at
 end of period......................................        5.86%      6.28%        6.08%      6.20%      6.58%
</TABLE>


SUBSIDIARY ACTIVITIES

     The Bank is the parent corporation of three wholly-owned subsidiary
corporations, West Essex Insurance Agency ("WEIA"), Wessex Service Corporation
("WSC") and First Reserve Corporation ("FRC"). WEIA was formed in December 1982
to offer insurance products and tax-deferred annuities through an agent.
Originally, these products were sold at one of the Bank's branches. Commencing
in 1993, customers have been referred to Anthony R. Davis Agency at an off-site
location. WEIA receives a fee for each customer referral resulting in the
purchase of an insurance and/or annuity product. Sales of annuity products
totalled $74,000 and $226,000 for the three months ended March 31, 1998 and for
the year ended December 31, 1997, respectively. WEIA's earnings are at a nominal
level since management decided in early 1994 to de-emphasize this activity due
to the lack of demand and controversial publicity associated with uninsured
annuity products. Both WSC and FRC are building subsidiaries and have been
inactive since October 1989 and June 1987, respectively.

                                       86
<PAGE>
 
PROPERTIES

     The Bank currently conducts its business through an administrative and full
service branch office located in Caldwell, New Jersey and seven other full
service branch offices located in West Orange, Franklin Lakes, River Vale, Pine
Brook, Old Tappan and Northvale, New Jersey. Management believes that the Bank's
facilities are adequate to meet the present and immediately foreseeable needs of
the Bank and the Holding Company.

<TABLE>
<CAPTION>
                                                               ORIGINAL         NET BOOK VALUE
                                                                 YEAR           OF PROPERTY OR
                                               LEASED           LEASED             LEASEHOLD
                                                  OR              OR            IMPROVEMENTS AT
                    LOCATION                    OWNED          ACQUIRED          MARCH 31, 1998
          -----------------------------      ----------     --------------     ------------------
                                                                                 (In thousands)
          <S>                                <C>            <C>                 <C>               
          ADMINISTRATIVE/CORPORATE/
          BRANCH OFFICE:

          417 Bloomfield Avenue                 Owned            1962                 $401   
          Caldwell, NJ 07006                                               

          BRANCH OFFICES:                                                  

          216 Main Street                       Owned            1987                  150   
          West Orange, NJ 07052                                                           

          487 Pleasant Valley Way               Owned            1987                  241
          West Orange, NJ 07052                                                           

          574 Franklin Avenue                   Leased           1978                    2
          Franklin Lakes, NJ 07417                                                       

          653 Westwood Avenue                   Owned            1997                  484
          River Vale, NJ 07675                                                      

          267 Changebridge Road                 Owned            1974                  252   
          Pine Brook, NJ 07058                                                            

          207 Old Tappan Road                   Owned            1997                  494
          Old Tappan, NJ 07675                                                            

          119 Paris Avenue                      Owned            1997                  326
          Northvale, NJ 07647                                               
</TABLE>


LEGAL PROCEEDINGS

     The Bank is a party to various litigation which arises primarily in the
ordinary course of business. In the opinion of management the ultimate
disposition of such litigation should not have a material effect on the
consolidated financial position or operations of the Bank.

PERSONNEL

     As of March 31, 1998, the Bank had 53 full-time employees and 5 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--Benefits" for a description of certain compensation and
benefit programs offered to the Bank's employees.

                                       87
<PAGE>
 
                          FEDERAL AND STATE TAXATION

FEDERAL TAXATION

     GENERAL. The Bank, Bancorp and the Mutual Company will report their income
on a calendar year basis using the accrual method of accounting and will be
subject to federal income taxation in the same manner as other corporations with
some exceptions, including particularly the Bank's reserve for bad debts
discussed below. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax rules
applicable to the Bank, Bancorp and the Mutual Company. The Bank was last
audited by the IRS in 1995 and has not been audited by the New Jersey Department
of Revenue ("DOR") in the past five years.

     BAD DEBT RESERVE. Historically, savings institutions such as the Bank which
met certain definitional tests primarily related to their assets and the nature
of their business ("qualifying thrifts") were permitted to establish a reserve
for bad debts and to make annual additions thereto, which may have been deducted
in arriving at their taxable income. The Bank's deductions with respect to
"qualifying real property loans," which are generally loans secured by certain
interest in real property, were computed using an amount based on the Bank's
actual loss experience, or a percentage equal to 8% of the Bank's taxable
income, computed with certain modifications and reduced by the amount of any
permitted addition to the non-qualifying reserve. Due to the Bank's loss
experience, the Bank generally recognized a bad debt deduction equal to 8% of
taxable income.

     In August 1996, the provisions repealing the above thrift bad debt rules
were passed by Congress as part of "The Small Business Job Protection Act of
1996." The new rules eliminate the 8% of taxable income method for deducting
additions to the tax bad debt reserves for all thrifts for tax years beginning
after December 31, 1995. These rules also require that all thrift institutions
recapture all or a portion of their bad debt reserves added since the base year
(last taxable year beginning before January 1, 1988). The Bank has previously
recorded a deferred tax liability equal to the bad debt recapture and as such,
the new rules will have no effect on net income or federal income tax expense.
For taxable years beginning after December 31, 1995, the Bank's bad debt
deduction will be equal to net charge-offs. The new rules allow an institution
to suspend the bad debt reserve recapture for the 1996 and 1997 tax years if the
institution's lending activity for those years is equal to or greater than the
institution's average mortgage lending activity for the six taxable years
preceding 1996. For this purpose, only home purchase and home improvement loans
are included and the institution can elect to have the tax years with the
highest and lowest lending activity removed from the average calculation. If an
institution is permitted to postpone the reserve recapture, it must begin its
six year recapture no later than the 1998 tax year. The unrecaptured base year
reserves will not be subject to recapture as long as the institution continues
to carry on the business of banking. In addition, the balance of the pre-1988
bad debt reserves continue to be subject to a provision of present law referred
to below that require recapture in the case of certain excess distributions to
shareholders.

     
     DISTRIBUTIONS. To the extent that the Bank makes "non-dividend
distributions" to Bancorp that are considered as made (i) from the reserve for
losses on qualifying real property loans, to the extent the reserve for such
losses exceeds the amount that would have been allowed under the experience
method, or (ii) from the supplemental reserve for losses on loans ("Excess
Distributions"), then an amount based on the amount distributed will be included
in the Bank's taxable income. Non-dividend distributions include distributions
in excess of the Bank's current and accumulated earnings and profits,
distributions in redemption of stock, and distributions in partial or complete
liquidation. However, dividends paid out of the Bank's current or accumulated
earnings and profits, as calculated for federal income tax purposes, will not be
considered to result in a distribution from the Bank's bad debt reserve. Thus,
any dividends to Bancorp that would reduce amounts appropriated to the Bank's
bad debt reserve and deducted for federal income tax purposes would create a tax
liability for the Bank. The amount of additional taxable income

                                       88
<PAGE>
 
created from an Excess Distribution is an amount that, when reduced by the tax
attributable to the income, is equal to the amount of the distribution.

     CORPORATE ALTERNATIVE MINIMUM TAX. The Internal Revenue Code of 1986, as
amended (the "Code") imposes a tax on alternative minimum taxable income
("AMTI") at a rate of 20%. The excess of the bad debt reserve deduction using
the percentage of taxable income method over the deduction that would have been
allowable under the experience method is treated as a preference item for
purposes of computing the AMTI. Only 90% of AMTI can be offset by net operating
loss carryovers. AMTI is increased by an amount equal to 75% of the amount by
which the Bank's adjusted current earnings exceeds its AMTI (determined without
regard to this preference and prior to reduction for net operating losses).

     DIVIDENDS RECEIVED DEDUCTION AND OTHER MATTERS. Bancorp may exclude from
its income 80% of dividends received from the Bank as long as it maintains
ownership in the Bank of at least 20%.

STATE AND LOCAL TAXATION

     STATE OF NEW JERSEY. The Bank files New Jersey income tax returns. For New
Jersey income tax purposes, savings institutions are presently taxed at a rate
equal to 3% of taxable income. For this purpose, "taxable income" generally
means federal taxable income, subject to certain adjustments (including addition
of interest income on state and municipal obligations). Bancorp and the Mutual
Company will be required to file a New Jersey income tax return because they
will be doing business in New Jersey. For New Jersey tax purposes, regular
corporations are presently taxed at a rate equal to 9% of taxable income.

                          REGULATION AND SUPERVISION

GENERAL

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

     The following summary of the regulation and supervision of savings
associations and their holding companies does not purport to be a complete
description of the applicable statutes and regulations and is qualified in its
entirety by reference to such statutes and regulations.

                                       89
<PAGE>
 
FEDERAL SAVINGS INSTITUTION REGULATION

     BUSINESS ACTIVITIES. The activities of federal savings institutions are
governed by the HOLA and, in certain respects, the Federal Deposit Insurance Act
("FDI Act") and the regulations issued by the agencies to implement these
statutes. These laws and regulations delineate the nature and extent of the
activities in which federal associations may engage. In particular, many types
of lending authority for federal associations, e.g., commercial, non-residential
real property loans and consumer loans, are limited to a specified percentage of
the institution's capital or assets.

     LOANS-TO-ONE BORROWER. Under the HOLA, savings institutions are generally
subject to the national bank limit on loans-to-one borrower. Generally, this
limit is 15% of the Bank's unimpaired capital and surplus, plus an additional
10% of unimpaired capital and surplus, if such loan is secured by readily-
marketable collateral, which is defined to include certain financial instruments
and bullion. At March 31, 1998, the Bank's regulatory limit on loans-to-one
borrower was $3.6 million. At March 31, 1998, the Bank's largest aggregate
amount of loans-to-one borrower consisted of a $1.6 million construction loan
secured by six lots and with one house currently under construction.

     QTL TEST. The HOLA requires savings institutions to meet a qualified thrift
lender ("QTL") test. Under the QTL test, a savings association is required to
qualify as a "domestic building and loan association" as that term is defined in
the Internal Revenue Code of 1986 or maintain at least 65% of its "portfolio
assets" (total assets less: (i) specified liquid assets up to 20% of total
assets; (ii) intangibles, including goodwill; and (iii) the value of property
used to conduct business) in certain "qualified thrift investments" (primarily
residential mortgages and related investments, including certain mortgage-backed
and related securities) in at least nine months out of each 12 month period. A
savings association that fails the QTL test must either convert to a bank
charter or operate under certain restrictions. As of March 31, 1998, the Bank
maintained 82.53% of its portfolio assets in qualified thrift investments and,
therefore, met the QTL test. Recent legislation has expanded the extent to which
education loans, credit card loans and small business loans may be considered as
"qualified thrift investments."

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

     The OTS has proposed amendments to its capital distribution regulations
which could conform OTS regulations to the existing requirements of other
banking agencies, as well as simplify the existing OTS regulations. These
proposed rules would eliminate the requirement of notifying the OTS when cash
dividends of a certain amount will be paid for institutions that will remain at
least adequately capitalized. However, applications for capital distributions
will be required for all distributions over a specified amount. Notices will
still be required for

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distributions that would reduce the amount of or retire common or preferred
stock, or debt instruments included in the capital and for all capital
distributions by savings associations in a holding company structure.

     LIQUIDITY. The Bank is required to maintain an average daily balance of
specified liquid assets equal to a monthly average of not less than a specified
percentage (currently 4%) of its net withdrawable deposit accounts plus short-
term borrowings. Monetary penalties may be imposed for failure to meet these
liquidity requirements. The Bank's average liquidity ratio for the month ended
March 31, 1998 was 9.44%, which exceeded the applicable requirements. The Bank
has never been subject to monetary penalties for failure to meet its liquidity
requirements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."

     ASSESSMENTS. Savings institutions are required by regulation to pay
assessments to the OTS to fund the agency's operations. The general assessment,
paid on a semi-annual basis, is based upon the savings institution's total
assets, including consolidated subsidiaries, as reported in the Bank's latest
quarterly Thrift Financial Report. The assessments paid by the Bank for the year
ended December 31, 1997 totalled $65,000.

     BRANCHING. OTS regulations permit federally chartered savings associations
to branch nationwide under certain conditions. Generally, federal savings
associations may establish interstate networks and geographically diversify
their loan portfolios and lines of business. The OTS authority preempts any
state law purporting to regulate branching by federal savings associations. For
a discussion of the impact of possible legislation, see "Special 
Considerations--Financial Institution Regulation and Possible Legislation."

     TRANSACTIONS WITH RELATED PARTIES. The Bank's authority to engage in
transactions with related parties or "affiliates" (i.e., any company that
controls or is under common control with an institution, including the Holding
Company and any non-savings institution subsidiaries that the Holding Company
may establish) is limited by Sections 23A and 23B of the Federal Reserve Act
("FRA"). Section 23A restricts the aggregate amount of covered transactions with
any individual affiliate to 10% of the capital and surplus of the savings
institution and also limits the aggregate amount of transactions with all
affiliates to 20% of the savings institution's capital and surplus. Certain
transactions with affiliates are required to be secured by collateral in an
amount and of a type described in Section 23A and the purchase of low quality
assets from affiliates is generally prohibited. Section 23B generally requires
that certain transactions with affiliates, including loans and asset purchases,
must be on terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies. A savings association also is prohibited from extending credit to any
affiliate engaged in activities not permitted for a bank holding company and may
not purchase the securities of an affiliate (other than a subsidiary).

     Section 22(h) of the Federal Reserve Act restricts a savings association
with respect to loans to directors, executive officers, and principal
stockholders. Under Section 22(h), loans to directors, executive officers and
stockholders who control, directly or indirectly, 10% or more of voting
securities of a savings association, and certain related interests of any of the
foregoing, may not exceed, together with all other outstanding loans to such
persons and affiliated entities, the savings association's total capital and
surplus. Section 22(h) also prohibits loans above amounts prescribed by the
appropriate federal banking agency to directors, executive officers, and
shareholders who directly or indirectly control 10% or more of voting securities
of a stock savings association, and their respective related interests, unless
such loan is approved in advance by a majority of the board of directors of the
savings association. Any "interested" director may not participate in the
voting. The loan amount (which includes all other outstanding loans to such
person) as to which such prior board of director approval is required, is the
greater of $25,000 or 5% of capital and surplus or any loans over $500,000.
Further, pursuant to Section 22(h), loans to directors, executive officers and
principal shareholders must be made on terms substantially the same as offered
in

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comparable transactions to other persons except for extensions of credit made
pursuant to a benefit or compensation program that is widely available to the
institution's employees and does not give preference to insiders over other
employees. Section 22(g) of the Federal Reserve Act places additional
limitations on loans to executive officers.

     ENFORCEMENT. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring action
against all "institution-affiliated parties," including stockholders, and any
attorneys, appraisers and accountants who knowingly or recklessly participate in
wrongful action likely to have an adverse effect on an insured institution.
Formal enforcement action may range from the issuance of a capital directive or
cease and desist order to removal of officers or directors, receivership,
conservatorship or termination of deposit insurance. Civil penalties cover a
wide range of violations and can amount to $25,000 per day, or $1.0 million per
day in especially egregious cases. Under the FDI Act, the FDIC has the authority
to recommend to the Director of the OTS that enforcement action be taken with
respect to a particular savings institution. If action is not taken by the
Director, the FDIC has authority to take such action under certain
circumstances. Federal and state law also establishes criminal penalties for
certain violations.

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

     CAPITAL REQUIREMENTS. The OTS capital regulations require savings
institutions to meet three capital standards: a 1.5% tangible capital standard,
a 3% leverage (core capital) ratio and an 8% risk based capital standard. Core
capital is defined as common stockholder's equity (including retained earnings),
certain non-cumulative perpetual preferred stock and related surplus, minority
interests in equity accounts of consolidated subsidiaries less intangibles other
than certain mortgage servicing rights ("MSRs") and credit card relationships.
The OTS regulations require that, in meeting the leverage ratio, tangible and
risk-based capital standards institutions generally must deduct investments in
and loans to subsidiaries engaged in activities not permissible for a national
bank. In addition, the OTS prompt corrective action regulation provides that a
savings institution that has a leverage capital ratio of less than 4% (3% for
institutions receiving the highest examination rating) will be deemed to be
"undercapitalized" and may be subject to certain restrictions. See "--Prompt
Corrective Regulatory Action." The OTS has proposed to amend its capital
regulation so that the leverage requirement is identical to the above prompt
corrective standard to avoid "undercapitalized" status.

     The risk-based capital standard for savings institutions requires the
maintenance of total capital (which is defined as core capital and supplementary
capital) to risk-weighted assets of 8%. In determining the amount of risk-
weighted assets, all assets, including certain off-balance sheet assets, are
multiplied by a risk-weight of 0% to 100%, as assigned by the OTS capital
regulation based on the risks OTS believes are inherent in the type of asset.
The components of core capital are equivalent to those discussed earlier under
the 3% leverage standard. The components of supplementary capital currently
include cumulative preferred stock, long-term perpetual preferred stock,
mandatory convertible securities, subordinated debt and intermediate preferred
stock and, within specified

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limits, the allowance for loan and lease losses. Overall, the amount of
supplementary capital included as part of total capital cannot exceed 100% of
core capital.

     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 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. A
savings association with assets of less than $300 million and risk-based capital
ratios in excess of 12% is not subject to the interest rate risk component,
unless the OTS determines otherwise. 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 indefinitely the date that the
component will first be deducted from an institution's total capital.

     At March 31, 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 the OTS tangible, leverage
and risk-based capital requirements, the Bank's historical amounts and
percentages at March 31, 1998, and 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 Holding 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 a total risk-based capital of less
than 8% or a leverage ratio or a Tier 1 capital ratio that is less than 4% is
considered to be undercapitalized. A savings institution that has a total risk-
based capital less than 6%, a Tier 1 risk-based capital ratio of less than 3% or
a leverage ratio that is less than 3% is considered to be "significantly
undercapitalized" and a savings institution that has a tangible capital to
assets ratio equal to or less than 2% 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
association receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." Compliance with the plan
must be guaranteed by any parent holding company. In addition, numerous
mandatory supervisory actions may become immediately applicable to the
institution depending upon its category, including, but not limited to,
increased monitoring by regulators, restrictions on growth, and capital
distributions and limitations on expansion. The OTS could also take any one of a
number of discretionary supervisory actions, including the issuance of a capital
directive and the replacement of senior executive officers and directors.

INSURANCE OF DEPOSIT ACCOUNTS

     Deposits of the Bank are presently insured by the Savings Association
Insurance Fund ("SAIF"). Both the SAIF and the Bank Insurance Fund ("BIF") (the
deposit insurance fund that covers most commercial bank deposits)

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

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

     On September 30, 1996, the President signed into law the Deposit Insurance
Funds Act of 1996 (the "Funds Act") which, among other things, imposed a special
one-time assessment on SAIF member institutions, including the Bank, to
recapitalize the SAIF. As required by the Funds Act, the FDIC imposed a special
assessment of 65.7 basis points on SAIF assessable deposits held as of March 31,
1995, payable November 27, 1996 (the "SAIF Special Assessment"). The SAIF
Special Assessment was recognized by the Bank as an expense in the quarter ended
September 30, 1996 and is generally tax deductible. The SAIF Special Assessment
recorded by the Bank amounted to $1.1 million on a pre-tax basis and $703,000 on
an after-tax basis.

     The Funds Act also spreads the obligations for payment of the FICO bonds
across all SAIF and BIF members. Beginning on January 1, 1997, BIF deposits were
assessed for FICO payment at a rate of 1.3 basis points, while SAIF deposits
paid 6.48 basis points. Full pro rata sharing of the FICO payments between BIF
and SAIF members will occur on the earlier of January 1, 2000 or the date the
BIF and SAIF are merged. The Funds Act specifies that the BIF and SAIF will be
merged on January 1, 1999, provided no savings associations remain as of that
time.

     As a result of the Funds Act, the FDIC voted to lower SAIF assessments to 0
to 27 basis points as of January 1, 1997, a range comparable to that of BIF
members and recently voted to maintain the same rate range for the second half
of 1998. However, SAIF members will continue to make the FICO payments described
above. Management cannot predict the level of FDIC insurance assessments on an
on-going basis, whether the savings association charter will be eliminated or
whether the BIF and SAIF will eventually be merged.

     The Bank's assessment of assessable deposits rate for the years ended
December 31, 1997, 1996 and 1995 was .06%, 0.19% and 0.23%, respectively, and
the premium paid for these periods was $_____, $_____ and $_____ (including the
SAIF Special Assessment), respectively. The FDIC has authority to have
assessment rates under certain circumstances and a material increase in SAIF
insurance premiums would likely have an adverse effect on the operating expenses
and results of operations of the Bank.

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

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<PAGE>
 
COMMUNITY REINVESTMENT ACT

     Federal Regulation. Under the Community Reinvestment Act, as
amended("CRA"), as implemented by OTS regulations, a savings association has a
continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including low
and moderate income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The CRA requires the OTS, in connection with its examination of a savings
institution, to assess the institution's record of meeting the credit needs of
its community and to take such record into account in its evaluation of certain
applications by such institution. The FIRREA amended the CRA to require the OTS
to provide a written evaluation of an institution's CRA performance utilizing a
four-tiered descriptive rating system, which replaced the five-tiered numerical
rating system. The Bank's latest CRA rating received from the OTS was
"Outstanding."

FEDERAL HOME LOAN BANK SYSTEM

     The Bank is a member of the FHLB System, which consists of 12 regional
FHLBs. The FHLB provides a central credit facility primarily for member
institutions. The Bank, as a member of the FHLB of New York, is required to
acquire and hold shares of capital stock in the FHLB in an amount at least equal
to 1% of the aggregate principal amount of its unpaid residential mortgage loans
and similar obligations at the beginning of each year, or 1/20 of its advances
(borrowings) from the FHLB, whichever is greater. The Bank was in compliance
with this requirement with an investment in FHLB stock at March 31, 1998 of $2.3
million. FHLB borrowings must be secured by specified types of collateral and
all long-term borrowings may only be obtained for the purpose of providing funds
for residential housing finance. At March 31, 1998, the Bank had $42.3 million
in FHLB borrowings.

     The FHLBs are required to provide funds for the resolution of insolvent
thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest on
advances to their members. For the years ended December 31, 1997, 1996 and 1995,
dividends from the FHLB to the Bank amounted to approximately $126,000, $107,000
and $113,000, respectively. If dividends were reduced, the Bank's net interest
income would likely also be reduced. Further, there can be no assurance that the
impact of recent or future legislation on the FHLBs will not also cause a
decrease in the value of FHLB stock held by the Bank, if any.

FEDERAL RESERVE SYSTEM

     The Federal Reserve Board regulations require savings institutions to
maintain non-interest-earning reserves against their transaction accounts. The
Federal Reserve Board regulations generally require that reserves be maintained
against aggregate transaction accounts as follows: for accounts aggregating
$47.8 million or less (subject to adjustment by the Federal Reserve Board) the
reserve requirement is 3%; and for accounts greater than $47.8 million, the
reserve requirement is $1.4 million plus 10% (subject to adjustment by the
Federal Reserve Board between 8% and 14%) against that portion of total
transaction accounts in excess of $47.8 million. The first $4.7 million of
otherwise reservable balances (subject to adjustment by the Federal Reserve
Board) are exempted from the reserve requirements. The Bank is in compliance
with the foregoing requirements. Because required reserves must be maintained in
the form of either vault cash, a non-interest-bearing account at a Federal
Reserve Bank or a pass-through account as defined by the Federal Reserve Board,
the effect of this reserve requirement is to reduce the Bank's interest-earning
assets. FHLB System members are also authorized to borrow from the Federal
Reserve "discount window," but Federal Reserve Board regulations require
institutions to exhaust all FHLB sources before borrowing from a Federal Reserve
Bank.

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<PAGE>
 
HOLDING COMPANY REGULATION

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

      RESTRICTIONS APPLICABLE TO MUTUAL HOLDING COMPANIES. Pursuant to Section
10(o) of the HOLA and the Regulations, a mutual holding company, such as the
Mutual 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 (the "BHC Act"),
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; 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. See "Risk Factors --
Considerations Resulting from Mutual Holding Company Structure."

     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 it has a period of two years to cease any non-
conforming activities and divest of any nonconforming investments.

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

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

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<PAGE>
 
     If the savings institution subsidiary of a savings and loan holding company
fails to meet the QTL test set forth in Section 10(m) of the HOLA and the
regulations of the OTS, the holding company must register with the Federal
Reserve Board as a Bank Holding Company within one year of the savings
institution's failure to so qualify. See " -- Federal Savings Institution
Regulation -- QTL Test."

     For a description of certain restrictions on transactions between the Bank
and its affiliates, including, without limitation, Bancorp and the Mutual
Company, see " -- Federal Savings Institution Regulation -- Transactions with
Related Parties."

     STOCK HOLDING COMPANY SUBSIDIARY REGULATION. The OTS recently adopted new
regulations governing the two-tier mutual holding company form of organization
and mid-tier stock holding companies that are controlled by mutual holding
companies. Under these new rules, the stock holding company subsidiary will hold
all the shares of the mutual holding company's savings association subsidiary
and will issue the majority of its own shares to the mutual holding company
parent. In addition, the stock holding company subsidiary is permitted to engage
in activities that are permitted for its mutual holding company parent and to
have the same indemnification and employment contract restrictions imposed that
are on the mutual holding company parent. See "--Restrictions Applicable to
Mutual Holding Companies." Finally, OTS regulations maintain that the stock
holding company subsidiary must be federally chartered for supervisory controls.

THRIFT RECHARTERING

     The Funds Act provides that the BIF and the SAIF will merge on January 1,
1999, if there are no more savings associations as of that date. Several Banking
Committee would have regained federal thrifts to become national banks or state
banks within two years of enactment or they would have become national banks by
operation of law. OTS would have been abolished and its functions transferred to
the bank regulatory agencies. The bill as passed by the House of
Representatives, however, did not provide for the elimination of the federal
thrift charter or OTS, but did provide that unitary stock savings and loan
holding companies existing or applied for after March 31, 1998 would not have
the ability to engage in unlimited activities but would be subject to the
activities restrictions applicable to multiple savings and loan holding
companies. Unitary stock holding companies existing or applied for before 1998
would be grandfathered and could continue to engage in unlimited activities and
could transfer the grandfather rights to acquirors of the holding company. The
Bank is unable to predict whether the legislation will be enacted or, given such
uncertainty, determine the extent to which the legislation, if enacted, would
affect its business. The Bank is also unable to predict whether the SAIF and BIF
will eventually be merged or the federal thrift charter eliminated, and what
effect, if any, such legislation would have on the Bank

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

                             MANAGEMENT OF BANCORP

     The Board of Directors of Bancorp will consist of six members each of whom
is also a director of the Bank. The Board of Directors is divided into three
classes, each of which contains one-third of the Board. The directors shall be
elected by the stockholders of Bancorp for staggered three year terms, or until
their successors are elected and qualified. One class of directors, consisting
of Messrs. Brandley and Leonard, has a term of office expiring at the first
annual meeting of stockholders, a second class, consisting of Messrs. Foody and
Montanaro, has a term of 

                                       97
<PAGE>
 
office expiring at the second annual meeting of stockholders, and a third class,
consisting of Messrs. Vreeland and Burke, has a term of office expiring at the
third annual meeting of stockholders. Their names and biographical information
are set forth under "Management of the Bank --Directors."

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

<TABLE>
<CAPTION>
         Executive                      Position(s) Held with Bancorp
--------------------------------------------------------------------------------
<S>                     <C>
Leopold W. Montanaro... President and Chief Executive Officer

Dennis A. Petrello .... Executive Vice President and Chief Financial Officer

Charles E. Filippo..... Executive Vice President

Craig L. Montanaro..... Senior Vice President, Corporate Secretary and Treasurer
</TABLE>

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

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

                                       98
<PAGE>
 
                            MANAGEMENT OF THE BANK

     The following tables set forth information with respect to the
directors and executive officers of the Bank, all of whom will continue to serve
as directors and/or executive officers of the Bank after the Reorganization.

DIRECTORS

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

<TABLE>
<CAPTION>
                                                                         DIRECTOR   TERM
NAME                    AGE(1)      POSITION(S) HELD WITH THE BANK        SINCE    EXPIRES
--------------------  --------  ------------------------------------     --------  --------
<S>                     <C>     <C>                                      <C>       <C>
William J. Foody         70     Chairman of the Board                        1983     1999
Leopold W. Montanaro     58     Director, President and Chief                1972     1999
                                Executive
                                Officer

David F. Brandley        71     Director                                     1959     1998

Everett N. Leonard       84     Director                                     1969     1998

James P. Vreeland        86     Director                                     1977     2000

John J. Burke            51     Director                                     1992     2000
</TABLE>
________________
(1)   As of March 31, 1998.


EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

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

<TABLE>
<CAPTION>
  NAME               AGE(1)          POSITION(S) HELD WITH THE BANK
 ------              -----   --------------------------------------------    

<S>                   <C>    <C>
Dennis A. Petrello    47     Executive Vice President and Chief Financial Officer

Charles E. Filippo    57     Executive Vice President and Chief Lending Officer

Craig L. Montanaro    31     Senior Vice President, Secretary and Treasurer
</TABLE>
_________________   
(1)  As of March 31, 1998.

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

BIOGRAPHICAL INFORMATION

     DIRECTORS

     William J. Foody has served as Chairman of the Board of the Bank since
1993 and has been a director since 1983. He has over 42 years of experience as a
real estate developer and broker. Currently, he is the managing partner in the
real estate firm of Crow Family Holdings, New Jersey.

                                       99
<PAGE>
 
     Leopold W. Montanaro has served as President, Chief Executive Officer and
Director of West Essex Bank since 1972. He has over 38 years experience in the
banking field with various institutions. He is a former member of the Board of
Directors of the Federal Home Loan Bank of New York and is a former chairman of
the New Jersey Savings & Community Bankers. Mr. Montanaro is an active member of
the American Community Bankers, serving on the Mutual Institutions Committee,
the Community Bank Committee, and the State Regulations & Legislative Committee.
Leopold W. Montanaro is the father of Craig L. Montanaro.

     David F. Brandley is a partner in the law firm of Brandley & Kleppe and
specializes in banking and real estate law, among other areas. Mr. Brandley was
elected to the Board of Directors in 1959.

     Everett N. Leonard was elected to the Board of Directors in 1969 and serves
as Vice Chairman of the Board. He is a former manager of Beckers Dairy in
Roseland and is a retired Borough Administrator of Roseland and Verona, New
Jersey.

     James P. Vreeland is a retired New Jersey State Senator. Mr. Vreeland spent
30 years in politics serving as committeeman in the Township of Montville,
Morris Co., serving on the Board of Freeholders and serving for one year in the
New Jersey State Assembly before being elected State Senator. Mr. Vreeland was
elected to the Board of Directors in 1977.

     John J. Burke is the President of J.J. Burke & Associates, Inc., a
financial services, insurance consulting firm and has served in that capacity
since 1981. Mr. Burke was elected to the Board of Directors in 1992.

     EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

     Dennis A. Petrello has served as Executive Vice President and Chief
Financial Officer of the Bank since 1984 and has been employed by the Bank since
1978, serving in various capacities from Controller to Operations Officer. He is
an active member of the Financial Manager Society, New York -New Jersey Chapter
and the West Essex Chamber of Commerce.

     Charles E. Filippo has served as Executive Vice President and Chief Lending
Officer since 1994 and has been employed by the Bank since 1985. Prior to
joining the Bank, Mr. Filippo was President of Central Corporation, a service
corporation for financial institutions, for 17 years. Mr. Filippo serves on the
Residential Lending-Affordable Housing Committee of the New Jersey League and on
the Affordable Housing Committee of the Mortgage Bankers Association of New
Jersey.

     Craig L. Montanaro has served as Senior Vice President and Corporate
Secretary since April 1997 and has been employed by the Bank since 1988. He is a
graduate of Syracuse University with a B.S. in Finance and Marketing and holds a
graduate degree from the National School of Banking at Fairfield University. Mr.
Montanaro is a member of the Financial Manager Society, New York - New Jersey
Chapter and serves on various committees on the New Jersey Savings and Community
Bankers. Craig L. Montanaro is the son of Leopold W. Montanaro.
 
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS OF THE BANK

     The Bank's Board of Directors meets on a monthly basis and may have
additional special meetings called in the manner specified in the Bylaws. During
1997, no current Director attended less than 75% of the aggregate of the total
number of Board meetings which were held. The Board of Directors has established
a number of committees. The Salary and Pension Committee consists of Messrs.
Foody, Montanaro, Brandley, Leonard, Vreeland and Burke. This committee meets on
an as needed basis. The Audit Committee consists of Messrs. Foody, Brandley
Vreeland and Burke. This committee generally meets on a quarterly basis. The
Strategic Planning Committee meets as needed and consists of Messrs. Foody,
Montanaro and Burke. The Nominating Committee meets at least once

                                      100
<PAGE>
 
a year and consists of Messrs. Foody, Montanaro and Burke. The Interest Rate
Risk and Investment Committee meets as needed and consists of Messrs. Foody,
Montanaro and Burke.

BOARD OF DIRECTORS AND COMMITTEES OF BANCORP AFTER THE REORGANIZATION

     Following the Reorganization, the Board of Directors of Bancorp is expected
to meet quarterly, or more often as may be necessary. The Board of Directors
initially is expected to have a standing Executive Committee, Audit Committee
and Compensation Committee. The Board, by resolution, may designate one or more
additional committees.

     The Executive Committee initially will consist of the following directors:
__________________ _____________________. The Executive Committee is expected to
meet when necessary when the Board is not in session to exercise general control
and supervision in all matters pertaining to the interests of Bancorp.

     The Audit Committee initially will consist of the following directors:
______________________ _______________________. The Audit Committee is expected
to meet at least quarterly to examine and approve the audit report prepared by
the independent auditors of the Bank, to review and recommend the internal
auditors to be engaged by Bancorp, to review the internal audit function and
internal accounting policies of Bancorp and review and approve such policies.

     The Compensation Committee initially will consist of the following
directors: ________________________. The Compensation Committee is expected to
meet on an as needed basis to evaluate the compensation and benefits of the
directors, officers and employees, recovered charges and monitor and evaluate
employee performances.

DIRECTOR COMPENSATION

     Non-employee directors of the Bank, other than the Chairman of the Board,
currently receive a quarterly retainer fee of $3,500, paid at the first regular
board meeting of each quarter, and $500 for each remaining regular board meeting
in each quarter. The Chairman receives a quarterly retainer fee of $4,375, paid
at the first regular board meeting of each quarter, and $625 for each remaining
regular board meeting in each quarter. Directors do not receive any fees for
special board meetings or committee meetings. In addition, all directors,
including retired directors, receive medical and dental benefits. At this time,
only one retired director is receiving such benefits in addition to the active
directors. Directors of Bancorp will not receive compensation for service as
directors of Bancorp.

                                      101
<PAGE>
 
EXECUTIVE COMPENSATION

     Cash Compensation. The following table sets forth the cash compensation
paid by the Bank for services rendered in all capacities during the year ended
December 31, 1997, to the chief executive officer and to executive officers of
the Bank who received cash compensation in excess of $100,000 ("Named Executive
Officers").

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                                                                                         LONG-TERM COMPENSATION
                                                                            ---------------------------------------
                                              ANNUAL COMPENSATION(1)                    AWARDS             PAYOUTS
                                       ------------------------------------ ----------------------------- ---------
                                                                 OTHER       RESTRICTED     SECURITIES       
                                                                 ANNUAL        STOCK        UNDERLYING       LTIP     ALL OTHER
  NAME AND PRINCIPAL          FISCAL                          COMPENSATION     AWARDS      OPTIONS/SARS    PAYOUTS   COMPENSATION
     POSITIONS                 YEAR    SALARY($)  BONUS($)       ($)(2)        ($)(3)         (#)(4)       ($)(5)       ($)(6)
----------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>      <C>        <C>         <C>            <C>           <C>             <C>       <C>       
Leopold W. Montanaro........   1997    $275,000   $75,000           --           --             --           --        $68,993
 President and Chief
  Executive Officer
 
Dennis A. Petrello..........   1997     140,000    35,000           --           --             --           --             --
 Executive Vice President
  and Chief Financial
  Officer

Charles E. Filippo..........   1997     140,000    35,000           --           --             --           --         25,697
 Executive Vice President
  and Chief Lending Officer
</TABLE>

___________________
(1)  Under Annual Compensation, the column titled "Salary" includes base salary
     and amounts deferred by the Named Executive Officer under the Bank's 401(k)
     plan. See "401(k) Plan."
(2)  For 1997, there were no: (a) perquisites over the lesser of $50,000 or 10%
     of the individual's total salary and bonus for the year; (b) payments of
     above-market preferential earnings on deferred compensation; (c) payments
     of earnings with respect to long-term incentive plans prior to settlement
     or maturation; (d) tax payment reimbursements; or (e) preferential
     discounts on stock.
(3)  Does not include restricted stock awards pursuant to a stock-based
     incentive plan, which may be granted in conjunction with a meeting of
     stockholders of the Bank, subject to OTS and stockholder approval, as such
     awards were not earned, vested or granted in 1997. For a discussion of the
     terms of the Stock-Based Incentive Plan, see "--Benefits-- Stock-Based
     Incentive Plans." For 1997, the Bank had no restricted stock plans in
     existence.
(4)  Does not include options, which may be granted in conjunction with a
     meeting of stockholders of the Bank, subject to OTS and stockholder
     approval. For a discussion of stock options, see "-- Benefits--Stock-Based
     Incentive Plans." For 1997, the Bank had no stock option plans in
     existence.
(5)  For 1997 there were no payouts or awards under any long-term incentive
     plan.
(6)  Includes employer contributions pursuant to the Bank's supplemental income
     agreements. These payments are made to pay premiums on split-dollar life
     insurance policies the Bank has purchased on the lives of Messrs. Montanaro
     and Filippo in connection with the supplemental income agreements. Upon the
     death of Messrs. Montanaro and Filippo, the Bank expects to retain proceeds
     from the insurance policies sufficient to cover all prior contributions
     made to the supplemental income agreements. See "-- Benefits-- Supplemental
     Income Agreements." 

                                      102
<PAGE>
 
EMPLOYMENT AGREEMENTS

     The Bank currently has an employment agreement (the "Employment
Agreement")with Mr. Montanaro. The Employment Agreement provides for a three-
year term. The Employment Agreement also provides that, commencing on the first
anniversary date and continuing each anniversary date thereafter, the Board of
Directors may extend the Employment Agreement for an additional year so that the
remaining term shall be three years, unless written notice of non-renewal is
given by the Board of Directors after conducting a performance evaluation of the
Executive. In addition to the base salary, the Employment Agreement provides
for, among other things, participation in benefit plans and other fringe
benefits applicable to similarly situated executive personnel, including any
such arrangement made available to senior executive officers in the future. The
Employment Agreement provides for termination by the Bank for "cause," as
described in the Employment Agreement, at any time. In the event the Bank
chooses to terminate the Executive's employment for reasons other than for
cause, or in the event of the Executive's resignation from the Bank upon: (i)
failure to re-elect or appoint the Executive to his current offices including
his board seat; (ii) a material change in the Executive's functions, duties or
responsibilities that would make them of lesser responsibility, importance or
scope (unless consented to by the Executive); (iii) a relocation of the
Executive's principal place of employment by more than 50 miles (unless
consented to by the Executive); (iv) material reduction in benefits or
perquisites (unless consented to by the Executive); (v) liquidation or
dissolution of the Bank; or (vi) a breach of the Employment Agreement by the
Bank, the Executive or, in the event of his death, the Executive's beneficiary
would be entitled to receive an amount equal to the remaining base salary
payments due to the Executive and the contributions that would have been made on
the Executive's behalf to any employee benefit plans of the Bank during the
remaining term of the employment agreement, the average of the amount of any
bonus and other compensation paid to the Executive during the term of the
Employment Agreement times the remaining number of years of the unexpired term
of the Employment Agreement, and an amount equal to the average of the annual
contributions that were made on Executive's behalf to any employee benefit plans
during the term of the agreement times the remaining term of the agreement. The
Bank would also continue and pay for the Executive's life, health and disability
coverage for the remaining term of the Employment Agreement. Upon any
termination of the Executive, the Executive is subject to a covenant not to
compete with the Bank for one year.

     Under the Employment Agreement, if the Executive's voluntary or involuntary
termination follows a change in control of the Bank, the Executive or, in the
event of his death, the Executive's beneficiary would be entitled to a severance
payment equal to the greater of: (i) the payments due for the remaining term of
the agreement; or (ii) three times the average of the five preceding taxable
years' annual compensation. The Bank would also continue the Executive's life,
health, and disability coverage for thirty-six months.

     All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to the Employment
Agreement shall be paid by the Bank if the Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement. The Employment
Agreement also provides that the Bank shall indemnify the Executive to the
fullest extent allowable under federal law. In the event the Bank terminates Mr.
Montanaro, the total payments due under the Employment Agreement based solely on
three times 1997 annual salary and bonus paid to Mr. Montanaro as set forth in
the Cash Compensation Table included herein, and excluding any other amounts
that would be included in "annual compensation" as defined in the Employment
Agreement, would be approximately $1.0 million, in addition to other cash and
noncash compensation.

                                      103
<PAGE>
 
     Upon consummation of the Reorganization, Bancorp and the Bank intend to
enter into employment agreements (collectively, the "Employment Agreements")
with Messrs. _______________________, (individually, the "Executive"). The
Employment Agreements are subject to the review and approval of the OTS and may
be amended as a result of such OTS review. The Employment Agreements are
intended to ensure that Bancorp and the Bank will be able to maintain a stable
and competent management base after the Reorganization. The continued success of
Bancorp and the Bank depends to a significant degree on the skills and
competence of Messrs. _______________________. Upon execution of the new
Employment Agreements between Mr. Montanaro and each of Bancorp and the Bank,
the current agreement between the Bank and Mr. Montanaro will be null and void.

     The Employment Agreements will provide for a three-year term for each of
Messrs. _____________. The Employment Agreements also provide that, commencing
on the first anniversary date and continuing each anniversary date thereafter,
the Board of Directors may extend the Employment Agreements for an additional
year so that the remaining term shall be three years, unless written notice of
non-renewal is given by the Board of Directors after conducting a performance
evaluation of the Executive. In addition to the base salary, the Employment
Agreements will provide for, among other things, participation in stock benefit
plans and other fringe benefits applicable to similarly situated executive
personnel. The Employment Agreements will provide for termination by the Bank
for "cause," as described in the Employment Agreements, at any time. In the
event Bancorp or the Bank chooses to terminate the Executive's employment for
reasons other than for cause, or in the event of the Executive's resignation
from Bancorp or the Bank upon: (i) failure to re-elect or appoint the Executive
to his current offices; (ii) a material change in the Executive's functions,
duties or responsibilities; (iii) a relocation of the Executive's principal
place of employment by more than 50 miles; (iv) liquidation or dissolution of
the Bank; or (v) a breach of the Employment Agreements by Bancorp or the Bank,
the Executive or, in the event of his death, the Executive's beneficiary would
be entitled to receive an amount equal to the remaining base salary payments due
to the Executive and the contributions that would have been made on the
Executive's behalf to any employee benefit plans of the Bank during the
remaining term of the Employment Agreements. The Bank would also continue and
pay for the Executive's life, health and disability coverage for the remaining
term of the Employment Agreements. Upon any termination of the Executive, the
Executive is subject to a covenant not to compete with the Bank for one year.

     Under the agreements, if voluntary or involuntary termination follows a
change in control of the Bank, the Executive or, in the event of his death, the
Executive's beneficiary would be entitled to a severance payment equal to the
greater of: (i) the payments due for the remaining term of the agreement; or
(ii) three times the average of the five preceding taxable years' "annual
compensation" (as defined in the agreements). The Bank would also continue the
Executive's life, health, and disability coverage for thirty-six months.

     All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to the Agreements
shall be paid by Bancorp or the Bank if the Executive is successful on the
merits pursuant to a legal judgment, arbitration or settlement. The Employment
Agreements also provide that the Bancorp or Bank shall indemnify the Executive
to the fullest extent allowable under federal law. In the event of a change in
control of Bancorp or the Bank, the total amount of payments due under the
Employment Agreements, based solely on the 1997 annual salary and bonus paid to
Messrs. _______________________ as set forth in the Cash Compensation Table
included herein, and excluding any other amounts that would be included in
"annual compensation" as defined in the agreements, would be approximately
$_______, in addition to other cash and non-cash compensation.

                                      104
<PAGE>
 
CHANGE IN CONTROL AGREEMENTS

     Upon Reorganization, the Bank intends to enter into _______-year Change in
Control Agreements (the "CIC Agreements") with ____________________________.
Commencing on the first anniversary date of a CIC Agreement and continuing on
each anniversary thereafter, the Board of Directors may renew the agreement for
an additional year. Each CIC Agreement will provide that in the event voluntary
or involuntary termination follows a change in control of the Bank or Bancorp,
as the case may be, the officer covered by the agreement would receive a
severance payment equal to _____ times the officer's compensation for the twelve
months preceding his termination. The Bank would also continue and pay for the
officer's life, health and disability coverage for ____ months following
termination. In the event of a change in control of the Bank or Bancorp the Bank
estimates the total payments due under the CIC Agreements, based solely on the
1997 annual salary and bonus paid to Messrs. ________________ as set forth in
the Cash Compensation Table included herein, and excluding the amount of
benefits under any other amounts that would be included in "compensation" as
defined in the Agreement, would equal approximately $_______, in addition to
other cash and non-cash compensation.

EMPLOYEE SEVERANCE COMPENSATION PLAN

     In connection with the Reorganization, the Bank intends to establish a
severance compensation plan (the "Severance Plan") which will provide eligible
employees with severance benefits in the event of a change in control of the
Bank or Bancorp. Management personnel with Employment Agreements or CIC
Agreements are not eligible to participate in the Severance Plan. Generally,
employees are eligible to participate in the Severance Plan if they have
completed at least one year of service with the Bank. Under the Severance Plan,
in the event of a change in control of the Bank or Bancorp, eligible employees
who are terminated from or terminate their employment with the Bank (for reasons
specified under the Severance Plan) within one year of the change in control,
will be entitled to receive a severance payment. Upon such an event, the
participant will be entitled to a cash severance payment equal to one-twelfth of
his or her annual compensation for each year of service up to a maximum of 199%
of such annual compensation. Such payments may tend to discourage takeover
attempts by increasing costs to be incurred by the Bank in the event of a
takeover. In the event the provisions of the Severance Plan are triggered, the
total amount of payments that would be due thereunder, based solely upon current
salary levels, would be approximately $635,000. However, it is management's
belief that substantially all of the Bank's employees may be retained in their
current position in the event of a change in control, and that any amount
payable under the Severance Plan would be considerably less than the total
amount that could possibly be paid under the Severance Plan.

INSURANCE PLANS

     All full-time employees of the Bank are covered as a group for life,
comprehensive hospitalization, including major medical, long-term disability and
dental insurance.

BENEFITS

     401(K) PLAN. The Bank maintains the West Essex Bank, F.S.B. 401(k) Savings
Plan in RSI Retirement Trust (the "401(k) Plan"), a tax-qualified profit sharing
plan with a qualified cash or deferred arrangement under Section 401(k) of the
Code. The 401(k) Plan provides participants with savings and retirement benefits
based on employee elective, pre-tax deferrals of compensation. Although the plan
also provides for discretionary contributions by the Bank, the Bank has never
made such contributions and, currently, has no expectations of making such
contributions to the plan in the future. Eligible employees 

                                      105
<PAGE>
 
(generally, those other than employees compensated solely on a daily, fee or
retainer basis) may begin participating in the 401(k) Plan upon the completion
of a "Period of Service" (as defined in the 401(k) Plan) of 182 days and
attainment of age 21. Participants may make salary reduction contributions to
the 401(k) Plan up to the lesser of 15% of their compensation or the legally
permissible limit ($10,000 for 1998). A participant is always 100% vested in his
or her salary reduction contributions to the 401(k) Plan.

     Currently, participants may invest their accounts under the 401(k) Plan in
and among seven funds. In connection with the Reorganization, the Bank intends
to amend the 401(k) Plan to add an "Employer Stock Fund," in which participants
may invest all or a portion of their accounts in Common Stock. The Bank may add
or eliminate investment options available under the 401(k) Plan in the future.

     Generally, distributions from the 401(k) Plan may commence upon a
participant's separation from service, death, or disability. However,
participants may request hardship withdrawals and loans from the 401(k) Plan
under certain circumstances. Withdrawals and distributions from the 401(k) Plan
are generally subject to federal and state income taxes and distributions made
prior to a participant attaining age 59 1/2 are also generally subject to a
federal excise tax

     PENSION PLAN. The Bank also maintains a tax-qualified defined benefit
pension plan for its employees (the "Pension Plan"). Eligible employees begin
participating in the Pension Plan following the completion of a six month
"Period of Service" (as defined in the Pension Plan) and attainment of the age
21. A participant in the Pension Plan generally becomes vested in his accrued
benefit under the plan upon completing five years of "Credited Service" (as
defined in the Pension Plan). The Pension Plan is funded solely through
contributions made by the Bank.

     The table below reflects the annual pension benefit payable to a
participant in the Pension Plan, assuming various levels of "Average Annual
Earnings" (as defined in the Pension Plan) and years of Credited Service. As of
January 1, 1998, Messrs. Montanaro, Petrello and Filippo had 25, 24 and 12
years, respectively, of Credited Service.

<TABLE>
<CAPTION>
                               YEARS OF CREDITED SERVICE
                -------------------------------------------------------
   AVERAGE               
    ANNUAL
  EARNINGS(1)       15       20       25       30        35        40
--------------- --------- -------- -------- -------- --------- --------
<S>             <C>       <C>      <C>      <C>      <C>       <C> 
   $ 50,000      $11,250  $15,000  $18,750  $22,500  $ 26,250  $ 31,250
     75,000       18,750   25,000   31,250   37,500    43,750    51,250
    100,000       26,250   35,000   43,750   52,500    61,250    71,250
    125,000       33,750   45,000   56,250   67,500    78,750    91,250
    160,000       44,250   59,000   73,750   88,500   103,250   119,250
</TABLE>

___________________
(1)  Code Section 401(a)(17) limits the amount of compensation the Bank may
     consider in computing benefits under the Pension Plan to $150,000,
     effective with respect to the Pension Plan for plan years beginning on or
     after May 23, 1994, as periodically adjusted by statute ($160,000 for
     1998).

     EMPLOYEE STOCK OWNERSHIP PLAN. The Bank intends to establish a tax-
qualified employee stock ownership plan (the "ESOP") in connection with the
Reorganization. Eligible employees (generally, those

                                      106
<PAGE>
 
other than employees compensated solely on a daily, fee, or retainer basis),
will become participants in the ESOP upon the attainment of age 21 and the
completion of a "Period of Service" (as defined in the plan document) of 182
days (with credit for prior service). Participants will begin to vest in their
benefits under the ESOP upon the completion of two Periods of Service and will
become fully vested after completing six Periods of Service (with credit for
prior service). Participants will also become 100% vested in their benefits upon
the attainment of normal retirement age (age 65), death, disability, or upon a
change in control of the Bank or Bancorp. Benefits generally become
distributable under the ESOP upon death, retirement, disability or other
separation from service.

     The Bank expects the ESOP to purchase 8% of the Common Stock issued in the
Offering, including shares issued to the Foundation. As part of the
Reorganization and in order to fund the ESOP's purchase of the Common Stock
issued in the Offering, the ESOP will borrow 100% of the aggregate purchase
price of the Common Stock from either Bancorp or a third-party lender. The
trustee of the ESOP will repay the loan principally from the Bank's
contributions to the ESOP over an expected period of 10 years. Subject to
receipt of any necessary regulatory approvals or opinions, the Bank may make
contributions to the ESOP for repayment of the loan since participants are
employees of the Bank or the Bank may reimburse Bancorp for contributions made
by Bancorp with respect to Bank employees. The Bank expects the initial interest
rate (which may be fixed or variable) for the loan to be at or near the prime
rate on or about the date of Reorganization.

     The trustee will pledge shares of Common Stock purchased by the ESOP as
collateral for the loan and will hold the shares in a suspense account until
they are released for allocation among participants as the trustee repays the
loan. The trustee will release the pledged shares annually from the suspense
account in an amount proportional to the repayment of the ESOP loan. The trustee
will then allocate the released shares (as well as any other non-matching
contributions to the ESOP) among the accounts of eligible participants on the
basis of each participant's compensation for the year of allocation relative to
all participants' compensation for the year of allocation.

     The Bank expects a committee of the Board of Directors to administer the
ESOP (the "ESOP Committee"). The Committee will appoint an unrelated corporate
trustee for the ESOP prior to the Reorganization. The ESOP Committee may
instruct the trustee regarding investment of funds contributed to the ESOP. The
ESOP trustee will vote all allocated shares held in the ESOP in accordance with
the instructions of the plan participants. The ESOP trustee, subject to its
fiduciary duties under ERISA, will vote the unallocated shares (i.e., those held
in the suspense account) and allocated shares for which it receives no proper
voting instructions in a manner calculated to most accurately reflect the
instructions it receives from participants regarding the allocated stock. In the
event no shares have been allocated under the ESOP at the time such shares are
to be voted, each participant shall be deemed to have one share allocated to his
account for voting purposes.

     MANAGEMENT SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. In connection with the
Reorganization and implementation of the ESOP, the Bank intends to implement a
non-qualified deferred compensation arrangement known as a "Management
Supplemental Executive Retirement Plan" (the "MSERP"). The Bank intends the
MSERP to make up lost ESOP benefits to designated participants who retire or
terminate employment in connection with a change in control prior to the
complete repayment of the ESOP loan. Generally, upon the retirement of an
eligible individual (designated by the Board of Directors of the Bank or Bancorp
or upon a change in control of the Bank or Bancorp prior to complete repayment
of the ESOP Loan), the MSERP will provide the individual with a benefit
determined by first (i) projecting the number of shares that would have been
allocated to the individual under the ESOP if the individual had remained 

                                      107
<PAGE>
 
employed throughout the term of the ESOP loan (measured from the individual's
first date of ESOP participation) and (ii) reducing that number by the number of
shares actually allocated to the individual's account under the ESOP; and
second, by multiplying the number of shares that represent the difference
between such figures by the average fair market value of the Common Stock over
the preceding five years. The individual's benefits become payable upon the
participant's retirement or upon the change in control of the Bank or Bancorp.
The Bank may establish a grantor trust in connection with the MSERP to satisfy
the obligations of the Bank with respect to the MSERP. The assets of the grantor
trust would remain subject to the claims of the Bank's general creditors in the
event of the Bank's insolvency until paid to the individual pursuant to the
terms of the MSERP.

     SUPPLEMENTAL INCOME AGREEMENTS. The Bank currently sponsors a non-qualified
supplemental executive retirement plans for Messrs. Montanaro and Filippo. The
plans generally provides benefits to the two executives otherwise lost under the
Pension Plan as a result of limitations imposed by the Code on the amount of
compensation the Bank can consider under the Pension Plan in determining
benefits. The non-qualified arrangements for Messrs. Montanaro and Filippo are
"funded" through the use of secular trusts and life insurance policies, under
which the Bank will recover the entire cost of its contribution to the plans
upon the deaths of Messrs. Montanaro and Filippo.

     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Code limits the amount of
compensation the Bank may consider in providing benefits under its tax-qualified
retirement plans, such as the 401(k) Plan, the Pension Plan and the ESOP. The
Code further limits the amount of contributions on benefit accruals under such
plans on behalf of any employee in any year. To provide benefits to make up for
the reduction in benefits flowing from these limits in connection with the ESOP,
the Bank intends to implement a non-qualified deferred compensation arrangement
known as a "Supplemental Executive Retirement Plan" ("SERP"). The SERP will
generally provide benefits to eligible individuals (designated by the Board of
Directors of the Bank or Bancorp) that cannot be provided under the ESOP as a
result of the limitations imposed by the Code, but that would have been provided
under the ESOP but for such limitations. The Bank may establish a grantor trust
in connection with the SERP to satisfy the obligations of the Bank with respect
to the SERP. The assets of the grantor trust would remain subject to the claims
of the Bank's general creditors in the event of the Bank's insolvency until paid
to the individual pursuant to the terms of the SERP.

     STOCK-BASED INCENTIVE PLAN. Following the Reorganization and Offering, the
Board of Directors of Bancorp intends to adopt the Stock-Based Incentive Plan
which will provide for the granting of options to purchase Common Stock ("Stock
Options"), Common Stock ("Stock Awards"), Limited Option Rights and Limited
Stock Rights to eligible officers, employees, and directors of Bancorp and the
Bank (see descriptions of the awards below). Bancorp may provide such stock
based benefits under the Stock-Based Incentive Plan or may establish one or more
separate plans which would provide for the benefits described herein.

     In the event the Stock-Based Incentive Plan (or any separate plan(s)) is
adopted within one year after the Reorganization and Offering, OTS regulations
require such plan to be approved by a majority of Bancorp's stockholders at a
meeting of stockholders to be held no earlier than six months after the
completion of the Offering. Under the Stock-Based Incentive Plan, Bancorp
intends to grant Stock Options in an amount up to 10% of the shares of Common
Stock issued in the Offering, including shares issued to the Foundation (215,877
shares based upon the maximum of the Offering Range), and intends to grant Stock
Awards in an amount up to 4% of the shares of Common Stock issued in the
Offering, including shares issued to the Foundation (86,351 shares based upon
the maximum of the Offering Range). Any Common Stock awarded under the Stock-
Based Incentive Plan (Stock Awards) will be awarded at no cost to the 

                                      108
<PAGE>
 
recipients. The plan may be funded through the purchase of Common Stock by a
trust established in connection with the Stock-Based Incentive Plan (or any
separate plan(s)) or from authorized but unissued shares. The Board intends to
appoint an independent fiduciary to serve as trustee of a trust to be
established in connection with the Stock-Based Incentive Plan. In the event that
additional authorized but unissued shares are acquired by the Stock-Based
Incentive Plan after the Reorganization, the interests of existing shareholders
would be diluted. See "Pro Forma Data."

     The grants of Stock Options and Stock Awards will be designed to attract
and retain qualified personnel in key positions, provide officers and key
employees with a propriety interest in Bancorp as an incentive to contribute to
the success of Bancorp and reward key employees for outstanding performance. All
employees of Bancorp and its subsidiaries, including the Bank, will be eligible
to participate in the Stock-Based Incentive Plan. It is expected that the
committee administering the plan will determine the terms of awards granted to
officers and employees. The committee will also determine whether Stock Options
will be Incentive or Non-Statutory Stock Options, as defined below, the number
of shares subject to each Stock Option and Stock Award, the exercise price of
each Non-Statutory Stock Option, whether Stock Options may be exercised by
delivering other shares of Common Stock, and when Stock Options become
exercisable or Stock Awards vest. Only employees may receive grants of Incentive
Stock Options. Therefore, under the Stock-Based Incentive Plan, directors may
receive only grants of Non-Statutory Stock Options. If such plan is adopted
within one year after the Reorganization and Offering, OTS regulations provide
that no individual officer or employee of the Bank may receive more than 25% of
the stock options available under the Stock-Based Incentive Plan (or any
separate plan for officers and employees) and non-employee directors may not
receive more than 5% individually, or 30% in the aggregate, of the stock options
available under the Stock-Based Incentive Plan (or any separate plan for
directors). OTS regulations also provide that no individual officer or employee
of the Bank may receive more than 25% of the restricted stock awards available
under the Stock-Based Incentive Plan (or any separate plan for officers and
employees) and non-employee directors may not receive more than 5% individually,
or 30% in the aggregate, of the restricted stock awards available under the
Stock-Based Incentive Plan (or any separate plan for directors).

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

     An individual will not be deemed to have received taxable income upon the
grant or exercise of any Incentive Stock Option, provided that such shares
received through the exercise of such option are not disposed of by the employee
for at least one year after the date the stock is received in connection with
the stock option exercise and two years after the date of grant of the stock
option (a "disqualifying disposition").

                                      109
<PAGE>
 
No compensation deduction will be available to Bancorp as a result of the grant
or exercise of Incentive Stock Options unless there has been a disqualifying
disposition. In the case of a Non-Statutory Stock Option and in the case of a
disqualifying disposition of an Incentive Stock Option, an individual will
realize ordinary income upon exercise of the stock option (or upon the
disqualifying disposition) in an amount equal to the amount by which the
exercise price exceeds the fair market value of the Common Stock purchased by
exercising the stock option on the date of exercise. The amount of any ordinary
income realized by an optionee upon the exercise of a Non-Statutory Stock Option
or due to a disqualifying disposition of an Incentive Stock Option will be a
deductible expense to Bancorp for tax purposes. In the case of Limited Rights,
the option holder will have to include the amount paid to him or her upon
exercise in his gross income for federal income tax purposes in the year in
which the payment is made and Bancorp will be entitled to a deduction for
federal income tax purposes of the amount paid.

     The Stock-Based Incentive Plan will provide for the granting of Stock
Awards and Limited Stock Rights. Limited Stock Rights would be exercisable by
participants upon a change in control of Bancorp or the Bank as described in the
plan. Subject to OTS regulations, upon the exercise of a Limited Stock Right,
the recipient will be entitled to receive a cash payment equal to the fair
market value of all unvested Stock Awards in exchange for any rights to such
unvested Stock Awards. Grants of Stock Awards and Limited Stock Rights to
officers and employees may be made in the form of base grants and/or performance
grants (the vesting of which would be contingent upon performance goals
established by the committee administering the plan). In establishing any
performance goals, the committee may utilize the annual financial results of the
Bank, actual performance of the Bank as compared to targeted goals such as the
ratio of the Bank's net worth to total assets, the Bank's return on average
assets, or such other performance standards as determined by the committee with
the approval of the Board of Directors.

     When a participant becomes vested with respect to Stock Awards, the
participant will realize ordinary income equal to the fair market value of the
Common Stock at the time of vesting (unless the participant made an election
pursuant to Section 83(b) of the Code). The amount of income recognized by the
participants will be a deductible expense for tax purposes for the Bank. When
restricted Stock Awards become vested and shares of Common Stock are actually
distributed to participants, the participants would receive amounts equal to any
accrued dividends with respect thereto. Prior to vesting, recipients of Stock
Awards may direct the voting of the shares awarded to them. Shares not subject
to grants and shares allocated subject to the achievement of performance goals
will be voted by the trustee in proportion to the directions provided with
respect to shares subject to grants. Vested shares will be distributed to
recipients as soon as practicable following the day on which they vest.

     The vesting periods for awards under the Stock-Based Incentive Plan will be
determined by the Committee administering the Plan. If the Stock-Based Incentive
Plan (or any separate plans for employees and directors) is adopted within one
year after the Reorganization and Offering, awards would become vested and
exercisable subject to applicable OTS regulations, which such regulations
require that any awards begin vesting no earlier than one year from the date of
shareholder approval of the plan and, thereafter, vest at a rate of no more than
20% per year and may not be accelerated except in the case of death or
disability. Stock Options could be exercisable for three months following the
date on which the employee or director ceases to perform services for the Bank
or Bancorp, except that in the event of death or disability, options accelerate
and become fully vested and could be exercisable for up to one year thereafter
or such longer period as determined by Bancorp. In the case of death or
disability, Stock Options may be exercised for a period of 12 months. However,
any Incentive Stock Options exercised more than three months following the date
the employee ceases to perform services as an employee would be treated as a 
Non-Statutory Stock Option. In the event of retirement, if the optionee
continues to perform services as a director or consultant on behalf

                                      110
<PAGE>
 
of the Bank, Bancorp or an affiliate, unvested options would continue to vest in
accordance with their original vesting schedule until the optionee ceases to
serve as a consultant or director. In the event of death, disability or normal
retirement, Bancorp, if requested by the optionee, or the optionee's
beneficiary, could elect, in exchange for vested options, to pay the optionee,
or the optionee's beneficiary in the event of death, the amount by which the
fair market value of the Common Stock exceeds the exercise price of the options
on the date of the employee's termination of employment.

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

TRANSACTIONS WITH CERTAIN RELATED PERSONS

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

     The Bank offers directors, officers and full-time employees of the Bank who
satisfy certain criteria and the general underwriting standards of the Bank,
loans with interest rates which are 2% over the Bank's cost of deposits, as
reported to the Board of Directors from the previous month, rounded either up or
down to the nearest 1/8th percent, the Employee Mortgage Rate ("EMR"). The EMR
is limited to owner-occupied residential mortgage loans, owner-occupied home
improvement loans, owner-occupied home equity loans and owner-occupied
construction loans. Loan application fees, including points, are waived for all
EMR loans. The EMR remains in effect as long as the officer or employee remains
at the Bank. In the event the officer or employee leaves the Bank for any reason
other than a change in control, the interest rate reverts to the contract rate
in effect at the time that the loan was originated. All other terms and
conditions contained in the original mortgage and note continue to remain in
effect. With the exception of EMR loans, the Bank currently makes loans to its
executive officers, directors and employees on the same terms and conditions
offered to the general public. Loans made by the Bank to its directors and
executive officers are made in the ordinary course of business, on substantially
the same terms (except for EMR loans), including collateral, as those prevailing
at the time for comparable transactions with other persons and do not involve
more than the normal risk of collectibility or present other unfavorable
features. As of March 31, 1998, three of the Bank's executive officers or
directors had loans with outstanding balances totalling approximately $982,000
in the aggregate. All such loans were made by the Bank in the ordinary course of
business, with no favorable terms (except for EMR loans) and such loans do not
involve more than the normal risk of collectibility or present unfavorable
features.

     Bancorp intends that all transactions in the future between Bancorp and its
executive officers, directors, holders of 10% or more of the shares of any class
of its common stock and affiliates thereof, will contain terms no less favorable
to Bancorp than could have been obtained by it in arm's length negotiations

                                      111
<PAGE>
 
with unaffiliated persons and will be approved by a majority of independent
outside directors of Bancorp not having any interest in the transaction.

OTHER TRANSACTIONS WITH AFFILIATES

     The Bank utilizes the services of the law firm of Brandley & Kleppe, of
which Mr. Brandley, a director of the Bank, is a member, for a variety of legal
work relating to the ordinary course of the Bank's business. For each of fiscal
years 1996 and 1997, the Bank paid less than $60,000 per year to such law firm.

SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS

     The following table sets forth the number of shares of Common Stock the
Bank's executive officers and directors propose to purchase, assuming shares of
Common Stock are issued at the minimum and maximum of the Offering Range, and
that sufficient shares will be available to satisfy their subscriptions. The
table also sets forth the total expected beneficial ownership of Common Stock as
to all directors and executive officers as a group.

<TABLE>
<CAPTION>
                                                  AT THE MINIMUM                 AT THE MAXIMUM
                                             OF THE OFFERING RANGE(1)        OF THE OFFERING RANGE(1)
                                            -------------------------  ------------------------------------
                                                             AS A                            AS A
                                                          PERCENT OF                      PERCENT OF
                                              NUMBER    TOTAL SHARES     NUMBER          TOTAL SHARES
            NAME                   AMOUNT    OF SHARES    ISSUED(2)     OF SHARES          ISSUED(2)
------------------------------   ---------- ----------- -------------  -------------   --------------------
<S>                              <C>        <C>         <C>            <C>             <C> 
William J. Foody..............   $  700,000     70,000        1.97%        70,000              1.45%        
Leopold W. Montanaro..........      700,000     70,000        1.97         70,000              1.45         
David F. Brandley.............      100,000     10,000         .28         10,000               .21         
Everett N. Leonard............       75,000      7,500         .21          7,500               .16         
James P. Vreeland.............       70,000      7,000         .20          7,000               .15         
John J. Burke.................      700,000     70,000        1.97         70,000              1.45         
Dennis A. Petrello............      200,000     20,000         .56         20,000               .42         
Charles E. Filippo............      300,000     30,000         .84         30,000               .62         
Craig L. Montanaro............       35,000      3,500         .10          3,500               .07         
All Directors and                                                                                           
Executive Officers as a                                                                                     
 group (9 persons)............   $2,880,000    288,000        8.09%       288,000              5.98%        
                                 ==========    =======        ====        =======              ====         
</TABLE>

____________________
(1) Includes proposed subscriptions, if any, by associates. Also includes funds
    from the Bank's 401(k) Plan which may be used to purchase shares of Common
    Stock under such plan's new employer stock fund investment option. See "--
    Benefits-- 401(k) Plan." Does not include subscription orders by the ESOP.
    Intended purchases by the ESOP are expected to be 8% of the shares issued in
    the Offering.
(2) Includes shares issued to the Mutual Company.

                                      112
<PAGE>
 
                     THE REORGANIZATION AND STOCK OFFERING

     THE BOARD OF DIRECTORS OF THE BANK HAS APPROVED THE PLAN OF REORGANIZATION
AND STOCK ISSUANCE, SUBJECT TO APPROVAL BY THE OTS AND THE MEMBERS OF THE BANK
ENTITLED TO VOTE ON THE MATTER AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS.
APPROVAL BY THE OTS DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE
PLAN BY SUCH AGENCY.

THE REORGANIZATION

     On March 18, 1998 the Bank's Board of Directors unanimously adopted the
Plan, pursuant to which, subject to approval by the OTS, the Bank will, in a
series of steps, reorganize from a federal mutual savings bank into a two-tier
mutual holding company structure in which all the Mutual Company, Bancorp and
the Stock Bank will be chartered and regulated by the OTS. It is currently
intended that up to 49.9% of the outstanding capital stock of Bancorp will be
sold to the public in a minority stock offering, and the remaining shares will
be held by the Mutual Company. The Plan must be approved by the OTS, and the
Reorganization must be approved by the Bank's depositors as of the Voting Record
Date of ___________, ____. A Special Meeting of Members has been called for this
purpose to be held on ___________, 1998.

     As long as the Mutual Company remains in the mutual form of organization,
the Mutual Company will be required to own at least a majority of the issued and
outstanding voting stock of Bancorp. Bancorp may issue any amount of non-voting
stock or debt to persons other than the Mutual Company.

REASONS FOR THE MUTUAL COMPANY REORGANIZATION

     The Board of Directors and management of the Bank are obligated to operate
the Bank in a safe and sound manner and to maximize the financial and managerial
resources of the Bank for the benefit of its Members and the communities that it
serves. In adopting the Plan, the Board of Directors of the Bank has determined
that for the reasons set forth below, the Reorganization is advisable and in the
best interests of the Bank and its depositors, and is consistent with the Bank's
business plan to operate as an independent, community-oriented savings
institution.

     The Bank, as a federally chartered mutual savings bank, does not have
stockholders and has no authority to issue capital stock. The Reorganization
will structure the Bank in the stock form of organization, which is used by
commercial banks, most major business corporations and a large number of savings
institutions. The Reorganization will permit Bancorp to issue capital stock
which will provide the Bank with greater flexibility to structure and finance
the expansion of its operations, both directly and through Bancorp, by acquiring
other financial institutions or new branch offices, diversifying into other
financial services to the extent allowable by applicable law and regulation and
otherwise improving the Bank's ability to provide services to its community.
Although there are no current arrangements, understandings or agreements
regarding any such opportunities, Bancorp will be in a position after the
Reorganization, subject to regulatory limitations and Bancorp's financial
position, to take advantage of any such opportunities that may arise. Access to
the capital markets will also make it possible for the Bank to be more
responsive to possible future changes in the regulations of the bank regulatory
agencies mandating higher capital reserves and/or capital ratios. AT THE SAME
TIME, THE MUTUAL HOLDING COMPANY STRUCTURE WILL PRESERVE THE MUTUAL FORM OF
OWNERSHIP WITHIN THE MUTUAL HOLDING COMPANY, CONSISTENT WITH THE BANK'S
COMMITMENT TO BE AN INDEPENDENT, COMMUNITY ORIENTED SAVINGS INSTITUTION. IN THIS
REGARD, SO LONG AS THE MUTUAL COMPANY

                                      113
<PAGE>
 
IS IN EXISTENCE, IT WILL AT ALL TIMES OWN AT LEAST A MAJORITY INTEREST OF
BANCORP, AND THEREFORE, INDIRECTLY, THE BANK AS WELL. The Reorganization also
will enable employees, management and directors to have an equity ownership
interest in Bancorp, which management believes will enhance long-term growth and
performance of the Bank and Bancorp by enabling the Bank to attract and retain
qualified employees who have a more direct interest in the financial success of
the Bank.

     In addition, the Reorganization will provide the Bank with a more flexible
operating structure which will enhance its ability to compete with other
financial institutions in New Jersey, with other financial institutions based in
other Northeast and Mid-Atlantic states to the extent such institutions or their
affiliates conduct operations in New Jersey, and with nondepository financial
institutions operating within the Bank's market area. Finally, the
Reorganization may ease any transition to a uniform financial institution
charter should such a charter be required in the future.

     The Board of Directors believes that these advantages outweigh the
potential disadvantages of the mutual holding company structure, which include:
(i) the inability to sell Common Stock in excess of 49.9% of Bancorp's total
issued and outstanding voting stock so long as the Mutual Company remains in
existence; (ii) the more limited liquidity of the Common Stock, as compared to a
standard conversion; (iii) the inability of stockholders other than the Mutual
Company to obtain majority ownership of Bancorp and the Bank which may result in
the perpetuation of the existing management and Board of Directors of Bancorp
and the Bank; (iv) the higher cost of dividends associated with a minority
ownership interest; and (v) the added expense of conducting more than one stock
offering should the Mutual Company convert to the stock form at some future
date. A majority of the voting stock of Bancorp will be owned by the Mutual
Company, which is a mutual institution that will be controlled by the existing
Board of Directors of the Bank. While this structure will permit management to
focus on Bancorp's and the Bank's long-term business strategy` for growth and
capital redeployment without undue 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 Bancorp, and, except for certain matters, will be able to control
the outcome of all matters presented to the stockholders of Bancorp for
resolution by vote. No assurance can be given that the Mutual Company will not
take action adverse to the interests of the Minority Stockholders. For example,
the Mutual Company could revise its dividend waiver policy, prevent the sale of
control of Bancorp, or defeat a candidate for the Board of Directors of Bancorp
or other proposals put forth by the Minority Stockholders.

     The Reorganization does not preclude the conversion of the Mutual Company
from the mutual to stock form of organization following the Reorganization. NO
ASSURANCE CAN BE GIVEN THAT THE MUTUAL COMPANY WILL EVER CONVERT TO STOCK FORM
OR WHAT CONDITIONS THE OTS MAY IMPOSE ON SUCH A TRANSACTION. See "Conversion of
Mutual Holding Company to Stock Form."

DESCRIPTION OF THE REORGANIZATION

     Following receipt of all required regulatory approvals and approval of the
Plan by the Members, the Bank will reorganize into a two-tier mutual holding
company structure. The two-tier mutual holding company structure will consist
of: (1) a federally chartered mutual holding company (the Mutual Company); (2) a
federally chartered stock holding company (Bancorp) that will offer up to 49.9%
of its Common Stock in the Offering with the remaining shares of its Common
Stock owned by the Mutual Company; and (3) a federally chartered stock savings
bank (the Stock Bank) which will be the successor to the Bank in its current
mutual form and which will be wholly-owned by Bancorp.

                                      114
<PAGE>
 
     The Reorganization will be effected as follows, or in any manner approved
by the OTS that is consistent with the purposes of the Plan and applicable laws
and regulations. Under the two-tier mutual holding company structure: (i) the
Bank will organize an interim federal stock savings bank as a wholly-owned
subsidiary ("Interim One"); (ii) Interim One will organize a stock corporation
as a wholly-owned subsidiary (the Company); (iii) Interim One will organize an
interim federal stock savings bank as a wholly-owned subsidiary ("Interim Two");
(iv) the Bank will convert its charter to a federal stock savings bank charter
to become the Stock Bank and Interim One will exchange its charter for a federal
mutual holding company charter to become the Mutual Company; (v) sequentially
with step (iv), Interim Two will merge with and into Stock Bank with the Stock
Bank as the resulting institution; (vi) 100% of the issued Common Stock of the
Stock Bank will be transferred to the Mutual Company in exchange for membership
interests in the Savings Bank, in its mutual form, which are conveyed to the
Mutual Company; and (vii) the Mutual Company will transfer 100% of the issued
Common Stock of the Stock Bank to Bancorp in a capital distribution. The Plan
provides that, concurrently with the Reorganization, Bancorp will sell up to
49.9% of its outstanding capital stock in a minority stock offering and that the
remaining shares will be held by the Mutual Company.

     Upon consummation of the Reorganization, the legal existence of the Bank
will not terminate, but the converted Stock Bank will be a continuation of the
Bank, and all property of the Bank, including its right, title and interest in
and to all property of whatsoever kind and nature, interest and asset of every
conceivable value or benefit then existing or pertaining to the Bank, or which
would inure to the Bank immediately by operation of law and without the
necessity of any conveyance or transfer and without any further act or deed,
will vest in the Stock Bank. The Stock Bank will have, hold, and enjoy the same
in its right and fully to the same extent as the same was possessed, held, and
enjoyed by the Bank. The Stock Bank will continue to have, succeed to, and be
responsible for all the rights, liabilities and obligations of the Bank and will
maintain its headquarters operations at the Bank's present location.

     In connection with Reorganization, Bancorp will apply to the OTS to retain
up to 50% of the net proceeds of the Offering, and the Mutual Company would be
capitalized with $100,000. The Bank believes that capitalization of the Mutual
Company and Bancorp, at this level will provide the Mutual Company and Bancorp
with economic strength separate and apart from the Bank and could facilitate
future activities by the Mutual Company and Bancorp.

     The description of the two-tier mutual holding company structure is
qualified in its entirety by reference to the Plan and the charter and bylaws of
the Stock Bank, Bancorp and the Mutual Company to be effective upon consummation
of the Reorganization.

ESTABLISHMENT OF THE CHARITABLE FOUNDATION

     GENERAL. In furtherance of the Bank's long-standing commitment to its local
community, the Bank's Plan provides for the establishment of a charitable
foundation in connection with the Bank's Reorganization. The Plan provides that
the Bank, Bancorp and the Mutual Company will establish the Foundation, which
will be incorporated under Delaware law as a non-stock corporation, and will
fund the Foundation with Common Stock of Bancorp and cash, as further described
below. The Bank believes that the funding of the Foundation with Common Stock of
Bancorp is a means of establishing a common bond between the Bank and the
communities in which the Bank operates and thereby enables such communities to
share in the potential growth and success of the Mutual Company, Bancorp and the
Bank over the long term. By further enhancing the Bank's visibility and
reputation in the communities in which it operates, the Bank believes that the
Foundation will enhance the long-term value of the Bank's community banking
franchise.

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     The Foundation would be dedicated to the promotion of charitable purposes
within the communities in which the Bank operates, including, but not limited
to, providing grants or donations to support housing assistance, not-for-profit
medical facilities, community groups and other types of organizations or
projects. Establishment of the Foundation is subject to the approval of a
majority of the total outstanding votes of the Bank's members eligible to be
cast at the Special Meeting. The Foundation will be considered as a separate
matter from approval of the Plan. If the Bank's members approve the Plan, but
not the Foundation, the Bank intends to complete the Reorganization and Offering
without the establishment of the Foundation. Failure to approve the
establishment of the Foundation may materially affect the pro forma market value
of the Common Stock. In such an event, the Bank may establish a new Estimated
Price Range and commence a resolicitation of subscribers. In the event of a
resolicitation, unless an affirmative response is received within a specified
period of time, all funds will be promptly returned to investors, as described
elsewhere herein. See "--Stock Pricing and Number of Shares Issued."

     PURPOSE OF THE FOUNDATION. The purpose of the Foundation is to provide
funding to support charitable purposes within the communities in which the Bank
operates. The Bank has long emphasized community lending and community
development activities and currently has an "outstanding" Community Reinvestment
Act ("CRA") rating. The Foundation is being formed as a complement to the Bank's
existing community activities, not as a replacement for such activities. Indeed,
the Bank intends to continue to emphasize community lending and community
development activities following the Reorganization. However, such activities
are not the Bank's sole corporate purpose. The Foundation, conversely, will be
completely dedicated to community activities and the promotion of charitable
causes, and may be able to support such activities in ways that are not
presently available to the Bank. Since the Bank already engages in community
development activities, the Bank believes that the Foundation will enable the
Mutual Company, Bancorp and the Bank to assist their local community in areas
beyond community development and lending. In this regard, the Board of Directors
believes the establishment of a charitable foundation is consistent with the
Bank's commitment to community service. The Board of Directors of the Bank also
believe that the funding of the Foundation with both Common Stock of Bancorp and
cash is a means of enabling the communities in which the Bank operates to share
in the potential growth and success of Bancorp long after completion of the
Reorganization. The Foundation accomplishes that goal by providing for continued
ties between the Foundation and Bank, thereby forming a partnership with the
Bank's community. The establishment of the Foundation would also enable the
Mutual Company, Bancorp and the Bank to develop a unified charitable donation
strategy and would centralize the responsibility for administration and
allocation of corporate charitable funds. The Bank, however, does not expect the
contribution to the Foundation to take the place of the Bank's traditional
community lending and charitable activities. The Bank expects in future periods
to continue making charitable contributions within its communities.

     STRUCTURE OF THE FOUNDATION. The Foundation will be incorporated under
Delaware law as a non-stock corporation. It is currently anticipated that the
Foundation's board of directors will be comprised of [FIVE] members, all of whom
will be individuals elected from existing directors and officers of the Bank. On
an on-going basis, a Nominating Committee of the board of directors of the
Foundation, will nominate individuals eligible for election to the board of
directors of the Foundation. The members of the Foundation, who are comprised of
its board members, will elect the directors at the annual meeting of the
Foundation from those nominated by the Nominating Committee. Only persons
serving as directors of the Foundation qualify as members of the Foundation with
voting authority. Directors will be divided into three classes with each class
appointed for three-year terms. The certificate of incorporation of the
Foundation will provide that the Foundation is organized exclusively for
charitable purposes as set forth in Section 501(c)(3) of the Code. The
Foundation's certificate of incorporation further will provide that no part of
the net earnings of the Foundation will inure to the benefit of, or be
distributable to, its directors, officers or members. A person

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who is a director, officer or employee of the Bank, or has the power to direct
its management or policies, or otherwise owes a fiduciary duty to the Bank, and
who will also serve as a director or employee of the Foundation would be subject
to the requirements of OTS Conflicts of Interest Regulations.

     The authority for the affairs of the Foundation will be vested in the board
of directors of the Foundation. The directors of the Foundation will be
responsible for establishing the policies of the Foundation with respect to
grants or donations by the Foundation, consistent with the stated purposes for
which the Foundation is established. Although no formal policy governing
Foundation grants exists at this time, the Foundation's board of directors will
adopt such a policy upon establishment of the Foundation. The directors will
also be responsible for directing the assets of the Foundation. Pursuant to the
terms of the contribution as mandated by the OTS, all shares of Common Stock
held by the Foundation must be voted in the same ratio as all other shares of
Bancorp's Common Stock on all proposals considered by stockholders of Bancorp;
provided, however, that the OTS will waive this voting restriction under certain
circumstances if compliance with the restriction would: (i) cause a violation of
the law of the State of Delaware and the OTS determines that federal law would
not preempt the application of the laws of the State of Delaware to the
Foundation; (ii) would cause the Foundation to lose its tax-exempt status or
otherwise have a material and adverse tax consequence on the Foundation; or
(iii) would cause the Foundation to be subject to an excise tax under Section
4941 of the Code. In order for the OTS to waive such voting restriction,
Bancorp's or the Foundation's legal counsel must render an opinion satisfactory
to OTS that compliance with the voting restriction would have the effect
described in clauses (i), (ii) or (iii) above. Under those circumstances, the
OTS will grant a waiver of the voting restriction upon submission of such legal
opinion(s) by Bancorp or the Foundation. In the event that the OTS waived the
voting restriction, the directors would direct the voting of the Common Stock
held by the Foundation. However, a condition to the OTS approval of the
Reorganization provides that in the event such voting restriction is waived or
becomes unenforceable, the Director of the OTS, or his designees, at that time
may impose conditions on the composition of the board of directors of the
Foundation or such other conditions or restrictions relating to the control of
the Common Stock held by the Foundation, any of which could limit the ability of
the board of directors of the Foundation to control the voting of the Common
Stock held by the Foundation. There will be no agreements or understandings with
directors of the Foundation regarding the exercise of control, directly or
indirectly, over the management or policies of the Mutual Company, Bancorp or
the Bank, including agreements related to voting, acquisition or disposition of
Bancorp's stock. As directors of a nonprofit corporation, directors of the
Foundation will at all times be bound by their fiduciary duty to advance the
Foundation's charitable goals, to protect the assets of the Foundation and to
act in a manner consistent with the charitable purpose for which the Foundation
is established.

     The Mutual Company or Bancorp will provide office space and administrative
support services to the Foundation. Initially, the Foundation is expected to
have no employees. The board of directors of the Foundation will appoint such
officers as may be necessary to manage the operations of the Foundation. Any
transaction between the Bank and the Foundation will comply with the affiliate
transaction restrictions set forth in Sections 23A and 23B of the Federal
Reserve Act, as amended.

     Bancorp proposes to capitalize the Foundation with Company Common Stock in
an amount equal to 4.19% of the total amount of Common Stock to be sold in
connection with the Offering and $100,000. At the minimum, midpoint and maximum
of the Offering Range, the stock contribution to the Foundation would equal
64,168, 75,491 and 86,815 shares, which would have a market value of $641,680,
$754,910 and $868,150, respectively, based on the Purchase Price. Such
contribution, once made, will not be recoverable by Bancorp or the Bank. The
Mutual Company, Bancorp and the Bank determined to fund the Foundation with
Common Stock and cash to provide the Foundation with a potentially larger
endowment than if Bancorp

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contributed only cash to the Foundation since, as a shareholder, the Foundation
will share in the potential growth and success of Bancorp. As such, the
contribution of stock and cash to the Foundation has the potential to provide a
self-sustaining funding mechanism which reduces the amount of cash that Bancorp,
if it were not making the stock contribution as well, would have to contribute
to the Foundation in future years in order to maintain a level amount of
charitable grants and donations.

     The Foundation would receive working capital from earnings on the cash
contribution, any dividends that may be paid on the Common Stock in the future,
and subject to applicable federal and state laws, loans collateralized by the
Common Stock or from the proceeds of the sale of any of the Common Stock in the
open market from time to time as may be permitted to provide the Foundation with
additional liquidity. As a private foundation under Section 501(c)(3) of the
Code, the Foundation will be required to distribute annually in grants or
donations, a minimum of 5% of the average fair market value of its net
investment assets. One of the conditions imposed on the gift of Common Stock by
Bancorp is that the amount of Common Stock that may be sold by the Foundation in
any one year shall not exceed 5% of the average market value of the assets held
by the Foundation, except where the board of directors of the Foundation
determines that the failure to sell an amount of common stock greater than such
amount would result in a long-term reduction of the value of the Foundation's
assets or would otherwise jeopardize the Foundation's capacity to carry out its
charitable purposes. While there may be a greater risk associated with a one-
stock portfolio in comparison to a diversified portfolio, Bancorp believes any
such risk is mitigated by the ability of the Foundation's directors to sell more
than 5% of its stock in such circumstances. Upon completion of the Offering and
the contribution of cash and shares to the Foundation immediately following the
Offering, Bancorp would have 3,561,500, 4,190,000 and 4,818,500 shares issued
and outstanding at the minimum, midpoint and maximum of the Offering Range.
Because Bancorp will have an increased number of shares outstanding, the voting
and ownership interests of shareholders in Bancorp's common stock would be
diluted by ____%, as compared to their interests in Bancorp if the Foundation
was not established. For additional discussion of the dilutive effect, see
"Comparison of Valuation and Pro Forma Information With No Foundation" and "Pro
Forma Data."

     COMPARISON OF VALUATION AND OTHER FACTORS ASSUMING THE FOUNDATION IS NOT
ESTABLISHED AS PART OF THE CONVERSION. Bancorp proposes to capitalize the
Foundation with Common Stock in an amount equal to 4.19% of the total amount of
Common Stock sold in connection with the Reorganization and Offering and
$100,000. At the minimum, midpoint, maximum and 15% above the maximum of the
Offering Range, the contribution to the Foundation would equal 64,168, 75,491,
86,815 and 99,837 shares, respectively, which would have a market value of
$641,680, $754,910, $868,150 and $998,370, respectively, based on the Purchase
Price. Such contribution, once made, will not be recoverable by Bancorp or the
Bank. As a result of the establishment of the Foundation, the Offering Range, as
estimated by FinPro, has decreased and the amount of stock available for sale in
the Offerings has also correspondingly decreased. The amount of the decrease is
1,170,000, 1,370,000, 1,580,000 and 1,820,000 shares, or $1.2 million, $1.4
million, $1.6 million and $1.8 million at the minimum, midpoint, maximum and 15%
above the maximum of the Offering Range, respectively. See "Pro Forma Data" and
"Comparison of Valuation and Pro Forma Data Information with No Foundation."

     TAX CONSIDERATIONS. The Mutual Company, Bancorp and the Bank have been
advised by their independent accountants that an organization created for the
above purposes will qualify as a 501(c)(3) exempt organization under the Code,
and will be classified as a private foundation rather than a public charity. A
private foundation typically receives its support from one person or one
corporation whereas a public charity receives its support from the public. Under
the Code, the Foundation may not own more than 2% of the outstanding shares of
common stock of Bancorp due to the mutual holding company owning a

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<PAGE>
 
majority of the outstanding shares of common stock of Bancorp. The Foundation
will submit a request to the IRS to be recognized as an exempt organization
after approval of the Foundation by the Bank's members at the Special Meeting
being held to consider the Reorganization. As long as the Foundation files its
application for tax-exempt status within 15 months from the date of its
organization, and provided the IRS approves the application, the effective date
of the Foundation's status as a Section 501(c)(3) organization will be the date
of its organization. Bancorp's independent accountants, however, have not
rendered any advice on the condition of the gift which requires that all shares
of Common Stock of Bancorp held by the Foundation must be voted in the same
ratio as all other shares of Bancorp's Common Stock, on all proposals considered
by stockholders of Bancorp. In the event that Bancorp or the Foundation receives
an opinion of their tax counsel satisfactory to the OTS that compliance with the
voting restriction would cause the Foundation to lose its tax-exempt status,
otherwise have a material adverse tax consequence on the Foundation or subject
the Foundation to an excise tax under Section 4941 of the Code, the OTS will
waive such condition upon submission of such opinion(s) by Bancorp or the
Foundation. See "--Regulatory Conditions Imposed on the Foundation."

     A legal opinion of the OTS which addresses the establishment of charitable
foundations by savings associations opines that as a general rule funds
contributed to a charitable foundation should not exceed the deductible
limitations set forth in the Code, and if an association's contributions exceed
the deductible limit, such action must be justified by the board of directors.
Under the Code, Bancorp may deduct up to 10% of its taxable income in any one
year and any contributions made by Bancorp in excess of the deductible amount
will be deductible for federal tax purposes over each of the five succeeding
taxable years. The Mutual Holding Company, Bancorp and the Bank believe that the
Reorganization presents a unique opportunity to establish and fund a charitable
foundation given the substantial amount of additional capital being raised in
the Reorganization. In making such a determination, the Mutual Company, Bancorp
and the Bank considered the dilutive impact of the Foundation on the amount of
Common Stock available to be offered for sale in the Offering. See "Comparison
of Valuation and Pro Forma Information with No Foundation." Based on such
consideration, Bancorp and the Bank believe that the contribution to the
Foundation in excess of the 10% annual limitation is justified given the Bank's
capital position and its earnings, the substantial additional capital being
raised in the Offering and the potential benefits of the Foundation to the
Bank's community. In this regard, assuming the sale of the Common Stock at the
midpoint of the Offering Range, Bancorp would have pro forma consolidated
capital of $40.3 million, or 12.5% of consolidated assets and the Bank's pro
forma tangible, core and risk-based capital ratios would be 10.87%, 10.87% and
27.07%, respectively. See "Regulatory Capital Compliance," "Capitalization," and
"Comparison of Valuation and Pro Forma Information with No Foundation." Thus,
the amount of the cash and stock contribution will not adversely impact the
financial condition of Bancorp and the Bank and Bancorp and the Bank therefore
believe that the amount of the charitable contribution is reasonable given
Bancorp and the Bank's pro forma capital positions. As such, Bancorp and the
Bank believe that the contribution does not raise safety and soundness concerns.

     Bancorp and the Bank have received an opinion of their independent
accountants that Bancorp's contribution of its own stock to the Foundation will
not constitute an act of self-dealing, and that Bancorp will be entitled to a
deduction in the amount of the fair market value of the stock at the time of the
contribution less the nominal par value that the Foundation is required to pay
to Bancorp for such stock plus the amount of cash contributed to the Foundation
at the time of the Reorganization, subject to a limitation based on 10% of
Bancorp's annual taxable income. Bancorp, however, would be able to carry
forward any unused portion of the deduction for five years following the year in
which the contribution is made for federal tax purposes. Thus, while Bancorp
expects, based on the maximum of the Offering Range, to be able to utilize for
federal income tax purposes a charitable contribution deduction of approximately
$________

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<PAGE>
 
in fiscal year 1998, Bancorp is permitted under the Code to carryover the excess
of the total contribution over such 1998 deduction over a five-year period for
federal income tax purposes. For New Jersey state income tax purposes, Bancorp
also would be able to deduct its contribution to the Foundation and to carry
forward any unused portion over a five-year period, subject to the limitation
based on 10% of Bancorp's unconsolidated annual taxable income, and provided
Bancorp generates sufficient state taxable income on an unconsolidated basis.
Assuming the close of the Offerings at the midpoint of the Offering Range,
Bancorp estimates that all of the federal tax deduction should be deductible
over the six-year period. However, no assurances can be made that Bancorp will
have sufficient pre-tax income over the five year period following the year in
which the contribution was made to fully utilize the carryover related to the
excess contribution. Neither the Mutual Company, Bancorp nor the Bank expects to
make any further contributions to the Foundation within the first five years
following the initial contribution. After that time, the Mutual Company, Bancorp
and the Bank may consider future contributions to the Foundation. Any such
decisions would be based on an assessment of, among other factors, the financial
condition of the Mutual Company, Bancorp and the Bank at that time, the
interests of shareholders and depositors of the Mutual Company, Bancorp and the
Bank, and the financial condition and operations of the Foundation.

     Although the Mutual Company, Bancorp and the Bank have received an opinion
of their independent accountants that Bancorp is entitled to a deduction for the
charitable contribution, there can be no assurances that the IRS will recognize
the Foundation as a Section 501(c)(3) exempt organization or that the deduction
will be permitted. In such event, Bancorp's contribution to the Foundation would
be expensed without tax benefit, resulting in a reduction in earnings in the
year in which the IRS makes such a determination. The Bank has agreed to a
limitation on the liability of its independent accountants to it solely as a
result of, and to indemnify its independent accountants solely in connection
with, certain claims or liabilities relating to the above-discussed federal
income tax opinion, except to the extent determined to have resulted from
professional negligence or intentional or deliberate misconduct. See "Risk
Factors--Establishment of the Charitable Foundation." In cases of willful,
flagrant or repeated acts or failures to act which result in violations of the
IRS rules governing private foundations, a private foundation's status as a
private foundation may be involuntarily terminated by the IRS. In such event,
the managers of a private foundation could be liable for excise taxes based on
such violations and the private foundation could be liable for a termination tax
under the Code. The Foundation's certificate of incorporation provides that it
shall have a perpetual existence. In the event, however, the Foundation were
subsequently dissolved as a result of a loss of its tax exempt status, the
Foundation would be required under the Code and its certificate of incorporation
to distribute any assets remaining in the Foundation at that time for one or
more exempt purposes within the meaning of Section 501(c)(3) of the Code, or to
distribute such assets to the federal government, or to a state or local
government, for a public purpose.

     As a private foundation, earnings and gains, if any, from the sale of
Common Stock or other assets are exempt from federal and state corporate
taxation. However, investment income, such as interest, dividends and capital
gains, will be subject to a federal excise tax of 2.0%. The Foundation will be
required to make an annual filing with the IRS within four and one-half months
after the close of the Foundation's fiscal year to maintain its tax-exempt
status. The Foundation will be required to publish a notice that the annual
information return will be available for public inspection for a period of 180
days after the date of such public notice. The information return for a private
foundation must include, among other things, an itemized list of all grants made
or approved, showing the amount of each grant, the recipient, any relationship
between a grant recipient and the Foundation's managers and a concise statement
of the purpose of each grant.

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     REGULATORY CONDITIONS IMPOSED ON THE FOUNDATION. Establishment of the
Foundation is subject to the following conditions imposed by the OTS: (i) the
Foundation will be subject to examination by the OTS, at the Foundation's own
expense; (ii) the Foundation must comply with supervisory directives imposed by
the OTS; (iii) the Foundation will provide annual reports to the OTS describing
grants made and grant recipients; (iv) the Foundation will operate in accordance
with written policies adopted by the board of directors, including a conflict of
interest policy; (v) the Foundation will not engage in self-dealing and will
comply with all laws necessary to maintain its tax-exempt status; (vi) any
purchases of Common Stock by the Foundation following that Reorganization will
be subject to OTS regulations on stock repurchases; and (vii) any shares of
Common Stock of Bancorp held by the Foundation must be voted in the same ratio
as all other shares of Bancorp's Common Stock on all proposals considered by
stockholders of Bancorp; provided, however, that the OTS will waive this voting
restriction under certain circumstances if compliance with the voting
restriction would: (a) cause a violation of the law of the State of Delaware and
the OTS determines the federal law does not preempt the application of the laws
of the State of Delaware to the Foundation; (b) cause the Foundation to lose its
tax-exempt status or otherwise have a material and adverse tax consequence on
the Foundation; or (c) cause the Foundation to be subject to an excise tax under
Section 4941 of the Code. In order for the OTS to waive such voting restriction,
Bancorp's or the Foundation's legal counsel must render an opinion satisfactory
to OTS that compliance with the voting restriction would have the effect
described in clauses (a), (b) or (c) above. Under those circumstances, the OTS
will grant a waiver of the voting restriction upon submission of such opinion(s)
by Bancorp or the Foundation. There can be no assurances that either a legal or
tax opinion addressing these issues will be rendered, or if rendered, that the
OTS will grant an unconditional waiver of the voting restriction. In this
regard, a condition to the OTS approval of the Conversion provides that in the
event such voting restriction is waived or becomes unenforceable, the Director
of the OTS, or his designees, at that time may impose conditions on the
composition of the board of directors of the Foundation or such other conditions
or restrictions relating to the control of the Common Stock held by the
Foundation, any of which could limit the ability of the board of directors of
the Foundation to control the voting of Common Stock held by the Foundation. In
no event will the voting restriction survive the sale of shares of the Common
Stock held by the Foundation.

     In addition, establishment of the Foundation is subject to the approval of
a majority of the total outstanding votes of the Bank's members eligible to be
cast at the special meeting being held to consider the Reorganization. The
Foundation will be considered as a separate matter from approval of the Plan. If
the Bank's members approve the Plan, but not the Foundation, the Bank intends to
complete the Reorganization without the establishment of the Foundation. Failure
to approve the Foundation may materially increase the pro forma market value of
the Common Stock being offered for sale in the Offering. See "Comparison of
Valuation and Pro Forma Information With No Foundation."

EFFECTS OF THE REORGANIZATION

     GENERAL. Each depositor in a mutual savings institution has both a deposit
account in the institution and a pro rata ownership interest in the net worth of
the institution based upon the balance in his or her account, which interest may
only be realized in the event of a liquidation of the institution or in the
event the institution declares a capital distribution to depositors, subject to
applicable OTS regulations. However, this ownership interest is tied to the
depositor's account and has no tangible market value separate from such deposit
account. Any depositor who opens a deposit account obtains a pro rata ownership
interest in the net worth of the institution without any additional payment
beyond the amount of the deposit. A depositor who reduces or closes his account
receives a portion or all of the balance in the account but nothing for his
ownership interest in the net worth of the institution, which is lost to the
extent that the balance in the account is reduced.

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<PAGE>
 
     Consequently, mutual savings institution depositors normally have no way to
realize the value of their ownership interest, which has realizable value only
in the unlikely event that the mutual savings institution is liquidated or in
the event the institution declares a capital distribution to depositors, subject
to applicable OTS regulations. In such event, the depositors of record at that
time, as owners, would share pro rata in any residual surplus and reserves after
other claims, including claims of depositors to the amounts of their deposits,
are paid.

     Following the Reorganization, Bancorp and Minority Stockholders will
possess all voting rights in the Stock Bank and the affairs of the Stock Bank
will be directed by its board of directors.

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

     The Directors serving the Bank at the time of Reorganization will serve as
Directors of the Stock Bank after the Reorganization. The Directors of Bancorp
and the Mutual Company will consist of individuals currently serving on the
Board of Directors of the Bank. All officers of the Bank at the time of
Reorganization will retain their positions after Reorganization. Certain senior
management persons of the Bank will assume similar positions with Bancorp and
the Mutual Company.

     EFFECT ON DEPOSIT ACCOUNTS. Under the Plan, each depositor in the Bank at
the time of Reorganization will automatically become a depositor in the Stock
Bank after the Reorganization, and each such deposit account will remain the
same with respect to deposit balance, interest rate and other terms. Each such
account with the Stock Bank will be insured by the FDIC to the same extent as
with the Bank before the Reorganization. Depositors will continue to hold their
existing certificates, passbooks and other evidences of their accounts.

     EFFECT ON LOANS. All loans and other borrowings from the Bank shall retain
the same status with the Stock Bank after the Reorganization as they had with
the Bank immediately prior to the Reorganization. The amount, interest rate,
maturity and security for each loan will remain as they were contractually fixed
prior to the Reorganization.

     EFFECT ON VOTING RIGHTS OF MEMBERS. At present, all depositors of the Bank
are members of, and have voting rights in, the Bank as to all matters requiring
membership action. Upon Reorganization, all depositors who currently have voting
rights in the Bank will cease to be members of the Bank and will no longer be
entitled to vote at meetings of the Bank. Upon Reorganization, all depositors
who had membership rights entitling them to voting rights or 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 Company as long
as they continue to hold deposit accounts in the Bank. In addition, all persons
who become depositors of the Stock Bank subsequent to the Reorganization will
have such membership and liquidation rights with respect to the Mutual Company.
Borrower members of the Stock Bank who were borrower members of the Bank as of
November 16, 1995 and have borrowings outstanding at the time of the
Reorganization will have the same membership rights in the Mutual Company that
they had in the Bank immediately prior to the Reorganization as long as their
pre-Reorganization borrowings remain outstanding but will not receive membership
rights in connection with any borrowings made after the Reorganization.

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<PAGE>
 
     EFFECT ON LIQUIDATION RIGHTS. Following the Reorganization, all persons who
had membership or liquidation rights with respect to the Bank as of the date of
the Reorganization will continue to have such rights solely with respect to the
Mutual Company. In addition, all persons who become depositors in the Stock Bank
subsequent to the Reorganization will have membership and liquidation rights
with respect to the Mutual Company. In each case, no person who ceases to be a
depositor with the Stock Bank shall have any membership or liquidation rights
with respect to the Mutual Company.

     AMENDMENT OR TERMINATION OF PLAN OF REORGANIZATION. If deemed necessary or
desirable, the Plan may be substantively amended at any time prior to
solicitation of proxies from Members to vote on the Plan by a two-thirds vote of
the Bank's Board of Directors, and at any time thereafter by such vote of such
Board of Directors with the concurrence of the OTS. Any amendment to the Plan
made after approval by the Members with the approval of the OTS shall not
necessitate further approval by the Members unless otherwise required by the
OTS. The Plan may be terminated by majority vote of the Bank's Board of
Directors at any time prior to the Special Meeting to vote on the Plan, and at
any time thereafter with the concurrence of the OTS.

     By adoption of the Plan, the Members of the Bank authorize the Board of
Directors to amend or terminate the Plan under the circumstances set forth in
this Section.

TAX ASPECTS OF REORGANIZATION

     Pursuant to the Plan, consummation of the Reorganization is conditioned
upon, among other things, the prior receipt by the Bank of either a private
letter ruling from the IRS and from the New Jersey Department of Revenue or an
opinion of the Bank's tax advisor as to the federal and New Jersey tax
consequences of the Reorganization to the effect that consummation of the
Reorganization will not be a taxable event to the Mutual Company, Bancorp, the
Stock Bank or the Bank's members. No private letter ruling will be received from
the IRS with respect to the proposed Reorganization. Instead, Muldoon, Murphy &
Faucette will issue an opinion to the effect that for federal income tax
purposes: (1) the Bank's exchange of its charter to stock form (the "Bank
Conversion") will qualify as a tax-free reorganization under Internal Revenue
Code of 1986, as amended (the "Code"), Section 368(a)(1)(F); (2) the conversion
of the Bank's wholly owned subsidiary ("Interim I") into the Mutual Company will
qualify as a tax-free reorganization under Code 368(a)(1)(F); (3) the merger of
the wholly owned subsidiary of Interim I ("Interim II") into the Stock Bank with
the Stock Bank as the survivor will qualify as a tax-free reorganization under
Code Section 368(a)(1)(A); (4) no gain or loss will be recognized by the Bank in
the Bank Conversion; (5) neither the Stock Bank nor the Mutual Company will
recognize gain or loss upon the receipt by the Stock Bank of substantially all
of the assets of the Bank in exchange for equity interests in the Mutual Company
and the Stock Bank's assumption of the Bank's liabilities; (6) the Mutual
Company's basis in the stock of the Stock Bank will increase by an amount equal
to the Bank's net basis in the property transferred to the Stock Bank; (7) the
Stock Bank's basis in the property received from the Bank will be the same as
the basis of such property in the hands of the Bank immediately prior to the
Reorganization and Offering; (8) the Stock Bank's holding period for the
property received from the Bank will include the period during which such
property received from the Bank was held by the Bank; (9) subject to the
conditions and limitations set forth in Code Sections 381, 382, 383 and 384 and
the Treasury Regulations promulgated thereunder, the Stock Bank will succeed to
and take into account the items of the Bank described in Code Section 381(c);
(10) no gain or loss will be recognized by the depositors of the Bank on the
receipt of equity interests with respect to the Mutual Company in exchange for
their equity interests surrendered therefor; (11) the exchange of stock by
depositors in exchange for equity interests in the Mutual Company will
constitute a tax-free exchange of property solely for voting "stock" pursuant to
Code Section 351; (12) each Bank

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depositor's aggregate basis, if any, in the Mutual Company equity interest
received in the exchange will equal the aggregate basis, if any, of each
depositor's equity interest in the Bank; (13) the holding period of the Mutual
Company equity interests received by the depositors of Bank will include the
period during which the Bank equity interest surrendered in exchange therefor
were held; (14) the Mutual Company will recognize no gain or loss upon the
transfer of the Stock Bank stock to Bancorp in exchange for Common Stock
pursuant to Code Section 351; (15) Bancorp will recognize no gain or loss upon
its receipt of Stock Bank stock from the Mutual Company in exchange for Common
Stock; (16) the Mutual Company will increase its basis in its shares of the
common Stock by the Mutual Company's basis in its Stock Bank stock; (17) Bancorp
will recognize no gain or loss upon the receipt of money in exchange for shares
of Common Stock; (18) no gain or loss will be recognized by the Bank's account
holders upon the issuance to them of accounts in the Stock Bank in stock form
immediately after the Reorganization and Offering, in the same dollar amounts
and on the same terms and conditions as their accounts at the Bank immediately
prior to the Reorganization and Offering; (19) the tax basis of the Common Stock
purchased in the Reorganization and Offering will be equal to the amount paid
therefor increased, in the case of the Common Stock acquired to the exercise of
Subscription Rights, by the fair market value, if any, of the Subscription
Rights exercised; (20) the holding period for the Common Stock purchased in the
Reorganization and Offering will commence upon the exercise of such holder's
Subscription Rights and otherwise on the day following the date of such
purchase; (21) gain or loss will be recognized to account holders upon the
receipt or exercise of Subscription Rights in the Reorganization and Offering,
but only to the extent such Subscription Rights are deemed to have value, as
discussed below. Radics & Co., LLC has opined that the Reorganization will not
be a taxable transaction to the Mutual Company, Bancorp, the Bank, Eligible
Account Holders or Supplemental Eligible Account Holders for New Jersey income
tax purposes. Certain portions of both the federal and the state income tax
opinions are based upon the assumption that the subscription rights issued in
connection with the Reorganization and Offering will have no value.

     Unlike private rulings of the IRS, an opinion of a tax advisor is not
binding on the IRS and the IRS could disagree with conclusions reached therein.
In the event of such disagreement, there can be no assurance that the IRS would
not prevail in a judicial or administrative proceeding. The Bank has agreed to a
limitation on the liability of Fontanella and Babitts to it solely as a result
of, and to indemnify Fontanella and Babitts solely in connection with, certain
claims or liabilities relating to its New Jersey income tax opinion, except to
the extent determined to have resulted from professional negligence or
intentional or deliberate misconduct.

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

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THE OFFERING

     The Plan authorizes Bancorp to offer common stock in the Offering up to a
maximum of 49.9% of the issued and outstanding shares of Bancorp's Common Stock.
Bancorp is offering between $15.3 million and $20.7 million (or up to $23.8
million in the event the number of shares are increased) of Common Stock, which
represents a Minority Ownership Interest of 43%, based upon the Independent
Valuation. The Offering is being made concurrently with the Reorganization,
subject to the approval of the Members at the Special Meeting to be held on
___________, ____. The Common Stock will be offered on a priority basis to: (1)
Eligible Account Holders; (2) the ESOP; (3) Supplemental Eligible Account
Holders; and (4) Other Members. Subject to the prior rights of holders of
subscription rights, Common Stock not subscribed for in the Subscription
Offering is being concurrently offered in the Community Offering to certain
members of the general public, with preference given to natural persons residing
in Bergen, Essex and Morris Counties, New Jersey. Bancorp and Sandler O'Neill
may also agree to utilize a Syndicated Community Offering in connection with the
sale of shares of Common Stock not subscribed for in the Subscription and
Community Offering. The Bank reserves the right, in its absolute discretion, to
reject or accept, in whole or in part, any orders in the Community Offering,
either at the time of receipt of an order or as soon as practicable following
the Expiration Date. If an order is rejected, the funds submitted with such
order will be returned promptly. Subscription rights will expire if not
exercised by 12:00 noon, New Jersey time, on ___________, ____, unless extended
by Bancorp, with the approval of the OTS. Following the Offering, assuming that
2,071,955 shares are sold in the Offering, it is expected that the Mutual
Company will own 2,659,812, or 55.2%, of the total issued and outstanding shares
of voting Common Stock of Bancorp.

STOCK PRICING AND NUMBER OF SHARES ISSUED
 
     The Plan requires that the aggregate purchase price of the Common Stock
must be based on the estimated pro forma market value of the Common Stock, as
determined by an independent valuation. The Bank has retained FinPro to make
such valuation. All shares of Common Stock sold in the Offering will be sold at
the Purchase Price. The Purchase Price was determined by the Board of Directors
of the Bank, based on the Independent Valuation. For its services, FinPro will
receive a fee of $14,000 plus reasonable expenses not to exceed $2,500. The Bank
has also agreed to pay FinPro an additional $17,000 for assisting the Bank in
the preparation of a business plan. The Bank has agreed to indemnify FinPro and
its employees and affiliates under certain circumstances against certain losses
(including any losses in connection with claims under federal securities laws)
arising out of its services as an appraiser, except where FinPro's liability
results from its negligence, willful misconduct or bad faith.

     The Independent Valuation made by FinPro relied upon the information
contained in this Offering Circular, including the Financial Statements of the
Bank and Notes thereto. FinPro has advised the Bank that it also has considered
the effect of the Minority Ownership Interest represented by the Common Stock in
the Offering in terms of liquidity of the Common Stock in the after market,
marketability of the Common Stock, the possibility of conversion of the Mutual
Company to stock form, and other factors considered relevant. In addition,
FinPro has advised the Bank that it has considered and will consider the effect
of the additional capital raised by the sale of the Common Stock in the Offering
on the estimated aggregate pro forma market value of such shares. FinPro 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 market 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
publically traded subsidiaries of mutual holding companies located in the Bank's
primary market area and the Mid-Atlantic area of the United States; the
aggregate size of the Offering of the Common Stock; the impact of

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<PAGE>
 
the minority stock offering on the Bank's net worth and earnings potential; the
transfer of $100,000 from the Bank to the Mutual Company; the proposed dividend
policy of Bancorp; the majority ownership of the Common Stock by the Mutual
Company; and the trading market for securities of comparable institutions and
general conditions in the market for such securities.

     On the basis of the foregoing, FinPro advised Bancorp and the Bank that, in
its Independent Valuation, dated June 12, 1998, the estimated pro forma market
value of the Common Stock ranged from a minimum of $35.6 million to a maximum of
$48.2 million, with a midpoint of $41.9 million (the "Estimated Price Range").

     Based on the estimated Price Range and the Purchase Price, the number of
shares of Common Stock that Bancorp will issue will range from between 3,561,500
shares to 4,818,500 shares, with a midpoint of 4,190,000 shares. The Board
determined to offer 43% of such shares, or between 1,531,445 shares and
2,071,955 shares with a midpoint of 1,801,700 shares (the "Offering Range") to
depositors and the public pursuant to this Prospectus. In addition, up to 86,815
shares (up to 99,837 at the adjusted maximum of the Estimated Price Range) are
being issued to the Foundation as part of the Reorganization, which will result
in Minority Stockholders owning 43% of the shares of the Common Stock
outstanding at the conclusion of the Reorganization. The 55.2% of the shares of
Bancorp's Common Stock that are not sold in the Offering or contributed to the
Foundation will be issued to the Mutual Company.

     The Board of Directors of the Bank have reviewed the Independent Valuation
of FinPro and in determining the reasonableness and adequacy of such Independent
Valuation consistent with OTS regulations and policies, have reviewed the
methodology and reasonableness of the assumptions utilized by FinPro in the
preparation of such Independent Valuation. The Offering Range may be amended
with the approval of the OTS (if required), if necessitated by subsequent
developments in the financial condition of Bancorp or the Bank or market
conditions generally.

     In the event of a change in the Independent Valuation immediately prior to
consummation of the Offering, Bancorp may adjust the Minority Ownership Interest
by increasing or decreasing the total number of shares of Common Stock to be
issued to the Mutual Company in the Reorganization and/or the number of shares
Common Stock to be issued in the Offering. Increases or decreases in the number
of shares of Common Stock to be issued in the Reorganization and Offering as a
result of a change in the Independent Valuation would be subject to applicable
limitations on purchases of Common Stock and, unless otherwise permitted by the
Bank or required by the OTS, no resolicitation of persons who ordered Common
Stock in the Offering will be made and such persons will not be permitted to
modify or cancel their orders unless the Independent Valuation changes to less
than $35.6 million or greater than $55.4 million.

     In the event of an increase in the Independent Valuation up to $55.4
million immediately prior to consummation of the Offering, Bancorp may, in its
discretion, choose to increase the number of shares of Common Stock issued in
the Offering up to 2,382,748 shares without offering persons who subscribed for
shares an opportunity to increase, decrease or rescind their orders. If the
Independent Valuation increases to $55.4 million, the total number of shares of
Common Stock issued and outstanding, including shares issued to the Mutual
Company, upon consummation of the Offering would be 5,541,275. Under such
circumstances, if Bancorp chose to increase the number of shares of Common Stock
offered in the Offering to 2,382,748 shares, the 2,382,748 shares would
represent a 43% Minority Ownership Interest. The final Minority Ownership
Interest will be determined as follows: (i) the numerator shall be the product
of (x) the number of shares of Common Stock sold in the Offering and (y) the
Purchase Price ($10 per share); and (ii)

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<PAGE>
 
the denominator shall be the updated valuation of the pro forma value of the
Bank upon conclusion of the Offering as determined by FinPro.

     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. FINPRO DID NOT INDEPENDENTLY VERIFY THE FINANCIAL STATEMENTS OF THE
BANK AND NOTES THERETO AND OTHER INFORMATION PROVIDED BY THE BANK, NOR DID
FINPRO INDEPENDENTLY VALUE THE ASSETS OR LIABILITIES OF THE BANK. THE VALUATION
CONSIDERS THE BANK AS A GOING CONCERN AND SHOULD NOT BE CONSIDERED AS A
LIQUIDATION VALUE OF THE BANK. MOREOVER, BECAUSE THE VALUATION IS BASED UPON
ESTIMATES AND PROJECTIONS ON A NUMBER OF MATTERS, ALL OF WHICH ARE SUBJECT TO
CHANGE FROM TIME TO TIME, NO ASSURANCE CAN BE GIVEN THAT PERSONS PURCHASING THE
COMMON STOCK IN THE OFFERING WILL BE ABLE TO SELL SUCH SHARES AT A PRICE EQUAL
TO OR GREATER THAN THE PURCHASE PRICE. SEE "ADDITIONAL INFORMATION" FOR ADVICE
ON HOW TO OBTAIN A COPY OF THE INDEPENDENT VALUATION.

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

     In the event the Offering is either more than 15% above the maximum of the
Offering Range or less than the minimum of the Offering Range, or if the
Independent Valuation changes by more than 15%, the Bank, after consulting with
the OTS, may terminate the Offering and return all funds promptly with interest
on payments made by check, bank draft or money order, extend or hold a new
Subscription Offering and/or Community Offering, establish a new Offering Range,
commence a resolicitation of subscribers or take such other actions as permitted
by the OTS in order to complete the Reorganization and the Offering. In the
event that a resolicitation is commenced, unless an affirmative response is
received within a reasonable period of time, all funds will be promptly returned
to investors as described above. A resolicitation, if any, following the
conclusion of the Subscription and Community Offerings would not exceed 45 days
unless further extended by the OTS for a period of up to 90 days not to extend
beyond ________________, ____.

     If all shares of Common Stock are not sold through the Subscription and
Community Offerings, then Bancorp may offer the remaining shares in a Syndicated
Community Offering which may commence concurrently with the Subscription and
Community Offerings, subject to prior rights of subscribers, or as soon as
practicable following the close of the Subscription and Community Offerings. All
shares of Common Stock, whether sold in the Subscription and Community Offerings
or Syndicated Community Offering, will be sold at a fixed purchase price of $10
per share. See "--Syndicated Community Offering."

     No sale of shares of Common Stock may be consummated unless, prior to such
consummation, FinPro confirms to the Bank, Bancorp and the OTS that, to the best
of its knowledge, nothing of a material nature has occurred which, taking into
account all relevant factors, including those which would be involved in a
cancellation of the Syndicated Community Offering, would cause FinPro to
conclude that the aggregate value of the Common Stock at the Purchase Price is
incompatible with its estimate of the pro forma market value of the Common Stock
of Bancorp at the conclusion of the Offering. Any change which would result in
an aggregate purchase price which is below the minimum or more than 15% above
the maximum of the Offering Range would be subject to OTS approval. If such
confirmation is not received, Bancorp may extend the Offering, extend, reopen or
commence a new Subscription Offering, Community Offering or Syndicated Community
Offering, establish a new Offering Range and commence a resolicitation of all

                                      127
<PAGE>
 
subscribers with the approval of the OTS or take such other actions as permitted
by the OTS in order to complete the Offering or terminate the Plan and cancel
the Offering. In the event that a resolicitation is commenced, unless an
affirmative response is received within a reasonable period of time, all funds
will be promptly returned to investors as described above. A resolicitation, if
any, following the conclusion of the Subscription and Community Offerings would
not exceed 45 days unless further extended by OTS for periods up to 90 days not
to extend beyond _____________, ____.

     The actual number of shares of Common Stock sold in the Offering may be
adjusted within the Offering Range at the discretion of the Board of Directors
prior to completion of the Offering, as long as the Holding Company at the close
of the Offering owns a majority of the issued and outstanding voting stock of
the Bank.

SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS

     In accordance with the Plan, rights to subscribe for the purchase of Common
Stock have been granted under the Plan to the following persons in the following
order of descending priority: (1) Eligible Account Holders; (2) the ESOP; (3)
Supplemental Eligible Account Holders; and (4) Other Members. All subscriptions
received will be subject to the availability of Common Stock after satisfaction
of all subscriptions of all persons having prior rights in the Subscription
Offering and to the maximum and minimum purchase limitations set forth in the
Plan and as described below under "--Limitations on Common Stock Purchases."

     PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS. Each Eligible Account Holder will
receive, without payment therefor, first priority, nontransferable subscription
rights to subscribe for in the Subscription Offering up to the greater of: (1)
the amount permitted to be purchased in the Community Offering, currently
$350,000 of Common Stock; (2) one-tenth of one percent (.10%) of the total
offering of shares of Common Stock; or (3) fifteen times the product (rounded
down to the next whole number) obtained by multiplying the total number of
shares of Common Stock to be issued by a fraction of which the numerator is the
amount of the Eligible Account Holder's Qualifying Deposit (defined by the Plan
as any deposit account in the Bank with a balance of $50 or more as of February
28, 1997) and the denominator is the total amount of Qualifying Deposits of all
Eligible Account Holders, in each case on the Eligibility Record Date, subject
to the overall purchase limitation and exclusive of an increase in the shares
issued pursuant to an increase in the Offering Range of up to 15%. See "--
Limitations on Common Stock Purchases."

     In the event that Eligible Account Holders exercise subscription rights for
a number of shares of Common Stock in excess of the total number of such shares
eligible for subscription, the shares of Common Stock shall be allocated among
the subscribing Eligible Account Holders so as to permit each subscribing
Eligible Account Holder, to the extent possible, to purchase a number of shares
sufficient to make his or her total allocation of Common Stock equal to the
lesser of 100 shares or the number of shares subscribed for by the Eligible
Account Holder. Any shares remaining after that allocation will be allocated
among the subscribing Eligible Account Holders whose subscriptions remain
unsatisfied in the proportion that the amount of the Qualifying Deposit of each
Eligible Account Holder whose subscription remains unsatisfied bears to the
total amount of the Qualifying Deposits of all Eligible Account Holders whose
subscriptions remain unsatisfied. If the amount so allocated exceeds the amount
subscribed for by any one or more remaining Eligible Account Holders, the excess
shall be reallocated (one or more times as necessary) among those Eligible
Account Holders whose subscriptions are still not fully satisfied on the same
principle until all available shares have been allocated or all subscriptions
satisfied.

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<PAGE>
 
     To ensure proper allocation of stock, each Eligible Account Holder must
list on his subscription order form all accounts in which he has an ownership
interest. Failure to list an account could result in less shares being allocated
than if all accounts had been disclosed. The subscription rights of Eligible
Account Holders who are also Directors or Officers of the Bank or their
associates will be subordinated to the subscription rights of other Eligible
Account Holders to the extent attributable to increased deposits in the year
preceding February 28, 1997.

     PRIORITY 2: EMPLOYEE STOCK OWNERSHIP PLAN. To the extent that there are
sufficient shares remaining after satisfaction of the subscriptions by Eligible
Account Holders, the ESOP will receive, without payment therefor, second
priority, nontransferable subscription rights to purchase, in the aggregate, up
to 10% of Common Stock issued in the Offering, including shares issued to the
Foundation, and any increase in the number of shares of Common Stock to be
issued in the Offering after the date hereof as a result of an increase of up to
15% in the maximum of the Offering Range. The ESOP intends to purchase 8% of the
shares to be issued in the Offering, including shares issued to the Foundation,
or ______ shares and ______ shares, based on the minimum and maximum of the
Offering Range, respectively. Subscriptions by the ESOP will not be aggregated
with shares of Common Stock purchased directly by or which are otherwise
attributable to any other participants in the Subscription and Community
Offering, including subscriptions of any of the Bank's directors, officers,
employees or associates thereof. See "Management of the Bank--Benefits--Employee
Stock Ownership Plan."

     PRIORITY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. Each Supplemental
Eligible Account Holder will receive, without payment therefor, third priority,
nontransferable subscription rights to subscribe for in the Subscription
Offering up to the greater of: (1) the amount permitted to be purchased in the
Community Offering, currently $350,000 of Common Stock; (2) one-tenth of one
percent (.10%) of the total offering of shares of Common Stock; or (3) fifteen
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Common Stock to be issued by a
fraction of which the numerator is the amount of the Supplemental Eligible
Account Holder's Qualifying Deposit and the denominator is the total amount of
Qualifying Deposits of all Supplemental Eligible Account Holders, in each case
on the Supplemental Eligibility Record Date, subject to the overall purchase
limitation and exclusive of an increase in the shares issued pursuant to an
increase in the Offering Range of up to 15%. See "-- Limitation on Common Stock
Purchase."

     In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of Common Stock in excess of the
total number of such shares eligible for subscription, the shares of Common
Stock shall be allocated among the subscribing Supplemental Eligible Account
Holders so as to permit each subscribing Supplemental Eligible Account Holder,
to the extent possible, to purchase a number of shares sufficient to make his or
her total allocation of Common Stock equal to the lesser of 100 shares or the
number of shares subscribed for by the Supplemental Eligible Account Holder. Any
shares remaining after that allocation will be allocated among the subscribing
Supplemental Eligible Account Holders whose subscriptions remain unsatisfied in
the proportion that the amount of the Qualifying Deposit of each Supplemental
Eligible Account Holder whose subscription remains unsatisfied bears to the
total amount of the Qualifying Deposits of all Supplemental Eligible Account
Holders whose subscriptions remain unsatisfied. If the amount so allocated
exceeds the amount subscribed for by any one or more remaining Supplemental
Eligible Account Holders, the excess shall be reallocated (one or more times as
necessary) among those Supplemental Eligible Account Holders whose subscriptions
are still not fully satisfied on the same principle until all available shares
have been allocated or all subscriptions satisfied.

                                      129
<PAGE>
 
     To ensure proper allocation of stock, each Supplemental Eligible Account
Holder must list on his subscription order form all accounts in which he has an
ownership interest. Failure to list an account could result in less shares being
allocated than if all accounts had been disclosed. The subscription rights
received by Eligible Account Holders will be applied in partial satisfaction to
the subscription rights to be received as a Supplemental Eligible Account
Holder.

     PRIORITY 4: OTHER MEMBERS. To the extent that there are sufficient shares
remaining after satisfaction of subscriptions by the Eligible Account Holders,
the ESOP and the Supplemental Eligible Account Holders, each Other Member will
receive, without payment therefor, fourth priority nontransferable subscription
rights to subscribe for Common Stock in the Subscription Offering up to the
greater of the amount permitted to be purchased in the Community Offering,
currently $350,000 of Common Stock, or one-tenth of one percent (.10%) of the
total offering of shares of Common Stock, subject to the overall purchase
limitation and exclusive of an increase in shares issued pursuant to an increase
in the Estimated Price Range of up to 15%.

     In the event that Other Members subscribe for a number of shares of Common
Stock which, when added to the shares of Common Stock subscribed for by the
Eligible Account Holders, the ESOP and the Supplemental Eligible Account Holders
is in excess of the total number of shares of Common Stock being issued, the
subscriptions of such Other Members will be allocated among the subscribing
Other Members so as to permit each subscribing Other Member, to the extent
possible, to purchase a number of shares sufficient to make his or her total
allocation of Common Stock equal to the lesser of 100 shares or the number of
shares subscribed for by the Other Member. Any shares remaining after that
allocation will be allocated among the subscribing Other Members whose
subscriptions remain unsatisfied pro rata in the same proportion that the number
of votes of a subscribing Other Member on the Voting Record Date bears to the
total votes on the Voting Record Date of all subscribing Other Members whose
subscriptions remain unsatisfied. If the amount so allocated exceeds the amount
subscribed for by any one or more remaining Other Members, the excess shall be
reallocated (one or more times as necessary) among those remaining Other Members
whose subscriptions are still not fully satisfied on the same principle until
all available shares have been allocated or all subscriptions satisfied.

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

     EXPIRATION DATE FOR THE SUBSCRIPTION OFFERING. The Subscription Offering
will expire on _______________, 1998, unless extended for up to 45 days by the
Bank or such additional periods with the approval of the OTS. Subscription
rights which have not been exercised prior to the Expiration Date will become
void.

     The Bank will not execute orders until all shares of Common Stock have been
subscribed for or otherwise sold. If all shares have not been subscribed for or
sold within 45 days after the Expiration Date, unless such period is extended
with the consent of the OTS, all funds delivered to the Bank pursuant to the
Subscription Offering will be returned promptly to the subscribers with interest
and all withdrawal authorizations will be cancelled. If an extension beyond the
45 day period following the Expiration Date is granted, the Bank will notify
subscribers of the extension of time and of any rights of subscribers to modify
or rescind their subscriptions and have their funds returned promptly with
interest, and of the time

                                      130
<PAGE>
 
period within which subscribers must affirmatively notify the Bank of their
intention to confirm, modify, or rescind their subscription. If an affirmative
response to any resolicitation is not received by Bancorp from a subscriber,
such order will be rescinded and all subscription funds will be promptly
returned with interest. Such extensions may not go beyond ___________, ____.

COMMUNITY OFFERING

     To the extent that shares remain available for purchase after satisfaction
of all subscriptions of the Eligible Account Holders, the ESOP, the Supplemental
Eligible Account Holders and Other Members, the Bank has determined to offer
shares pursuant to the Plan to certain members of the general public, with
preference given to natural persons residing in Bergen, Essex and Morris
Counties, New Jersey, subject to the right of the Bank to accept or reject any
such orders, in whole or in part, in their sole discretion. Persons purchasing
stock in the Community Offering, together with associates of and persons acting
in concert with such persons, may purchase up to $350,000 of Common Stock
subject to the maximum overall purchase limitation and exclusive of shares
issued pursuant to an increase in the Offering Range by up to 15%. See "--
Limitations on Common Stock Purchases." This amount may be increased to up to a
maximum of 5% or decreased to less than $350,000 at the sole discretion of the
Bank. THE OPPORTUNITY TO SUBSCRIBE FOR SHARES OF COMMON STOCK IN THE COMMUNITY
OFFERING CATEGORY IS SUBJECT TO THE RIGHT OF THE BANK AND BANCORP, IN ITS SOLE
DISCRETION, TO ACCEPT OR REJECT ANY SUCH ORDERS IN WHOLE OR IN PART EITHER AT
THE TIME OF RECEIPT OF AN ORDER OR AS SOON AS PRACTICABLE FOLLOWING THE
EXPIRATION DATE.

     Subject to the foregoing, if the amount of stock remaining is insufficient
to fill the orders of subscribers after completion of the Subscription Offering,
such stock will be allocated first to each subscriber whose order is accepted by
the Bank, in an amount equal to the lesser of 100 shares or the number of shares
subscribed for by each such subscriber, if possible. Thereafter, unallocated
shares will be allocated among the subscribers whose order remains unsatisfied
on a 100 shares per order basis until all such orders have been filled or the
remaining shares have been allocated.

SYNDICATED COMMUNITY OFFERING

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

     The price at which Common Stock is sold in the Syndicated Community
Offering will be determined as described above under "-- Stock Pricing and
Number of Shares Issued." Subject to overall purchase limitations, no person,
together with any associate or group of persons acting in concert, will be
permitted to subscribe in the Syndicated Community Offering for more than
$350,000 of the Common Stock, exclusive of an increase in shares issued pursuant
to an increase in the Offering Range of up to 15%; provided, however, that
shares of Common Stock purchased in the Community Offering by any persons,
together with associates of or persons acting in concert with such persons, will
be aggregated with purchases in the Syndicated Community Offering and be subject
to an overall maximum purchase limitation of $700,000 of

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the shares offered, exclusive of an increase in shares issued pursuant to an
increase in the Offering Range by up to 15%.

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

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

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

     The Syndicated Community Offering will terminate no more than 45 days
following the close of the Subscription Offering, unless extended by the Bank
with the approval of the OTS. Such extensions may not be beyond. See "--Stock
Pricing and Number of Shares Issued."

PERSONS IN NONQUALIFIED STATES OR FOREIGN COUNTRIES

     The Company and the Bank will make reasonable efforts to comply with the
securities laws of all states in the United States in which persons entitled to
subscribe for stock pursuant to the Plan reside. However, the Plan provides that
the Bank is not required to offer stock in the Subscription Offering to any
person who resides in a foreign country or resides in a state of the United
States with respect to which both of the following apply: (i) a small number of
persons otherwise eligible to subscribe for shares of Common Stock reside in
such state; and (ii) Bancorp or the Bank determines that compliance with the
securities laws of such state would be impracticable for reasons of cost or
otherwise, including but not limited to a request that the Bank or its officers,
directors or trustees register as a broker, dealer, salesman or selling agent,
under the securities laws of such state, or a request to register or otherwise
qualify the subscription rights or Common Stock for sale or submit any filing
with respect thereto in such state. Where the number of persons eligible to
subscribe for shares in one state is small, the Bank will base its decision as
to whether or not to offer the Common Stock in such state on a number of
factors, including the size of accounts held by account

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holders in the state, the cost of registering or qualifying the shares or the
need to register the Bank, its officers, directors or employees as brokers,
dealers or salesmen.

MARKETING AND UNDERWRITING ARRANGEMENTS

     The Bank has engaged Sandler O'Neill as a consultant and financial advisor
in connection with the offering of the Common Stock, and Sandler O'Neill has
agreed to use its best efforts to solicit subscriptions and purchase orders for
shares of Common Stock in the Offering. Based upon negotiations concerning fee
structure, Sandler O'Neill will receive a marketing fee equal to 1.5% of the
aggregate Purchase Price of the shares sold in the Subscription and Community
Offerings, excluding shares purchased by directors, officers, employees, and any
immediate family member thereof, and any employee benefit plan of Bancorp or the
Bank, including the ESOP, for which Sandler O'Neill will not receive a fee. In
the event that a selected dealers agreement is entered into in connection with a
Syndicated Community Offering, the Bank will pay a fee (to be negotiated at such
time under such agreement) to such selected dealers, any sponsoring dealers
fees, and a management fee to Sandler O'Neill of 1.50% for shares sold by
National Association of Securities Dealers, Inc. ("NASD") member firms pursuant
to a selected dealers agreement; provided, however, that any fees payable to
Sandler O'Neill for Common Stock sold by them pursuant to such a selected
dealers' agreement shall not exceed 1.50% of the Purchase Price and provided,
further, however, that the aggregate fees payable to Sandler O'Neill and the
selected dealers will not exceed 7.0% of the aggregate purchase price of the
Common Stock sold by selected dealers. Fees to Sandler O'Neill and to any other
broker-dealer may be deemed to be underwriting fees, and Sandler O'Neill and
such broker-dealers may be deemed to be underwriters. The Bank has agreed to
indemnify Sandler O'Neill for reasonable costs and expenses in connection with
certain claims or liabilities, including certain liabilities under the
Securities Act. Sandler O'Neill has received advances towards its fees totalling
$50,000. Total marketing fees to Sandler O'Neill are expected to be $251,000 and
$326,000 at both the minimum and the maximum of the Offering Range,
respectively. See "Pro Forma Data" for the assumptions used to arrive at these
estimates.

     Sandler O'Neill will perform proxy solicitation services, offering agent
services and records management services for the Bank in the Offering and will
receive a fee for these services of $15,000. Reasonable out-of-pocket expenses
shall not exceed $60,000.

     Directors and executive officers of the Bank may participate in the
solicitation of offers to purchase Common Stock. Questions of prospective
purchasers will be directed to executive officers or registered representatives.
Other employees of the Bank may participate in the Offering in ministerial
capacities or providing clerical work in effecting a sales transaction. Such
other employees have been instructed not to solicit offers to purchase Common
Stock or provide advice regarding the purchase of Common Stock. The Bank will
rely on Rule 3a4-1 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and sales of Common Stock will be conducted within the
requirements of Rule 3a4-1, so as to permit officers, directors and employees to
participate in the sale of Common Stock. No officer, director or employee of the
Bank will be compensated in connection with his participation by the payment of
commissions or other remuneration based either directly or indirectly on the
transactions in the Common Stock.

PROCEDURE FOR PURCHASING SHARES IN THE OFFERING

     To ensure that each purchaser receives an offering circular at least 48
hours before the Expiration Date in accordance with Rule 15c2-8 of the Exchange
Act, no offering circular will be mailed any later than five days prior to such
date or hand delivered any later than two days prior to such date. Execution of
the

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stock order form and certification form will confirm receipt or delivery in
accordance with Rule 15c2-8. Stock order and certification forms will only be
distributed with an offering circular.

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

     In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the Eligibility Record Date (February 28,
1997) and/or the Supplemental Eligibility Record Date [(MARCH 31, 1998)] and/or
the Voting Record Date (_____________) must list all accounts on the stock order
form giving all names in each account and the account number.

     Payment for subscriptions may be made (i) in cash if delivered in person at
any branch office of the Bank, (ii) by check, bank draft or money order, or
(iii) by authorization of withdrawal from deposit accounts maintained with the
Bank. No wire transfers will be accepted. Interest will be paid on payments made
by cash, check, bank draft or money order at the Bank's passbook rate of
interest from the date payment is received until the completion or termination
of the Offering. Orders for Common Stock submitted by subscribers in the
Subscription Offering which aggregate $50,000 or more must be paid by official
or certified check or by withdrawal authorization from a deposit account of the
Bank. If payment is made by authorization of withdrawal from deposit accounts,
the funds authorized to be withdrawn from a deposit account will continue to
accrue interest at the contractual rates until completion or termination of the
Offering, but a hold will be placed on such funds, thereby making them
unavailable to the depositor until completion or termination of the Offering.

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

     If the ESOP subscribes for shares during the Subscription Offering, the
ESOP will not be required to pay for the shares subscribed for at the time it
subscribes, but rather, may pay for such shares of Common Stock subscribed for
at the Purchase Price upon consummation of the Subscription and Community

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Offerings, if all shares are sold, or upon consummation of the Syndicated
Community Offering if shares remain to be sold in such offering; provided, that
there is in force from the time of its subscription until such time, a loan
commitment from an unaffiliated third party to lend to the ESOP, at such time,
the aggregate Purchase Price of the shares for which it subscribed.

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

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

LIMITATIONS ON COMMON STOCK PURCHASES

     The Plan sets forth various limitations on purchases of Common Stock in the
Offering. The limitations which are applicable to tax-qualified employee stock
benefit plans relate solely to the ESOP and are referred to below in this
regard.

     (1)  A minimum of 25 shares of Common Stock must be purchased by each
Person purchasing shares in the Offering to the extent those shares are
available; provided, however, that in the event the minimum number of shares of
Common Stock purchased times the price per share exceeds $500, then such minimum
purchase requirement shall be reduced to such number of shares of Common Stock
which when multiplied by the price per share shall not exceed $500, as
determined by the Board.

     (2)  Each Eligible Account Holder may subscribe for and purchase in the
Subscription Offering up to the greater of: 1) the amount permitted to be
purchased in the Community Offering, currently $350,000 of Common Stock; 2) one-
tenth of one percent (.10%) of the total offering of shares of Common Stock; or
3) fifteen times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Common Stock to be issued by a
fraction of which the numerator is the amount of the Qualifying Deposit of the
Eligible Account Holder and the denominator is the total amount of Qualifying
Deposits of all Eligible Account Holders, in each case on the Eligibility Record
Date subject to the overall maximum purchase limitation in (2) above and
exclusive of an increase in the total number of shares issued due to an increase
in the Estimated Price Range of up to 15%.

     (3)  The ESOP is permitted to purchase in the aggregate up to 10% of the
shares of Common Stock issued in the Offering, including shares issued to the
Foundation and shares issued in the event of an increase in the Estimated Price
Range of 15%, and intends to purchase 8% of the shares of Common Stock issued in
the Offering, including shares issued to the Foundation.

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<PAGE>
 
     (4)  Each Supplemental Eligible Account Holder may subscribe for and
purchase in the Subscription Offering up to the greater of: 1) the amount
permitted to be purchased in the Community Offering, currently $350,000 of
Common Stock; 2) one-tenth of one percent (.10%) of the total offering of shares
of Common Stock; or 3) fifteen times the product (rounded down to the next whole
number) obtained by multiplying the total number of shares of Common Stock to be
issued by a fraction of which the numerator is the amount of the Qualifying
Deposit of the Supplemental Eligible Account Holder and the denominator is the
total amount of Qualifying Deposits of all Supplemental Eligible Account
Holders, in such case on the Supplemental Eligibility Record date subject to the
overall maximum purchase limitation in (2) above and exclusive of an increase in
the total number of shares issued due to an increase in the estimated Price
Range of up to 15%;

     (5)  Each Other Member may subscribe for and purchase in the Subscription
Offering up to the greater of: 1) the amount permitted to be purchased in the
Community Offering, currently $350,000 of Common Stock; or 2) one-tenth of one
percent (.10%) of the total offering of shares of Common Stock, in each case
subject to the overall maximum purchase limitation in (2) above and exclusive of
an increase in the total number of shares issued due to an increase in the
Estimated Price Range of up to 15%.

     (6)  Persons purchasing shares of Common Stock in the Community Offering,
together with associates of and groups of persons acting in concert with such
persons, may purchase in the Community Offering to $350,000 of Common stock,
subject to the overall maximum purchase limitation in (2) above and exclusive of
an increase in the total number of shares issued due to an increase in the
Estimated price Range of up to 15% .

     (7)  Persons purchasing shares of Common Stock in the Syndicated Community
Offering, together with associates of and persons acting in concert with such
persons, may purchase in the Syndicated Offering up to $350,000 of Common Stock,
subject to the overall maximum purchase limitation in (2) above and exclusive of
an increase in the total number of shares issued due to an increase in the
Estimated Price Range of up to 15% and, provided further that shares of Common
Stock purchased in the Community Offering by any persons, together with
associates of or persons acting in concert with such persons, will be aggregated
with purchases in the Syndicated Community Offering in applying the $350,000
purchase limitation.

     (8)  Except for the ESOP, the overall maximum number of shares of Common
Stock subscribed for or purchased in all categories of the Offering by any
person, together with associates of or persons acting in concert with such
persons, shall not exceed $700,000 of the Common Stock offered, exclusive of an
increase in the total number of shares issued due to an increase in the
Estimated Price Range of up to 15%.

     (9)  In addition to the above purchase limitations, the Plan of Stock
Issuance sets forth certain additional limitations on purchases of shares of
Common Stock in the Offering, as follows: (i) the aggregate amount of Common
Stock acquired in the Offering by any non-tax-qualified employee stock benefit
plan or any insider of the Bank and his or her associates, exclusive of any
Common Stock acquired by said plan, or such insider and his or her associates,
in the secondary market, shall not exceed 10% of (a) the outstanding shares of
Common Stock, or (b) the stockholders' equity of the Company, held by persons
other than the MHC at the close of the Offering; and (ii) the aggregate amount
of Common Stock acquired in the Offering by all non-tax-qualified employee stock
benefit plans and insiders of the Bank and their associates shall not exceed
thirty percent (30%) of the (a) outstanding shares of Common Stock, or (b)
stockholders' equity of the Company, held by persons other than the Mutual
Company at the close of the Offering.

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<PAGE>
 
     For purposes of the foregoing limitations (i) directors, officers and
employees shall not be deemed to be associates or a group acting in concert
solely as a result of their capacities as such and (ii) shares purchased by the
ESOP shall not be attributable to the individual officers or beneficiaries of
such plan for purposes of determining compliance with the foregoing limitations.

     For purposes of the foregoing limitations, the term "Person" means any
corporation, partnership, association, joint stock-company, trust (including
Individual Retirement Accounts and KEOGH Accounts), unincorporated organization,
government or political subdivision thereof, or any other entity. For purposes
of the foregoing limitations, the term "Associate" when used to indicate a
relationship with any person, means (i) any corporation or organization (other
than the Bank or a majority owned subsidiary of the Bank) of which such person
is an officer or partner or is, directly or indirectly, the beneficial owner of
10% or more of any class of equity securities, (ii) any trust or other estate in
which such person has a substantial beneficial interest or as to which such
person serves as trustee or in a similar fiduciary capacity except that the term
"Associate" does not include any Non-Tax-Qualified Employee Stock Benefit Plan
or any Tax-Qualified Employee Stock Benefit Plan in which a person has a
substantial beneficial interest or serves as a trustee or in a similar fiduciary
capacity, and except that, for purposes of aggregating total shares that may be
held by Officers and Directors the term "Associate" does not include any Tax-
Qualified Employee Stock Benefit Plan, and (iii) any relative or spouse of such
person, or any relative of such spouse, who has the same home as such person or
who is a Director or Officer of the Bank, Bancorp or the Mutual Company, or any
of its parents or subsidiaries. "Insider" means any officer or director of the
Bank, Bancorp, the Mutual Company or the Stock Bank or any affiliates of such
entities, and any person acting in concert with any such officer or director.

     Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the members of
the Bank, both the individual amount permitted to be subscribed for and the
overall maximum purchase limitation may be increased to up to a maximum of 5% at
the sole discretion of Bancorp and the Bank. If such amount is increased,
subscribers for the maximum amount will be, and certain other large subscribers
in the sole discretion of the Bank may be, given the opportunity to increase
their subscriptions up to the then applicable limit. In addition, the Boards of
Directors of Bancorp and the Bank may, in their sole discretion, increase the
maximum purchase limitation referred to above up to 9.99%, provided that orders
for shares exceeding 5% of the shares being offered in the Subscription and
Community Offerings shall not exceed, in the aggregate, 10% of the shares being
offering the Subscription and Community Offerings. Requests to purchase
additional shares of Common Stock under this provision will be determined by the
Boards of Directors and, if approved, allocated on a pro rata basis giving
priority in accordance with the priority rights set forth herein.

     The overall maximum purchase limitation may not be reduced to less than 1%
but the individual amount permitted to be subscribed for may be reduced by the
Bank to less than $350,000, subject to paragraphs (4), (12) and (13) above
without the further approval of members or resolicitation of subscribers. An
individual Eligible Account Holder, Supplemental Eligible Account Holder or
Other Member may not purchase individually in the Subscription Offering the
overall maximum purchase limit of 1% of the shares offering, but may make such
purchase, together with associates of and persons acting in concert with such
person, by also purchasing in other available categories of the Offering,
subject to availability of shares and the overall maximum purchase limit for
purchases in the Offering.

     In the event of an increase in the total number of shares offered due to an
increase in the Offering Range of up to 15% (the "Adjusted Maximum"), the
additional shares will be allocated in the following order of priority in
accordance with the Plan: (i) to fill the ESOP's subscription of 8% of the
Adjusted Maximum 

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number of shares including shares issued to the Foundation; (ii) in the event
that there is an oversubscription by Eligible Account Holders, to fill
unfulfilled subscriptions of Eligible Account Holders exclusive of the Adjusted
Maximum; (iii) in the event that there is an oversubscription by Supplemental
Eligible Account Holders, to fill unfulfilled subscriptions of Supplemental
Eligible Account Holders, exclusive of the Adjusted Maximum; (iv) in the event
that there is an oversubscription by Other Members, to fill unfulfilled
subscriptions of Other Members exclusive of the Adjusted Maximum; and (v) to
fill unfulfilled subscriptions in the Community Offering to the extent possible
exclusive of the Adjusted Maximum with preference given to natural persons
residing in Bergen, Essex and Morris Counties, New Jersey.

CERTAIN RESTRICTIONS ON PURCHASE OR TRANSFER OF THE COMMON STOCK

     All shares of Common Stock purchased in the Offering by a director or an
executive officer of the Bank will be subject to a restriction that the shares
not be sold for a period of one year following the Reorganization, except in the
event of the death of such director or executive officer. Each certificate for
restricted shares will bear a legend giving notice of this restriction on
transfer, and instructions will be issued to the effect that any transfer within
such time period of any certificate or record ownership of such shares other
than as provided above is a violation of the restriction. Any shares of Common
Stock issued at a later date as a stock dividend, stock split, or otherwise,
with respect to such restricted stock will be subject to the same restrictions.
The directors and executive officers of the Bank will also be subject to the
insider trading rules promulgated pursuant to the Exchange Act and any other
applicable requirements of the federal securities laws.

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

     Unless approved by the OTS, Bancorp, pursuant to OTS regulations, will be
prohibited from repurchasing any shares of the Common Stock for three years
except: (i) for an offer to all stockholders of Bancorp on a pro rata basis
(except that the Mutual Company may be excluded from the repurchase with the
OTS' approval); (ii) for the repurchase of qualifying shares of a director; or
(iii) for the purchase in the open market by a tax-qualified or non-tax-
qualified employee stock benefit plan of the Bank (but not of Bancorp) in an
amount reasonable and appropriate to fund such plan.

INTERPRETATION AND AMENDMENT OF THE PLAN

     To the extent permitted by law, all interpretations of the Plan by the Bank
will be final. The Plan provides that the Bank's Board of Directors shall have
the discretion to interpret and apply the provisions of the Plan to particular
circumstances and that such interpretation or application shall be final. This
includes any and all interpretations, applications and determinations made by
the Board of Directors on the basis of such information and assistance as was
then reasonably available for such purpose.

     The Plan provides that, if deemed necessary or desirable by the Board of
Directors, the Plan may be substantively amended at any time prior to
solicitation of proxies from members to vote on the Plan by a two-thirds vote of
the Bank's Board of Directors. After submission of the proxy materials to the
members,

                                      138
<PAGE>
 
the Plan may be amended by a two-thirds vote of the Board of Directors at any
time prior to the Special Meeting with the concurrence of the OTS. The Plan may
be amended at any time after the approval of members with the approval of the
OTS and no further approval of the members will be necessary unless otherwise
required by the OTS. By adoption of the Plan, the Bank's members will be deemed
to have authorized amendment of the Plan under the circumstances described
above.

     The establishment of the Foundation will be considered as a separate matter
from approval of the Plan. If the Bank's members approve the Plan, but not the
creation of the Foundation, the Bank intends to complete the Reorganization
without the Foundation. Failure to approve the establishment of the Foundation
may materially increase the pro forma market value of the Common Stock since the
[VALUATION RANGE], as set forth herein, takes into account the dilutive impact
of the issuance of shares to the Foundation. In such an event, the Bank may
establish a new Offering Range and commence a resolicitation of subscribers. In
the event of a resolicitation, unless an affirmative response is received within
a specified period of time, all funds will be promptly returned to investors, as
described elsewhere herein. See "--Stock Pricing and Number of Shares Issued."

                CERTAIN RESTRICTIONS ON ACQUISITION OF BANCORP

     The following discussion is a general summary of OTS and other regulatory
restrictions on the acquisition of the Common Stock. In addition, the following
discussion generally summarizes certain provisions of Bancorp's Charter and
Bylaws.

MUTUAL HOLDING COMPANY STRUCTURE

     The mutual holding company structure could restrict the ability of
stockholders of Bancorp to effect a change in management of Bancorp and the Bank
and a change in control of Bancorp and the Bank because the Mutual Company, as
long as it remains in the mutual form of organization, will control a majority
of the voting stock of Bancorp. In addition, the Mutual Company is controlled by
the members of the Mutual Company (i.e., depositors of the Bank), and such
members may grant proxies in favor of the Bank's management. Thus, management of
the Mutual Company will be able to exert voting control over Bancorp. See "Risk
Factors --Considerations Resulting from Mutual Holding Company Structure."

CHANGE IN BANK CONTROL ACT

     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 association unless the OTS has been given 60 days' prior
written notice. The HOLA provides that no company may acquire "control of a
savings association 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 savings associations is conclusively deemed to have been
acquired by, among other things, the acquisition of more than 25% of any class
of voting stock of an association or the ability to control the election of a
majority of the directors of more than 10% of any class of voting stock, or of
more than 25% of any class of stock, of a savings association, 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 

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to the acquisition of Bancorp'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 Bank.

CHARTER AND BYLAWS AMENDMENT

     The Charter of Bancorp provides that it may be amended only if such
amendment is first proposed by the Board of Directors of Bancorp, approved by
the stockholders by a majority of the votes eligible to be cast at a legal
meeting of stockholders and submitted to the OTS for action as specified by law
or regulation. The Bylaws of Bancorp may be amended in a manner consistent with
the regulations of the OTS, and at any time by a majority of the Board of
Directors or by a majority of the votes cast at any legal meeting.

BOARD OF DIRECTORS

     Bancorp's Bylaws provide 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 serve for terms of three years. Each director serves
until his or her successor is elected and qualified. The Bylaws also provide
that a director may only be removed for cause by the affirmative vote of at
least a majority of the voting power of all the then outstanding shares of
capital stock of Bancorp entitled to vote in an election of directors.

LIMITATIONS ON VOTING RIGHTS

     Bancorp's Charter provides that no person, other than the Mutual Company,
may directly or indirectly offer to acquire or acquire the beneficial ownership
of more than 10% of the Common Stock, unless such offer is approved by a
majority of the Board of Directors. In addition, for a period of five years,
each share beneficially owned in violation of the foregoing limitation shall not
be 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

     Bancorp's Bylaws provide that special meetings of stockholders may be
called only by the Board of Directors.

CUMULATIVE VOTING

     Bancorp's Bylaws prohibit cumulative voting for any purpose. The absence of
cumulative voting rights effectively means that the holder of a majority of the
Common Stock to be voted at a meeting of stockholders (in this case, the Mutual
Company), may, if they so choose, elect all directors, thus precluding the
Minority Stockholders from obtaining representation on the Board of Directors
unless the Minority Stockholders are able to obtain the support of the Mutual
Company, the majority stockholder. In accordance with OTS regulations, the
Mutual Company must remain the majority stockholder of the voting stock of
Bancorp.

                                      140
<PAGE>
 
PREFERRED STOCK

     Although Bancorp has no arrangements, understandings or plans at the
present time for the issuance or use of the shares of undesignated preferred
stock proposed to be authorized, the Board of Directors believes that the
availability of such shares will provide Bancorp with increased flexibility in
structuring future financings and acquisitions and in meeting other corporate
needs which may arise. In the event of a proposed merger, tender offer or other
attempt to gain control of Bancorp of which management does not approve, it may
be possible for the Board of Directors of Bancorp to authorize the issuance of
one or more series of preferred stock with rights and preferences which could
impede the completion of such a transaction.

                    DESCRIPTION OF CAPITAL STOCK OF BANCORP

GENERAL

     Bancorp is authorized to issue capital stock consisting of nine million
(9,000,000) shares of Common Stock, par value $.01 per share, and one million
(1,000,000) shares of Preferred Stock, which may be issued in series and classes
having such rights, preferences, privileges and restrictions as Bancorp's Board
of Directors may determine. Each share of Common Stock of Bancorp will have the
same relative rights as, and will be identical in all respects with, each other
share of Common Stock. Subject to the approval of the OTS, which has been
received, the Board of Directors of Bancorp is authorized to approve the
issuance of Common Stock up to the amount authorized by the Charter without the
approval of Bancorp's stockholders. Under OTS regulations, a majority of the
issued and outstanding voting stock of Bancorp must be held at all times by the
Mutual Company. THE COMMON STOCK OF BANCORP REPRESENTS NONWITHDRAWABLE CAPITAL,
IS NOT AN ACCOUNT OF AN INSURABLE TYPE, AND IS NOT INSURED BY THE FDIC OR ANY
OTHER GOVERNMENT AGENCY. Upon payment of the Purchase Price for the Common
Stock, all such shares will be fully-paid, duly issued and nonassessable.

COMMON STOCK

     VOTING RIGHTS.  The holders of the Common Stock possess exclusive voting
rights in Bancorp, except to the extent that shares of preferred stock issued in
the future may have voting rights. Each holder of the Common Stock is entitled
to one vote for each share held, except that the Charter eliminates voting
rights with respect to those shares that are beneficially owned by any person,
other than the Mutual Company, in excess of 10% of the Common Stock then
outstanding. Stockholders will not be permitted to cumulate their votes in the
election of directors.

     DIVIDENDS.  Upon consummation of the Reorganization, Bancorp's only will be
the portion of the net proceeds retained by it, the ESOP loan and the Bank's
capital stock. The payment of dividends by Bancorp is subject to limitations
that are imposed by applicable law and regulation. Bancorp's source for the
payment of cash dividends may in the future depend on receipt of dividends from
the Bank. See "Dividend Policy." The holders of the Common Stock are entitled to
receive and to share equally in such dividends as may be declared by the Board
of Directors out of funds legally available therefor. See "Risk Factors --
Considerations Resulting from Mutual Holding Company Structure," "Dividend
Policy" and "Federal and State Taxation -- Federal Taxation."

     LIQUIDATION.  In the unlikely event of any liquidation, dissolution, or
winding up of Bancorp, the holders of its Common Stock (and the holders of any
class or series of stock entitled to participate with the

                                      141
<PAGE>
 
Common Stock in the distribution of assets) will be entitled to receive all
assets of Bancorp available for distribution in cash or in kind after payment of
all debts and liabilities of Bancorp (including all deposit accounts and accrued
interest thereon in the Bank and distribution of the Bank's liquidation account)
and any accrued dividend claims. If Bancorp issues preferred stock subsequent to
the Offering, the holders thereof may also have priority over the holders of
Bancorp's Common Stock in the event of liquidation or dissolution.

     PREEMPTIVE RIGHTS; REDEMPTION.  Holders of the Common Stock will not
be entitled to preemptive rights with respect to any shares which may be issued.
The Common Stock is not subject to call for redemption. If the Bank determined
to issue authorized but unissued shares in the future to persons other than, or
in addition to the existing shareholders, the interests of existing stockholders
would be diluted to the extent of the additional issuance.

PREFERRED STOCK

    None of the one million (1,000,000) authorized shares of preferred stock of
Bancorp will be issued in the Offering. The Board of Directors is authorized,
without stockholder approval, to issue preferred stock and to fix and state
voting powers, designations, preferences or other special rights of such shares.
If and when issued, the preferred stock may rank senior to the Common Stock as
to dividend rights, liquidation preferences, or both, and may have full, limited
or no voting rights. Accordingly, the issuance of preferred stock could
adversely affect the voting and other rights of holders of Common Stock.

     The authorized but unissued shares of Preferred Stock and the authorized
but unissued and unreserved shares of Common Stock will be available for
issuance in future mergers or acquisitions, in a future underwritten public
offering or private placement or for other general corporate purposes. Except as
otherwise required to approve the transaction in which the additional authorized
shares of Preferred Stock would be issued, no stockholder approval generally
would be required for the issuance of these shares. Depending on the
circumstances, however, stockholder approval may be required pursuant to
requirements for continued trading of the Common Stock on the Nasdaq or the
requirements of any exchange on which the Common Stock may then be listed.

                         TRANSFER AGENT AND REGISTRAR

     The transfer agent and registrar for the Common Stock is__________________,
________________, __________________.

                                    EXPERTS

     The consolidated financial statements of the Bank as of December 31, 1997
and 1996 and for each of the years in the three-year period ended December 31,
1997, have been included in this Prospectus, in reliance upon the report of
Radics & Co., LLC, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.

     FinPro has consented to the publication herein of the summary of its report
to the Bank 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.



                                      142
<PAGE>

                            LEGAL AND TAX OPINIONS

 
     The legality of the Common Stock and the federal income tax consequences of
the Reorganization will be passed upon for the Bank by Muldoon, Murphy &
Faucette, Washington, D.C., special counsel to the Bank. New Jersey state tax
consequences of the Reorganization and the Offering will be passed upon for the
Bank by Fontanella and Babitts. Certain legal matters will be passed upon for
Sandler O'Neill by Luse Lehman Gorman Pomerenk.

                            ADDITIONAL INFORMATION

     Bancorp has filed with the SEC a registration statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information, including
the Independent Valuation, which is an exhibit to the Registration Statement,
can be examined without charge at the public reference facilities of the SEC
located at 450 Fifth Street, NW, Washington, DC 20549, and copies of such
material can be obtained from the SEC at prescribed rates. In addition, the SEC
maintains a web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC, including Bancorp. The Independent Valuation may
also be inspected by Eligible Account Holders and Supplemental Eligible Account
Holders at the offices of the Bank during normal business hours. The statements
contained in this Prospectus as to the contents of any contract or other
document filed as an exhibit to the registration statement are, of necessity,
brief descriptions thereof and are not necessarily complete; each such statement
is qualified by reference to such contract or document.

     The Bank has filed with the OTS a Notice of Mutual Holding Company
Reorganization on Form MHC-1 (the "Notice") and an Application for Approval of a
Minority Stock Issuance on Form MHC-2 (the "Application"). Pursuant to the rules
and regulations of the OTS, this Prospectus omits certain information contained
in the Notice and Application. The Notice and Application, including the
Independent Valuation, which is an exhibit to the Application, may be examined
at the principal office of the OTS, 1700 G Street, NW, Washington, DC 20552 and
the office of the Northeast Regional Director of the OTS located at 10 Exchange
Place, Jersey City, New Jersey 07302.

     In connection with the Offering, Bancorp will register its Common Stock
with the SEC under Section 12(g) of the Exchange Act, and upon such
registration, Bancorp and the holders of its stock will become subject to the
proxy solicitation rules, reporting requirements and restrictions on stock
purchases and sales by Directors, officers and greater than 10% stockholders,
the annual and periodic reporting and certain other requirements of the Exchange
Act. Under the Plan, Bancorp has undertaken that it will not terminate such
registration for a period of at least three years following the Reorganization.

     A copy of the Certificate of Incorporation and the Bylaws of Bancorp and
the Charter and Bylaws of the Bank are available without charge from the Bank.
The Bank's principal office is located at 417 Bloomfield Avenue, Caldwell, New
Jersey and its telephone number is (973) 226-7911.

                                      143
<PAGE>
 
                        WEST ESSEX BANK AND SUBSIDIARY
                       CONSOLIDATED FINANCIAL STATEMENTS
                  (WITH INDEPENDENT AUDITORS' REPORT THEREON)
                               December 31, 1997


                                     INDEX
                                     -----
<TABLE>
<CAPTION>
                                                                                        Page
                                                                                  ---------------
<S>                                                                               <C>
Management Responsibility Statement                                                      F-2
                                                                                          
Independent Auditors' Report                                                             F-3
                                                                                          
Consolidated Statements of Financial Condition                                            
  as of March 31, 1998 (unaudited) and December 31, 1997 and 1996                        F-4
                                                                                          
Consolidated Statements of Income for the Three-Month Periods Ended                       
  March 31, 1998 and 1997 (unaudited) and for Each of the Years                           
  in the Three-Year Period Ended December 31, 1997                                        41
                                                                                          
Consolidated Statements of Comprehensive Income for the Three-Month                       
  Periods Ended March 31, 1998 and 1997 (unaudited) and for Each of                       
  the Years in the Three-Year Period Ended December 31, 1997                             F-5
                                                                                          
Consolidated Statements of Retained Earnings for the Three-Month                          
  Period Ended March 31, 1998 (unaudited) and for Each of the Years                       
  in the Three-Year Period Ended December 31, 1997                                       F-6
 
Consolidated Statements of Cash Flows for the Three-Month Periods
  Ended March 31, 1998 and 1997 (unaudited) and for Each of the
  Years in the Three-Year Period Ended December 31, 1997                             F-7 to F-8
 
Notes to Consolidated Financial Statements                                           F-9 to F-34
</TABLE>

<PAGE>
 
                 [LETTERHEAD OF WEST ESSEX BANK APPEARS HERE]

                      MANAGEMENT RESPONSIBILITY STATEMENT
                      -----------------------------------

Management of West Essex Bank, F.S.B and Subsidiary is responsible for the 
preparation of the consolidated financial statements and all other consolidated 
financial information included in this report. The consolidated financial 
statements were prepared in accordance with generally accepted accounting 
principles applied on a consistent basis. All consolidated financial information
included in this report agrees with the consolidated financial statements. In 
preparing the consolidated financial statements, management makes informed 
estimates and judgments, with consideration given to materiality, about the 
expected results of various events and transactions.

Management maintains a system of internal accounting control that includes 
personnel selection, appropriate division of responsibilities and formal 
procedures and policies consistent with high standards of accounting and 
administrative practice. Consideration has been given to the necessary balance 
between costs of systems of internal control and the benefits derived.

Management reviews and modifies its systems of accounting and internal control 
in light of changes in conditions and operations as well as in response to 
recommendations from the independent certified public accounts. Management 
believes the accounting and internal control systems provide reasonable 
assurance that assets are safeguarded and financial information is reliable.

The Board of Directors (the "Board") is responsible for determining that 
management fulfills its responsibilities in the preparation of the consolidated 
financial statements and in the control of operations. The Board appoints the 
independent certified public accountants. The Board meets with management, the 
independent certified public accountants and the internal auditor, approves the 
overall scope of audit work and related fee arrangements and review audit 
reports and findings.


/s/ Dennis A. Petrello                       /s/ Leopold W. Montanaro 
------------------------------               ------------------------------
    Dennis A. Petrello                           Leopold W. Montanaro 
    Executive Vice President                     President & CEO

     
                         /s/ Charles E. Filippo
                         -------------------------------
                             Charles E. Filippo
                             Executive Vice President


                                      F-2
<PAGE>
 

                 [LETTERHEAD OF RADICS & CO., LLC APPEARS HERE]

                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------
                                        


To The Board of Directors
West Essex Bank



We have audited the accompanying consolidated statements of financial condition
of West Essex Bank (the "Bank") and Subsidiary as of December 31, 1997 and 1996,
and the related consolidated statements of income, comprehensive income,
retained earnings and cash flows for each of the years in the three-year period
ended December 31, 1997.  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 consolidated financial statements are
free of material misstatement.  An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements.  An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation.  We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to in the second
preceding paragraph present fairly, in all material respects, the consolidated
financial position of West Essex Bank and Subsidiary as of December 31, 1997 and
1996, and the results of their operations and cash flows for each of the years
in the three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.


/s/ Radics & Co., LLC

Pine Brook, New Jersey
March 6, 1998, except for the tenth paragraph
 of Note 15, as to which the date is April 8, 1998


                                      F-3

<PAGE>
 
                         WEST ESSEX BANK AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                 ----------------------------------------------

<TABLE> 
<CAPTION> 
                                                                                      March 31,               December 31,       
                                                                                                     ----------------------------
ASSETS                                                            Note(s)                1998              1997         1996     
------                                                       -----------------     --------------    -------------  -------------
                                                                                     (unaudited)                                 
<S>                                                          <C>                   <C>               <C>            <C>          
Cash and amounts due from depository institutions                                  $   1,839,621     $  1,832,548   $    925,769 
Interest-bearing deposits in other banks                                              15,489,434        6,863,570      6,828,493 
                                                                                   --------------    -------------  -------------
                                                                                                                                 
     Total cash and cash equivalents                              1 and 17            17,329,055        8,696,118      7,754,262 
                                                                                                                                 
Term deposits                                                                          5,000,000           -             -       
Securities available for sale                                   1, 2 and 17            7,105,300        7,080,550      1,647,454 
Investment securities held to maturity                          1, 3 and 17           28,768,169       22,928,866     22,476,466 
Mortgage-backed securities held to maturity                   1, 4, 11 and 17        122,632,889      130,174,291    113,254,086 
Loans receivable                                                1, 5 and 17          114,302,459      112,734,741     82,134,147 
Real estate owned                                                 1 and 6              1,120,197        1,214,840      1,394,068 
Premises and equipment                                            1 and 7              3,112,703        3,122,584      1,640,355 
Federal Home Loan Bank of New York stock                            11                 2,281,500        2,183,800      1,670,400 
Accrued interest receivable                                     1, 8 and 17            2,071,895        2,012,197      1,651,427 
Excess of cost over assets acquired                               1 and 9              5,680,692        5,828,884        -       
Other assets                                                        14                 3,116,933        3,047,961      2,346,712 
                                                                                   --------------    -------------  -------------
                                                                                                                                 
       Total assets                                                                $ 312,521,792     $299,024,832   $235,969,377 
                                                                                   ==============    =============  =============
                                                                                                                                 
Liabilities and retained earnings                                                                                                
---------------------------------                                                                                                
                                                                                                                                 
Liabilities                                                                                                                      
-----------                                                                                                                      
                                                                                                                                 
Deposits                                                         10 and 17         $ 239,120,486     $238,192,141   $179,945,503 
Borrowed money                                                   11 and 17            42,300,000       30,300,000     23,650,000 
Advance payments by borrowers for taxes and insurance                                    795,177          772,429        622,190 
Other liabilities                                                13 and 14               505,033          485,553      3,299,447 
                                                                                   --------------    -------------  -------------
                                                                                                                                 
                                                                                     282,720,696      269,750,123    207,517,140 
                                                                                   ==============    =============  =============
                                                                                                                                 
Commitments and contingencies                                    15 and 17              -                -              -        
                                                                                                                                 
Retained earnings                                                12 and 14                                                       
-----------------                                                                                                                
                                                                                                                                 
Retained earnings - substantially restricted                                          29,721,316       29,210,175     28,473,335 
Accumulated other comprehensive income - Unrealized                                                                              
   gain (loss) on securities available for sale, net                                      79,780           64,534        (21,098)
                                                                                   --------------    -------------  -------------
     Total retained earnings                                                          28,801,096       29,274,709     28,452,237 
                                                                                   --------------    -------------  -------------
                                                                                                                                 
     Total liabilities and retained earnings                                       $ 312,512,792     $299,024,832   $235,969,377 
                                                                                   ==============    =============  =============
</TABLE> 

See notes to consolidated financial statements.

                                      F-4
<PAGE>
 
                        WEST ESSEX BANK AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                -----------------------------------------------

<TABLE> 
<CAPTION> 
                                                  Three Months Ended March 31,                Year Ended December 31,
                                                  ----------------------------       -----------------------------------------
                                                     1998              1997              1997           1996          1995
                                                  ----------        ----------       -----------    -----------    -----------
                                                           (unaudited)
<S>                                               <C>               <C>              <C>            <C>            <C> 
Net Income                                        $  511,141        $  523,056       $   736,840    $ 1,656,008    $ 2,271,955
                                                  ----------        ----------       -----------    -----------    -----------

Other comprehensive
     income, net of income taxes:
       Unrealized holding gains (losses)
         on securities available for sale             15,246            (5,424)           65,387         20,679         84,946

       Reclassification adjustment 
         for realized gains (losses) on 
         securities available for sale                 -                 -                20,245        (80,813)        22,014
                                                  ----------        ----------       -----------    -----------    -----------
Other comprehensive income                            15,246            (5,424)           85,632        (60,134)       106,960
                                                  ----------        ----------       -----------    -----------    -----------
Comprehensive income                              $  526,387        $  517,632       $   822,472    $ 1,595,874    $ 2,378,915
                                                  ==========        ==========       ===========    ===========    ===========
</TABLE> 

See notes to consolidated financial statements.

                                      F-5

<PAGE>
 
                         WEST ESSEX BANK AND SUBSIDIARY
                  CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
                  --------------------------------------------
                                        
<TABLE> 
<CAPTION> 
                                                                 Retained       Accumulated                    
                                                                 Earnings -        Other                       
                                                               Substantially    Comprehensive                  
                                                                 Restricted        Income            Total        
                                                               -------------    -------------    -------------   
<S>                                                            <C>              <C>              <C> 
Balance - December 31, 1994                                    $ 24,545,372     $   (67,924)     $  24,477,448  
                                                                                                                
Unrealized gain on securities available                                                                         
for sale, net of income tax effect                                        -         106,960            106,960  
                                                                                                               
Net income for the year ended December 31, 1995                   2,271,955               -          2,271,955  
                                                               ------------     -----------      ------------- 

Balance - December 31, 1995                                      26,817,327          39,036         26,856,363

Unrealized loss on securities available
for sale, net of income tax effect                                                  (60,134)           (60,134)      

Net income for the year ended December 31, 1996                   1,656,008               -          1,656,008
                                                               ------------     -----------      -------------   

Balance - December 31, 1996                                      28,473,335         (21,098)        28,452,237    

Unrealized gain on securities available                                 
 for sale, net of income tax effect                                       -          85,632             85,632     

Net income for the year ended December 31, 1997                     736,840               -            736,840 
                                                               ------------     -----------      -------------     

Balance - December 31, 1997                                      29,210,175          64,534         29,274,709   

Unrealized gain on securities available for
 sale, net of income tax effect (unaudited)                               -          15,246             15,246            

Net income for the three months ended
 March 31, 1998 (unaudited)                                         511,141               -            511,141
                                                               ------------     -----------      -------------      

Balance - March 31, 1998 (unaudited)                           $ 29,721,316     $    79,780      $  29,801,096
                                                               ============     ===========      =============      
</TABLE> 

See notes to consolidated financial statements.

                                      F-6
<PAGE>
 
                        WEST ESSEX BANK AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                     -------------------------------------

<TABLE> 
<CAPTION> 
                                                                                             Three Months Ended March 31,   
                                                                                            ------------------------------  
                                                                                                1998              1997      
                                                                                            ------------      ------------  
                                                                                                      (unaudited)           
<S>                                                                                         <C>               <C>           
Cash flows from operating activities:                                                                                       
  Net income                                                                                $    511,141      $    523,056  
  Adjustments to reconcile net income                                                                                       
  to net cash provided by operating activities:                                                                             
     Depreciation and amortization of premises and equipment                                      74,659            51,918  
     Net accretion of premiums, discounts and deferred loan fees                                 (79,971)          (21,631) 
     Amortization of intangibles                                                                 148,192             -      
     Provision for loan losses                                                                   (22,050)           55,000  
     Provision for losses on real estate owned                                                    22,050           170,000  
     Loss (gain) on sale of securities available for sale                                          -                 -      
     (Gain) on sale of real estate owned                                                          (5,386)          (19,714) 
     Deferred income tax expense (benefit)                                                        49,670             -      
     (Increase) decrease in accrued interest receivable                                          (59,698)         (264,235) 
     Decrease (increase) in refundable income taxes                                               34,070           146,502  
     (Increase) decrease in other assets                                                        (161,281)          (99,299) 
     (Decrease) increase in interest payable on deposits                                            (934)          (16,625) 
     Increase (decrease) in other liabilities                                                     19,480           172,429  
                                                                                            ------------      ------------  
                                                                                                                            
       Net cash provided by (used in) operating activities                                       529,942           697,401  
                                                                                            ------------      ------------  
                                                                                                                            
Cash flows from investing activities:                                                                                       
  Purchase of term deposits                                                                   (5,000,000)            -      
  Proceeds from maturities of securities available for sale                                       -                  -      
  Proceeds from sale of securities available for sale                                             -                  -      
  Proceeds from repayments on and calls of securities available for sale                          -                115,272  
  Purchases of securities available for sale                                                      -             (2,023,131) 
  Proceeds from maturities and calls of investment securities held to maturity                    -              2,000,000  
  Purchases of investment securities held to maturity                                         (5,789,660)       (2,997,060) 
  Principal repayments on mortgage-backed securities held to maturity                          7,534,184         5,774,110  
  Purchases of mortgage-backed securities held to maturity                                        -             (5,243,670) 
  Purchase of loans receivable                                                                   (61,000)            -      
  Net (increase) decrease in loans receivable                                                 (1,448,057)         (863,486) 
  Proceeds from sales of real estate owned                                                        73,979           293,800  
  Proceeds from other payments received on real estate owned                                       4,000            12,402  
  Capitalized cost of real estate owned                                                           -                  -      
  Additions to premises and equipment                                                            (64,778)          (29,618)  
  Purchase of Federal Home Loan Bank of New York stock                                           (97,700)         (150,500) 
                                                                                            ------------      ------------  
                                                                                                                            
        Net cash (used in) investing activities                                               (4,849,032)       (3,111,881) 
                                                                                            ------------      ------------  
                                                                                                                            
Cash flows from financing activities:                                                                                       
  Net increase in deposits                                                                       929,279         1,489,462  
  Proceeds of borrowed money                                                                  30,000,000         4,000,000  
  Repayment of borrowed money                                                                (18,000,000)       (6,000,000) 
  Net increase (decrease) in                                                                                                
  advance payments by borrowers for taxes and insurance                                           22,748           (18,144) 
  Cash received in connection with branch purchases                                               -                  -      
                                                                                            ------------      ------------  
                                                                                                                            
        Net cash provided by (used in) financing activities                                   12,952,027          (528,682)  
                                                                                            ------------      ------------  
                                                                                                                            
Net increase (decrease) in cash and cash equivalents                                           8,632,937        (2,943,162) 
Cash and cash equivalents - beginning                                                          8,696,118         7,754,262  
                                                                                            ------------      ------------  
                                                                                                                            
Cash and cash equivalents - ending                                                          $ 17,329,055      $  4,811,100  
                                                                                            ============      ============   

<PAGE>
<CAPTION> 
                                                                                                Year Ended December 31,  
                                                                                     --------------------------------------------
                                                                                          1997           1996            1995
                                                                                     ------------    ------------    ------------ 
<S>                                                                                  <C>
Cash flows from operating activities:
  Net income                                                                         $    736,840    $  1,656,008    $  2,271,955
  Adjustments to reconcile net income
  to net cash provided by operating activities:
     Depreciation and amortization of premises and equipment                              230,524         207,456         149,290
     Net accretion of premiums, discounts and deferred loan fees                         (127,373)       (137,517)       (190,428)
     Amortization of intangibles                                                        1,743,062          -                -
     Provision for loan losses                                                            487,015         232,103         509,729
     Provision for losses on real estate owned                                            372,985          45,000          33,749
     Loss (gain) on sale of securities available for sale                                  20,245        (102,752)         22,014
     (Gain) on sale of real estate owned                                                  (30,080)       (117,201)        (69,580)
     Deferred income tax expense (benefit)                                               (725,335)        (36,609)        254,297
     (Increase) decrease in accrued interest receivable                                  (360,770)          1,946        (350,224)
     Decrease (increase) in refundable income taxes                                        90,624        (137,887)         60,824
     (Increase) decrease in other assets                                                 (101,782)        134,560        (298,754)
     (Decrease) increase in interest payable on deposits                                   90,056          24,530          16,320
     Increase (decrease) in other liabilities                                          (2,815,465)      3,009,284         (13,635)
                                                                                     ------------    ------------    ------------ 

       Net cash provided by (used in) operating activities                               (389,454)      4,778,921       2,395,557
                                                                                     ------------    ------------    ------------ 

Cash flows from investing activities:
  Purchase of term deposits                                                                -               -                -
  Proceeds from maturities of securities available for sale                                -              100,000           -
  Proceeds from sale of securities available for sale                                   1,588,229         202,752          27,980 
  Proceeds from repayments on and calls of securities available for sale                  115,272          91,875          94,395 
  Purchases of securities available for sale                                           (7,033,784)        (88,202)        (86,080) 
  Proceeds from maturities and calls of investment securities held to maturity         10,000,000       7,000,000       2,000,000  
  Purchases of investment securities held to maturity                                 (10,399,678)    (10,997,500)    (12,988,750) 
  Principal repayments on mortgage-backed securities held to maturity                  20,084,461      17,384,271      11,750,649  
  Purchases of mortgage-backed securities held to maturity                            (37,026,167)    (30,569,541)    (22,443,315) 
  Purchase of loans receivable                                                             -           (1,621,000)          -       
  Net (increase) decrease in loans receivable                                         (31,617,835)      4,010,899        (621,282) 
  Proceeds from sales of real estate owned                                                483,300         392,228         357,058  
  Proceeds from other payments received on real estate owned                               39,602          15,500          35,256  
  Capitalized cost of real estate owned                                                    (6,665)         -                -      
  Additions to premises and equipment                                                    (352,753)       (332,949)       (317,461) 
  Purchase of Federal Home Loan Bank of New York stock                                   (513,400)       (161,400)       (331,100) 
                                                                                     ------------    ------------    ------------ 

       Net cash (used in) investing activities                                        (54,639,418)    (14,573,067)    (22,522,650) 
                                                                                     ------------    ------------    ------------  

Cash flows from financing activities:
  Net increase in deposits                                                              7,148,632       1,528,768      14,194,772
  Proceeds of borrowed money                                                           44,975,000      15,000,000      19,000,000
  Repayment of borrowed money                                                         (38,325,000)     (8,350,000)    (12,000,000)
  Net increase (decrease) in                                                          
  advance payments by borrowers for taxes and insurance                                   150,239          (4,102)          8,232
  Cash received in connection with branch purchases                                    42,021,857          -                -
                                                                                     ------------    ------------    ------------  
       Net cash provided by (used in) financing activities                             55,970,728       8,174,666      21,203,004 
                                                                                     ------------    ------------    ------------  

Net increase (decrease) in cash and cash equivalents                                      941,856      (1,619,480)      1,075,911
Cash and cash equivalents - beginning                                                   7,754,262       9,373,742       8,297,831
                                                                                     ------------    ------------    ------------  

Cash and cash equivalents - ending                                                   $  8,696,118    $  7,754,262    $  9,373,742
                                                                                     ============    ============    ============
</TABLE> 

See notes to consolidated financial statements

                                      F-7

<PAGE>
 
                         WEST ESSEX BANK AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                     -------------------------------------
                                        
<TABLE> 
<CAPTION> 
                                                            Three Months Ended March 31,          Year Ended December 31,        
                                                            ----------------------------  -----------------------------------------
                                                                1998            1997          1997           1996           1995  
                                                            -----------    -------------  -----------    -----------    -----------
                                                                    (unaudited)                                                    
<S>                                                         <C>            <C>            <C>            <C>            <C>
Supplemental disclosure of cash flow information:                                                                                 
  Cash paid during the year for:                                                                                                  
    Income taxes                                            $   110,480    $    62,078    $ 1,035,078    $ 1,023,150    $   901,127
                                                            ===========    ===========    ===========    ===========    ===========
    Interest                                                $ 2,865,550    $ 2,141,515    $ 9,501,814    $ 8,171,056    $ 7,630,527
                                                            ===========    ===========    ===========    ===========    ===========
                                                            
Supplemental schedule of noncash investing activities:      
    Unrealized gain (loss) on securities                    
      available or sale, net of deferred income taxes       $    15,246    $    (5,424)   $    85,632    $   (60,134)   $   106,960
                                                            ===========    ===========    ===========    ===========    ===========
    Loans receivable transferred to (from) real 
      estate owned                                          $         -    $   157,253    $   679,914    $   377,285    $   (82,943)
                                                            ===========    ===========    ===========    ===========    ===========
    Loans originated to facilitate the sale of real     
      estate owned                                          $         -    $         -    $         -    $         -    $    72,500
                                                            ===========    ===========    ===========    ===========    ===========
    Deferred gain on sale of real estate owned              $         -    $         -    $         -    $         -    $   (92,451)
                                                            ===========    ===========    ===========    ===========    ===========

    Assets acquired in connection with branch purchases:     
      Loans receivable                                      $         -    $         -    $    54,693    $         -    $         -
      Premises and equipment                                          -              -      1,360,000              -              -
      Excess of cost over assets acquired                             -              -      7,571,946              -              -
      Other assets                                                    -              -            457              -              -
                                                            -----------    -----------    -----------    -----------    -----------
                                                            $         -    $         -    $ 8,987,096    $         -    $         -
                                                            ===========    ===========    ===========    ===========    ===========

    Liabilities acquired in connection with branch 
     purchases:
      Deposits                                              $         -    $         -    $51,007,382    $         -    $         -
      Other Liabilities                                               -              -          1,571              -              -
                                                            -----------    -----------    -----------    -----------    -----------
                                                            $         -    $         -    $51,008,953    $         -    $         -
                                                            ===========    ===========    ===========    ===========    ===========
</TABLE> 

See notes to consolidated financial statements.

                                      F-8
<PAGE>
 
                         WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                        

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------

     Basis of consolidated financial statement presentation
     ------------------------------------------------------

     The consolidated financial statements include the accounts of the Bank and
     its wholly owned subsidiary, West Essex Insurance Agency, Inc.
     ("Subsidiary"), and have been prepared in conformity with generally
     accepted accounting principles.  All significant intercompany accounts and
     transactions have been eliminated in consolidation.

     In preparing the consolidated financial statements, management is required
     to make estimates and assumptions that affect the reported amounts of
     assets and liabilities as of the dates of the consolidated statements of
     financial condition and revenues and expenses for the periods then ended.
     Actual results could differ significantly from those estimates.  Material
     estimates that are particularly susceptible to significant changes relate
     to the determination of the allowance for loan losses, the valuation of
     real estate owned and the recoverability of excess of cost over assets
     acquired.  Management believes that the allowance for loan losses is
     adequate and that real estate owned and excess of cost over assets acquired
     are appropriately valued.  While management uses available information to
     recognize losses on loans and real estate owned and to assess the
     recoverability of excess of cost over assets acquired, future additions to
     the allowance for loan losses or further writedowns of real estate owned
     and excess of cost over assets acquired may be necessary based on changes
     in economic and market conditions in the Bank's market area.

     In addition, various regulatory agencies, as an integral part of their
     examination process, periodically review the Bank's allowance for loan
     losses and real estate owned valuations.  Such agencies may require the
     Bank to recognize additions to the allowance or additional writedowns based
     on their judgments about information available to them at the time of their
     examination.

     Cash and cash equivalents
     -------------------------

     Cash and cash equivalents include cash and amounts due from depository
     institutions and interest-bearing deposits in other banks with original
     maturities of three months or less.

     Investments and mortgage-backed securities
     ------------------------------------------

     Debt securities that the Bank has the positive intent and ability to hold
     to maturity are classified as held-to-maturity securities and reported at
     amortized cost.  Debt and equity securities that are bought and held
     principally for the purpose of selling them in the near term are classified
     as trading securities and reported at fair value, with unrealized holding
     gains and losses included in earnings.  Debt and equity securities not
     classified as trading securities nor as held-to-maturity securities are
     classified as available for sale securities and reported at fair value,
     with unrealized holding gains or losses, net of deferred income taxes,
     reported in a separate component of retained earnings.

     Premiums and discounts on all securities are amortized/accreted using the
     interest method.  Interest and dividend income on securities, which
     includes amortization of premiums and accretion of discounts, is recognized
     in the consolidated financial statements when earned.  The adjusted cost
     basis of an identified security sold or called is used for determining
     security gains and losses recognized in the consolidated statements of
     income.

                                      F-9
<PAGE>
 
                         WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Cont'd.)
---------------------------------------------           

     Loans receivable
     ----------------

     Loans receivable are stated at unpaid principal balances less the allowance
     for loan losses and deferred loan fees.  Interest is calculated by the use
     of the actuarial method.

     The Bank defers loan origination fees and certain direct loan origination
     costs and amortizes such amounts, using a method which approximates the
     level-yield method, as an adjustment of yield over the contractual lives of
     the related loans.

     Uncollectible interest on loans that are contractually delinquent ninety
     days or more is charged off and the related loans placed on nonaccrual
     status, or, alternatively, an allowance for uncollectible interest is
     established by a charge to interest income equal to all interest previously
     accrued.  Under either method, income is subsequently recognized only to
     the extent that cash payments are received until, in management's judgment,
     the borrower's ability to make periodic interest and principal payments is
     probable, in which case the loan is returned to an accrual status.

     Allowance for loan losses
     -------------------------

     An allowance for loan losses is maintained at a level considered adequate
     to absorb loan losses.  Management of the Bank, in determining the
     allowance for loan losses, considers the risks inherent in its loan
     portfolio and changes in the nature and volume of its loan activities,
     along with the general economic and real estate market conditions.

     The Bank utilizes a two tier approach: (1) identification of impaired loans
     and the establishment of specific loss allowances on such loans; and (2)
     establishment of general valuation allowances on the remainder of its loan
     portfolio.  The Bank maintains a loan review system which allows for a
     periodic review of its loan portfolio and the early identification of
     potential impaired loans.  Such system takes into consideration, among
     other things, delinquency status, size of loans, type and estimated fair
     value of collateral and financial condition of the borrowers.  Specific
     loan loss allowances are established for identified loans based on a review
     of such information.  General loan loss allowances are based upon a
     combination of factors including, but not limited to, actual loan loss
     experience, composition of the loan portfolio, current economic conditions
     and management's judgment.  Although management believes that adequate loan
     loss allowances are established, actual losses are dependent upon future
     events and, as such, further additions to the level of the allowance for
     loan losses may be necessary.

                                     F-10
<PAGE>
 
                         WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Cont'd)
---------------------------------------------         

     Allowance for loan losses  (Cont'd)
     -------------------------          

     A loan evaluated for impairment is deemed to be impaired when based on
     current information and events, it is probable that the Bank will be unable
     to collect all amounts due according to the contractual terms of the loan
     agreement.  The amount of loan impairment is measured based on the present
     value of expected future cash flows discounted at the loan's effective
     interest rate or, as a practical expedient, at the loan's observable market
     price or the fair value of the collateral if the loan is collateral
     dependent.  All loans identified as impaired are evaluated independently.
     The Bank does not aggregate such loans for evaluation purposes.  Payments
     received on impaired loans are applied first to interest receivable and
     then to principal.

     Real estate owned
     -----------------

     Real estate owned consists of real estate acquired by foreclosure or deed
     in lieu of foreclosure.  Real estate owned is recorded at the lower of cost
     or fair value at date of acquisition and thereafter carried at the lower of
     such initially recorded amount or fair value less estimated selling costs.
     Costs incurred in developing or preparing properties for sale are
     capitalized.  Income and expense related to the holding and operating of
     properties are recorded in operations.  Gains and losses from sales of such
     properties are recognized as incurred.

     Concentration of risk
     ---------------------

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

     Premises and equipment
     ----------------------

     Premises and equipment are comprised of land, at cost, and buildings and
     improvements, leasehold improvements and furnishings and equipment, at cost
     less accumulated depreciation and amortization.  Depreciation and
     amortization charges are computed on the straight-line method over the
     following estimated useful lives.

        Buildings and improvements      10 to 50 years
        Leasehold improvements          Shorter of useful life
                                        or term of lease
        Furnishing and equipment        3 to 10 years

     Significant renewals and betterments are charged to the property and
     equipment account.  Maintenance and repairs are charged to expense in the
     year incurred.  Rental income is netted against occupancy costs in the
     consolidated statements of income.

                                     F-11 
<PAGE>
 
                         WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Cont'd)
---------------------------------------------         

     Excess of cost over assets acquired
     -----------------------------------

     The cost in excess of the fair value of net assets acquired was recorded on
     October 17, 1997 in conjunction with the acquisition of certain assets and
     assumption of certain liabilities of three branch offices of another
     financial institution.  This asset primarily consists of core deposit
     intangibles, which represent the intangible value of depositor
     relationships assumed in the transaction, and is being amortized to expense
     over a ten-year period  by use of the straight-line method.

     On a periodic basis, management reviews the excess of cost over assets
     acquired and evaluates events or changes in circumstances that may indicate
     impairment in the carrying amount of such asset.  In such instances,
     impairment, if any, is measured on a discounted estimated cash flow basis.

     Interest-rate risk
     ------------------

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

     Income taxes
     ------------

     The Bank and Subsidiary file a consolidated federal income tax return.
     Income taxes are allocated based on the contribution of income to the
     consolidated income tax return.  Separate state income tax returns are
     filed.

     Federal and state income taxes have been provided on the basis of reported
     income.  The amounts reflected on the income tax returns differ from these
     provisions due principally to temporary differences in the reporting of
     certain items for financial reporting and tax reporting purposes.  The
     income tax effect of these temporary differences is accounted for as
     deferred income taxes applicable to future periods.

     Reclassification
     ----------------

     Certain amounts as of and for the year ended December 31, 1996 and 1995
     have been reclassified to conform with the current year's presentation.

                                     F-12
<PAGE>
 
                          WEST ESSEX BANK SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  ------------------------------------------

2. SECURITIES AVAILABLE FOR SALE
--------------------------------
<TABLE> 
<CAPTION> 
                                                                           March 31, 1998
                                             -------------------------------------------------------------------------
                                                   Amortized              Gross Unrealized                Carrying
                                                                 ----------------------------------
                                                     Cost              Gains            Losses              Value
                                             -----------------   ----------------   ---------------   ---------------- 
                                                                              (unaudited)
<S>                                          <C>                 <C>                <C>               <C> 
United States Government obligations:
   Due after one year through five years         $ 6,980,682         $  124,628       $     -            $ 7,105,310
                                             =================   ================   ===============   ================ 
</TABLE> 
<TABLE> 
<CAPTION> 
                                                                         December 31, 1997
                                             -------------------------------------------------------------------------
                                                   Amortized              Gross Unrealized                Carrying    
                                                                 ----------------------------------                   
                                                     Cost              Gains            Losses              Value     
                                             -----------------   ----------------   ---------------   ---------------- 
<S>                                          <C>                 <C>                <C>               <C> 
United States Government obligations:
   Due after one year through five years         $ 6,979,747         $  100,803       $     -            $ 7,080,550
                                             =================   ================   ===============   ================ 
</TABLE> 
<TABLE> 
<CAPTION> 
                                                                         December 31, 1996
                                             -------------------------------------------------------------------------
                                                   Amortized              Gross Unrealized                Carrying    
                                                                 ----------------------------------                   
                                                     Cost              Gains            Losses              Value     
                                             -----------------   ----------------   ---------------   ---------------- 
<S>                                          <C>                 <C>                <C>               <C> 
Obligations of states and
political subdivisions:
   Due after ten years                           $   114,951         $    5,407        $     -           $   120,358

Equity securities:
   Mutual fund                                     1,553,601                -              26,505          1,527,096
                                             -----------------   ----------------   ---------------   ---------------- 

                                                 $ 1,668,552         $    5,407        $   26,505        $ 1,647,454
                                             =================   ================   ===============   ================ 
</TABLE> 

The following table presents details of sales of securities available for sale:

<TABLE> 
<CAPTION> 
                                           Three Months Ended March 31,              Year Ended December 31,
                                         --------------------------------   -----------------------------------------
                                               1998             1997             1997         1996          1995
                                         ---------------  ---------------   ------------  ------------  -------------
                                                    (unaudited)
<S>                                      <C>              <C>               <C>           <C>           <C> 
Sales proceeds                           $      -         $      -          $ 1,588,229   $   202,752   $    27,980
Gross gains                                     -                -                    -       102,752             -
Gross losses                                    -                -               20,245             -        22,014
</TABLE> 

                                     F-13
<PAGE>
 
                        WEST ESSEX BANK AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  ------------------------------------------
                                        

3.   INVESTMENT SECURITIES HELD TO MATURITY
-------------------------------------------

<TABLE> 
<CAPTION> 
                                                                           March 31, 1998                      
                                                        -----------------------------------------------------  
                                                          Carrying         Gross Unrealized       Estimated    
                                                                       -----------------------                 
                                                            Value         Gains       Losses      Fair Value   
                                                        ------------   ----------   ----------   ------------  
                                                                              (unaudited)                      
<S>                                                     <C>            <C>          <C>          <C>           
U.S. Government (including agencies):                                                                          
     Due in one year or less                            $  2,000,131   $   17,049   $    -       $  2,017,180  
     After one year through five years                     3,999,678       14,698        -          4,014,376  
     After five years through ten years                   17,000,000      115,779       34,375     17,081,404  
     After ten years                                       5,618,360      210,145        9,501      5,819,004  
                                                        ------------   ----------   ----------   ------------  
                                                                                                               
                                                          28,618,169      357,671       43,876     28,931,964  
                                                                                                               
Municipal obligation due within one year                     150,000       -             -            150,000  
                                                        ------------   ----------   ----------   ------------  

                                                        $ 28,768,169   $  357,671   $   43,876   $ 29,081,964  
                                                        ============   ==========   ==========   ============  
</TABLE> 

<TABLE> 
<CAPTION> 
                                                                          December 31, 1997                      
                                                        -----------------------------------------------------  
                                                          Carrying         Gross Unrealized       Estimated    
                                                                       -----------------------                 
                                                            Value         Gains       Losses      Fair Value   
                                                        ------------   ----------   ----------   ------------  
                                                                              (unaudited)                      
<S>                                                     <C>            <C>          <C>          <C>           
U.S. Government (including agencies):                                                                          
     Due in one year or less                            $  2,000,150   $   59,850   $    -       $  2,060,000  
     After one year through five years                     3,999,622       11,315        -          4,010,937  
     After five years through ten years                   12,000,000      116,247        -         12,116,247  
     After ten years                                       4,929,094      222,270        -          5,151,364  
                                                        ------------   ----------   ----------   ------------  

                                                        $ 22,928,866   $  409,682   $    -       $ 23,338,548  
                                                        ============   ==========   ==========   ============   
</TABLE> 

<TABLE> 
<CAPTION> 
                                                                          December 31, 1996
                                                        -----------------------------------------------------  
                                                          Carrying         Gross Unrealized       Estimated    
                                                                       -----------------------                 
                                                            Value         Gains       Losses      Fair Value   
                                                        ------------   ----------   ----------   ------------  
                                                                              (unaudited)                      
<S>                                                     <C>            <C>          <C>          <C>           
U.S. Government (including agencies):                                                                          
     Due after one year through five years              $  3,999,631   $   52,244        -       $  4,051,875  
     After five years through ten years                   11,000,000      120,201       21,388     11,098,813  
     After ten years                                       7,476,835      194,044       55,875      7,615,004  
                                                        ------------   ----------   ----------   ------------  

                                                        $ 22,476,466   $  366,489   $   77,263   $ 22,765,692  
                                                        ============   ==========   ==========   ============   
</TABLE> 

There were no sales of investment securities held to maturity during the three
months ended March 31, 1998 and 1997 (unaudited) or during the years ended
December 31, 1997, 1996 and 1995.

At March 31, 1998 and December 31, 1997 and 1996, investment securities held to
maturity with a carrying value of $491,000 (unaudited), $491,000 and $490,000,
respectively, were pledged to the United States Bankruptcy Trustee.

                                     F-14
<PAGE>
 
                        WEST ESSEX BANK AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  ------------------------------------------
                                        

4.   MORTGAGE-BACKED SECURITIES HELD TO MATURITY
------------------------------------------------

<TABLE> 
<CAPTION> 
                                                                              March 31, 1998
                                                        ---------------------------------------------------------  
                                                           Carrying          Gross Unrealized         Estimated    
                                                                        -------------------------                 
                                                             Value          Gains        Losses       Fair Value   
                                                        -------------   -----------   -----------   -------------  
                                                                               (unaudited)                      
<S>                                                     <C>             <C>           <C>           <C>           
Government National Mortgage Association                $  73,748,361   $ 1,195,007   $     -       $  74,943,368 
Federal Home Loan Mortgage Corporation                     25,388,707       368,255        36,099      25,720,863 
Federal National Mortgage Association                      23,488,732       242,828         4,103      23,727,457 
Other                                                           7,089        -              -               7,089
                                                        -------------   -----------   -----------   ------------- 

                                                        $ 122,632,889   $ 1,806,090   $    40,202   $ 124,398,777  
                                                        =============   ===========   ===========   =============    
</TABLE> 

<TABLE> 
<CAPTION> 
                                                                            December 31, 1997
                                                        --------------------------------------------------------- 
                                                           Carrying          Gross Unrealized         Estimated   
                                                                        -------------------------                 
                                                             Value          Gains        Losses       Fair Value  
                                                        -------------   -----------   -----------   ------------- 
<S>                                                     <C>             <C>           <C>           <C>           
Government National Mortgage Association                $  78,657,282   $ 1,158,307   $    40,774   $  79,774,815 
Federal Home Loan Mortgage Corporation                     26,551,191       275,562        77,959      26,748,794 
Federal National Mortgage Association                      24,958,646       191,719         -          25,150,365 
Other                                                           7,172        -              -               7,172  
                                                        -------------   -----------   -----------   -------------  
                                                                                                                 
                                                        $ 130,174,291   $ 1,625,588   $   118,733   $ 131,681,146  
                                                        =============   ===========   ===========   =============  
</TABLE> 

<TABLE> 
<CAPTION> 
                                                                           December 31, 1996                    
                                                        --------------------------------------------------------- 
                                                           Carrying          Gross Unrealized         Estimated   
                                                                        -------------------------                 
                                                             Value          Gains        Losses       Fair Value  
                                                        -------------   -----------   -----------   ------------- 
<S>                                                     <C>             <C>           <C>           <C>           
Government National Mortgage Association                $  65,995,553   $ 1,099,373   $     -       $  67,094,926 
Federal Home Loan Mortgage Corporation                     32,041,105       227,832       245,424      32,023,513 
Federal National Mortgage Association                      15,204,132        59,035        36,534      15,226,633 
Other                                                          13,296        -              -              13,296 
                                                        -------------   -----------   -----------   ------------- 
                                                                                                                 
                                                        $ 113,254,086   $ 1,386,240   $   281,958   $ 114,358,368 
                                                        =============   ===========   ===========   ============= 
</TABLE> 

There were no sales of mortgage-backed securities held to maturity during the 
three months ended March 31, 1998 and 1997 (unaudited) or during the years ended
December 31, 1997, 1996 and 1995.

See Note 11 to consolidated financial statements regarding mortgage-backed 
securities held to maturity pledged as collateral for borrowed money

                                     F-15
<PAGE>
 
5. LOANS RECEIVABLE
-------------------
<TABLE> 
<CAPTION> 
                                      March 31,             December 31,   
                                                    ---------------------------
                                         1998           1997           1996  
                                     -------------  -------------   -----------
                                      (unaudited)
<S>                                  <C>            <C>            <C> 
Real estate mortgage:
      Conventional                   $ 101,179,365  $  99,474,155  $ 74,201,698
      FHA insured                          201,593        257,285       301,161
      VA guaranteed                        441,023        457,155       581,547
                                     -------------  -------------  ------------ 
                                                                 
                                       101,821,981    100,188,595    75,084,406
                                     -------------  -------------  ------------
                                                                 
Agency for International Development        57,326         58,875        87,009
                                     -------------  -------------  ------------ 
                                                                 
Construction and land development        7,141,336      6,484,920     2,080,011
                                     -------------  -------------  ------------ 
                                                                 
Consumer:                                                        
      Passbook or certificate              496,695        550,169       427,122
      Equity                             8,294,785      8,491,437     6,579,475
      Second mortgage                       59,670         62,595        73,591
      Home improvement                           -              -         4,621
      Automobile                           274,127        259,097       163,110
      Credit reserve                        29,795         31,480             -
                                     -------------  -------------  ------------ 
                                                                 
                                         9,155,072      9,394,778     7,247,919
                                     -------------  -------------  ------------ 
                                                                 
      Total loans                      118,175,715    116,127,168    84,499,345
                                     -------------  -------------  ------------ 
                                                                 
Less: Loans in process                   2,009,066      1,437,016       440,400 
      Allowance for loan losses          1,862,971      1,885,021     1,563,991
      Deferred loan fees                     1,219         70,390       360,807
                                     -------------  -------------  ------------ 
                                                                 
                                         3,873,256      3,392,427     2,365,198
                                     -------------  -------------  ------------
                                                                 
                                     $ 114,302,459  $ 112,734,741  $ 82,134,147
                                     =============  =============  ============
</TABLE> 

The Bank has granted loans to officers and directors of the Bank and to their
associates.  Related party loans are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated persons and do not involve more than
normal risk of collectibility.  The aggregate dollar amount of these loans was
$1,193,000 (unaudited) at March 31, 1998 and $1,200,000 and $501,000 at December
31, 1997 and 1996, respectively.  During the three months ended March 31, 1998,
repayments totalled $7,000 (unaudited).  During the year ended December 31,
1997, new loans granted and repayments totalled $835,000 and $136,000,
respectively.

At March 31, 1998 and 1997 (unaudited) and December 31, 1997, 1996 and 1995,
loans serviced for the benefit of others totalled approximately $45,000
(unaudited), $68,000 (unaudited), $53,000, $72,000 and $92,000, respectively.

                                     F-16
<PAGE>
 
                        WEST ESSEX BANK AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  ------------------------------------------

5. LOANS RECEIVABLE (Cont'd.)
-------------------           

Nonperforming loans consist of nonaccrual and renegotiated loans.  Nonaccrual
loans are those on which income under the accrual method has been discontinued
with subsequent interest payments credited to interest income when received, or
if ultimate collectibility of principal is in doubt, applied as principal
reductions.  Renegotiated loans are loans whose contractual interest rates have
been reduced or where other significant concessions have been made due to a
borrower's financial difficulties.  Interest on these loans is either accrued or
credited directly to interest income.
 
Nonperforming loans were as follows (in thousands):

<TABLE> 
<CAPTION> 
                                      March 31,              December 31,
                                                     --------------------------
                                        1998            1997            1996
                                     -------------   ----------      ----------
                                      (unaudited)
<S>                                  <C>             <C>             <C>  
Nonaccrual                           $       2,214   $    2,413      $    2,869
Renegotiated                                    92           94              99
                                     -------------   ----------      ----------
                                     $       2,306   $    2,507      $    2,968
                                     =============   ==========      ==========
</TABLE> 
The impact of nonperforming loans on interest income is as follows (in
thousands):
<TABLE> 
<CAPTION>                 
                                                  Three Months Ended                           Year Ended                          
                                                       March 31,                              December 31,                         
                                             ----------------------------       ----------------------------------------------- 
                                                 1998            1997                1997             1996             1995      
                                             ------------    ------------       --------------    ------------     ------------ 
                                                     (unaudited)                                                                
<S>                                          <C>             <C>                <C>               <C>              <C>            
Interest income if performing in 
accordance with original terms               $         52    $         67       $         234     $        278     $        229
Interest income actually recorded                      12               5                  57               74               48
                                             ------------    ------------       -------------     ------------     ------------
Interest income lost                         $         40    $         62       $         177     $        204     $        181 
                                             ============    ============       =============     ============     ============
</TABLE> 
The following is an analysis of the allowance for loan losses:
<TABLE> 
<CAPTION> 
                                                    Three Months Ended                               Year Ended   
                                                         March 31,                                  December 31,  
                                               ----------------------------       ----------------------------------------------- 
                                                   1998            1997                1997             1996             1995     
                                               ------------    ------------       --------------    ------------     ------------ 
                                                       (unaudited)                                                                
<S>                                            <C>             <C>                <C>               <C>              <C>          
Balance - beginning                            $  1,885,021    $  1,563,991       $  1,563,991      $  1,199,888     $  1,236,032 
Provision (credited) charged to operations          (22,050)         55,000            487,015           232,103          509,729
Loans charged off to allowance                            -               -           (165,985)                -         (545,873)
Recovery of loan previously charged off                   -               -                  -           132,000                - 
                                               ------------    ------------       ------------      ------------     ------------
                                               $  1,862,971    $  1,618,991       $  1,885,021      $  1,563,991     $  1,199,888
                                               ============    ============       ============      ============     ============
</TABLE> 
                                     F-17
<PAGE>
 
                         WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

5. LOANS RECEIVABLE (Cont'd.)
-------------------           

Impaired loans and related amounts recorded in the allowance for loan losses are
summarized as follows (in thousands):

<TABLE> 
<CAPTION>                      
                                                      March 31,                    December 31,             
                                                                       ------------------------------------ 
                                                       1998                 1997                 1996       
                                                    -------------      ---------------      ---------------  
                                                     (unaudited)                                              
<S>                                                 <C>                <C>                  <C>            
Recorded investment in impaired loans:                                                                   
  With recorded allowances                          $       1,345      $         1,344      $         1,505 
  Without recorded allowances                                 304                  304                  304  
                                                    -------------      ---------------      --------------- 
     Total impaired loans                                   1,649                1,648                1,809 
  Related allowance for loan losses                           580                  580                  435  
                                                    -------------      ---------------      --------------- 
     Net impaired loans                             $       1,069      $         1,068      $         1,374 
                                                    =============      ===============      ===============
</TABLE> 
  
For the three months ended March 31, 1998 and 1997 and the years ended December
31, 1997, 1996 and 1995, the average recorded investment in impaired loans
totalled $1,648,000 (unaudited), $1,757,000 (unaudited), $1,916,000, $1,567,000
and $1,590,000, respectively.  During the year ended December 31, 1996, interest
income of $11,000, all on the cash basis, was recognized on such loans during
the time each loan was impaired.  During the three months ended March 31, 1998
and 1997 (unaudited) and the years ended December 31, 1997 and 1995, no interest
income was recognized on such loans during the time each loan was impaired.

6. REAL ESTATE OWNED
--------------------
<TABLE> 
<CAPTION>                      
                                                      March 31,                    December 31,             
                                                                       ------------------------------------ 
                                                       1998                 1997                 1996       
                                                    -------------      ---------------      ---------------  
                                                     (unaudited)                                              
<S>                                                 <C>                <C>                  <C>          
Acquired in settlement of loans                     $   1,120,197      $     1,388,840      $     1,492,068
Allowance for losses                                            -              174,000               98,000 
                                                    -------------      ---------------      ---------------
                                                    $   1,120,197      $     1,214,840      $     1,394,068
                                                    =============      ===============      ===============
</TABLE> 
The following is an analysis of the allowance for losses:
<TABLE> 
<CAPTION>  
                                                   Three Months Ended                               Year Ended   
                                                         March 31,                                  December 31,  
                                               ----------------------------       ----------------------------------------------- 
                                                   1998            1997                1997             1996             1995     
                                               ------------    ------------       --------------    ------------     ------------ 
                                                       (unaudited)                                                                
<S>                                            <C>             <C>                <C>               <C>              <C>          
Balance - beginning                            $    174,000    $     98,000       $     98,000      $     98,000     $    500,000 
Provisions charged to operations                     22,050         170,000            372,985            45,000           33,749
Losses charged to allowance                        (196,050)       (170,000)          (296,985)          (45,000)        (435,749)
                                               ------------    ------------       ------------      ------------     ------------
Balance - ending                               $          -    $     98,000       $    174,000      $     98,000     $     98,000
                                               ============    ============       ============      ============     ============
</TABLE> 

                                     F-18
<PAGE>
 
                         WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------


6. REAL ESTATE OWNED  (Cont'd.)
--------------------           

The following is an analysis of the (loss) income on real estate owned:

<TABLE> 
<CAPTION> 
                                              Three Months Ended               
                                                  March 31,                              Year Ended December 31,  
                                           ------------------------        ----------------------------------------------------
                                              1998          1997               1997                1996                1995   
                                           ---------     ----------        ------------         ----------          ----------  
                                                    (unaudited) 
<S>                                       <C>            <C>               <C>                <C>                 <C>   
Gain on sale, net                         $    5,386     $    19,714       $     30,080       $     117,201       $    162,031      
Carrying cost, net                            (7,084)         (7,035)           (36,965)            (51,638)           (69,349)
Provision for losses                         (22,050)       (170,000)          (372,985)            (45,000)           (33,749)
                                          -----------    -------------     -------------       -------------      -------------     

                                          $  (23,748)    $  (157,321)     $   (379,870)      $       20,563       $     58,933    
                                          -----------    -------------     -------------       -------------      -------------
</TABLE> 


7. PREMISES AND EQUIPMENT
-------------------------

<TABLE> 
<CAPTION> 
                                                               March 31,                       December 31,
                                                                                  ----------------------------------------
                                                                1998                      1997                       1996   
                                                           -------------          ---------------           --------------
                                                            (unaudited)
<S>                                                        <C>                       <C>                       <C> 
Land                                                       $     979,315             $    979,315               $   358,253   
                                                           -------------             ---------------           --------------

Building and improvements                                      2,168,439                2,159,938                 1,419,641 
Less accumulated depreciation                                    800,195                  778,047                   709,995
                                                           --------------            ---------------           --------------

                                                               1,368,244                1,381,891                   709,646
                                                           --------------            ---------------           --------------
Leasehold improvements                                           112,754                  112,754                   112,754
Less accumulated amortization                                    110,282                  110,017                   108,957
                                                           --------------            ---------------           --------------
                                                                   2,472                    2,737                     3,797
                                                           --------------            ---------------           --------------

Furnishings and equipment                                      2,631,742                2,575,464                 2,224,070 
Less accumulated depreciation                                  1,869,070                1,816,823                 1,655,411
                                                           --------------            ---------------           --------------

                                                                 762,672                  758,641                   568,659
                                                           --------------            ---------------           --------------

                                                           $   3,112,703             $  3,122,584              $  1,640,355  
                                                           ==============            ===============           ==============
</TABLE> 
                                                             
                                     F-19

<PAGE>
 
                         WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                        

8. ACCRUED INTEREST RECEIVABLE
------------------------------

<TABLE> 
<CAPTION> 
                                                             March 31,               December 31,
                                                                             ---------------------------
                                                               1998              1997           1996
                                                           -------------     ------------   ------------
                                                            (unaudited)   
<S>                                                        <C>               <C>            <C> 
Loans                                                      $     677,941     $    690,706   $    564,744
Mortgage-backed securities                                       715,833          852,519        691,298
Investments and other                                            686,971          479,574        407,028
                                                           -------------     ------------   ------------
                                                                          
                                                               2,080,745        2,022,799      1,663,070
Less allowance for uncollected interest on loans                   8,850           10,602         11,643
                                                           -------------     ------------   ------------
                                                                          
                                                           $   2,071,895     $  2,012,197   $  1,651,427
                                                           =============     ============   ============
</TABLE> 

9. EXCESS OF COST OVER ASSETS ACQUIRED
--------------------------------------

On October 17, 1997, the Bank acquired three branch locations from another
financial institution.  The amounts related to the transaction are reflected
separately in the consolidated statement of cash flows for the year ended
December 31, 1997.  The $7,571,946 excess of cost over assets acquired initially
recorded was based upon the amount of deposits the Bank had agreed to acquire.
However, during the period between the purchase agreement date and October 17,
1997, the deposits subject to purchase declined over 18%.  By December 31, 1997,
the balance of deposits at the three purchased locations had stabilized.
Management performed a reassessment of the recoverability of this asset and, as
a result, an impairment loss of $1,585,313 was recorded.  Such impairment loss
is included in "Amortization of intangible" in the consolidated statement of
income for the year ended December 31, 1997.

10. DEPOSITS
------------

<TABLE> 
<CAPTION> 
                                                         March 31, 1998
                                          ------------------------------------------
                                            Weighted
                                            Average
                                              Rate          Amount         Percent
                                          -----------   -------------   ------------
                                                         (unaudited)
<S>                                       <C>           <C>             <C> 
Demand accounts:                                      
   Non-interest-bearing                         0.00%   $  11,433,090           4.78
   Interest-bearing                             1.69%      22,255,814           9.31
                                                        -------------   ------------

                                                1.12%      33,688,904          14.09
                                                      
Savings and club accounts                       2.58%      61,840,466          25.86
Certificates of deposit                         5.49%     143,591,116          60.05
                                                        -------------   ------------ 

                                                4.13%   $ 239,120,486         100.00 
                                                        =============   ============
</TABLE> 

                                     F-20
<PAGE>
 
                        WEST ESSEX BANK AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                     -------------------------------------

10. DEPOSITS  (Cont'd.)
------------           

<TABLE> 
<CAPTION> 
                                                                                December 31,                                    
                                             --------------------------------------------------------------------------------    
                                                               1997                                     1996                 
                                             ---------------------------------------    -------------------------------------    
                                               Weighted                                  Weighted                         
                                               Average                                    Average                          
                                                Rate         Amount         Percent        Rate         Amount      Percent      
                                             ----------  -------------    ----------    ----------  -------------  ----------
<S>                                          <C>         <C>              <C>           <C>         <C>            <C> 
Demand accounts:
   Non-interest-bearing                        0.00%     $ 11,371,513         4.78         0.00%    $  7,270,396       4.04
   Interest-bearing                            1.84%       21,662,441         9.09         1.81%      15,214,291       8.46
                                                         -------------    ----------                -------------  ----------

                                               1.18%       33,033,954        13.87         1.23%      22,484,687      12.50
Savings and club accounts                      2.60%       62,834,205        26.38         2.49%      49,814,106      27.68
Certificates of deposit                        5.51%      142,323,982        59.75         5.33%     107,646,710      59.82
                                                         -------------    ----------                -------------  ----------

                                               4.14%     $238,192,141       100.00         4.03%    $179,945,503     100.00
                                                         =============    ==========                =============  ==========
</TABLE> 

The amount of certificates of deposit with balances of $100,000 or more at 
March 31, 1998 and December 31, 1997 and 1996 were approximately $17,596,000
(unaudited), $19,327,000 and $15,064,000, respectively.

The scheduled maturities of certificates of deposit are as follows (in
thousands):

<TABLE> 
<CAPTION> 
                                                                                   March 31,             December 31,
                                                                                                  -------------------------
                                                                                     1998             1997          1996
                                                                                 ------------     -----------   -----------
                                                                                  (unaudited)
<S>                                                                              <C>              <C>           <C> 
One year or less                                                                 $  115,168       $  114,233    $    86,574
After one to three years                                                             25,387           25,309         16,417
After three years                                                                     3,036            2,782          4,656
                                                                                 ------------     -----------   -----------
                                                                                   
                                                                                 $  143,591       $  142,324    $   107,647
                                                                                 ============     ===========   ===========
</TABLE> 

                                     F-21


<PAGE>
 
                        WEST ESSEX BANK AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  ------------------------------------------
                                        

11.  BORROWED MONEY
-------------------

The following table presents details of borrowed money, all of which has been
borrowed from the Federal Home Loan Bank of New York ("FHLB"):

<TABLE> 
<CAPTION> 
                                                                                               December 31,                
                                                                         --------------------------------------------------------
                                             March 31, 1998                       1997                             1996         
                                   -----------------------------------   -------------------------     --------------------------
                                        Weighted                            Weighted                     Weighted                
                                        Average                             Average                      Average                 
                                         Rate               Amount           Rate         Amount          Rate          Amount 
                                   ----------------     --------------   ------------  ------------    ------------   -----------
                                               (unaudited)                                                                         
<S>                                <C>                  <C>              <C>           <C>             <C>            <C>      
Securities sold under                                                                                                             
   agreements to                                                                                                                   
   repurchase maturing                                                                                                            
   within three months                -  %              $     -               5.82%    $ 18,000,000         5.60%     $  6,000,000
                                                                                                                                   
Convertible advances:                                                                                                              
   due March 24, 2008(a)             5.33%                10,000,000           -  %          -               -  %           -
   due March 25, 2008(b)             5.59%                10,000,000           -  %          -               -  %           -
                                                                                                                                  
Monthly amortizing advances:                                                                                                       
   Payable in sixty monthly                                                                                                        
      principal and interest                                                                                                       
      installments of $96,286
      through February 24, 2003      5.84%                 5,000,000           -  %          -               -  %           - 

   Payable in 120 monthly 
      principal and interest
      installments of $55,591
      through February 25, 2008      6.03%                 5,000,000           -  %          -               -  %           -

Term advances maturing:
   within one year                   6.38%                 7,350,000          6.38%       7,350,000         6.25%        8,350,000
   after one to two years            6.50%                 4,350,000          6.50%       4,350,000         6.57%        4,350,000
   after two to three years          6.95%                   600,000          6.95%         600,000         6.48%        4,350,000
   after three to four years          -  %                    -                -  %          -              6.90%          600,000  
                                                        ------------                   ------------                   ------------

                                     5.86%              $ 42,300,000          6.08%    $ 30,300,000         6.20%     $ 23,650,000
                                                        ============                   ============                   ============  
</TABLE> 

(a)  Convertible at lender option to replacement funding at then current rates
     on March 24, 2001 and quarterly thereafter.

(b)  Convertible at lender option to replacement funding at then current rates
     on March 25, 2003 and quarterly thereafter.

Certain information concerning borrowed money is summarized as follows:

<TABLE> 
<CAPTION> 
                                                   Three Months Ended                            
                                                         March 31,                            Year Ended December 31,  
                                               ----------------------------       ----------------------------------------------- 
                                                   1998            1997                1997             1996             1995     
                                               ------------    ------------       --------------    ------------     ------------ 
                                                       (unaudited)                                                                
<S>                                            <C>             <C>                <C>               <C>              <C>          
Average balance outstanding                    $ 30,144,000    $ 22,650,000       $   26,223,000    $ 18,096,000     $ 15,615,000
Maximum month-end balance outstanding            42,300,000      23,650,000           43,675,000      23,650,000       19,000,000
Average interest rate                                 5.80%           6.06%                5.97%           6.36%            6.83%
---------------------------------------------------------------------------------------------------------------------------------
</TABLE> 

                                     F-22
<PAGE>
 
11. BORROWED MONEY  (Cont'd.)
------------------           

At March 31, 1998 (unaudited) and December 31, 1997 and 1996, the borrowings
were secured by pledges of the Bank's investment in the capital stock of the
FHLB totalling $2,281,500, $2,183,800 and $1,670,400, respectively, and
mortgage-backed securities held to maturity with an aggregate carrying value of
$48,478,000, $39,870,000 and $27,035,000, respectively.


12. REGULATORY CAPITAL
----------------------

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

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of Total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier 1 capital to assets (as defined).

<TABLE> 
<CAPTION> 
                                                                As of March 31, 1998 (unaudited)                  
                                                -------------------------------------------------------------------    
                                                                                             To Be Well Capitalized    
                                                                        Minimum Capital     Under Prompt Corrective    
                                                      Actual              Requirements        Actions Provisions       
                                                ------------------   --------------------  ------------------------    
                                                 Amount     Ratio      Amount      Ratio     Amount        Ratio        
                                                --------  --------   ---------   --------  ---------    -----------    
                                                                    (dollars in thousands)                              
<S>                                            <C>        <C>        <C>         <C>       <C>          <C>   
Total Capital
  (to risk-weighted assets)                    $ 25,292    19.95%      $ 10,144    8.00%    $ 12,680       10.00%

Tier 1 Capital
  (to risk-weighted assets)                      24,040    18.96%             -        -       7,608        6.00%  

Core (Tier 1) Capital
  (to adjusted total assets)                     24,040     7.84%        12,268    4.00%      15,335        5.00%      
                                                                            
Tangible Capital
  (to adjusted total assets)                     24,040     7.84%         4,600    1.50%           -           -
</TABLE> 

                                     F-23

<PAGE>
 
                         WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                        

12.   REGULATORY CAPITAL (Cont'd.)
------------------------           

<TABLE> 
<CAPTION> 
                                                              As of December 31, 1997
                                     ----------------------------------------------------------------------------
                                                                                         To Be Well capitalized
                                                                 Minimum Capital        Under Prompt Corrective
                                            Actual                 Requirements            Actions Provisions
                                     ---------------------   -----------------------   --------------------------
                                      Amount       Ratio        Amount      Ratio        Amount         Ratio
                                     ---------   ---------   -----------  ----------   -----------  -------------
                                                               (dollars in thousands)
<S>                                  <C>         <C>         <C>          <C>          <C>          <C>           
Total Capital                         
  (to risk-weighted assets)           $ 24,566      26.10%      $ 7,530      8.00%       $  9,412       10.00%
                                                                                                             
Tier 1 capital                                                                                               
  (to risk-weighted assets)             23,381      24.84%            -         -           5,647        6.00%
                                                                                                             
Core (Tier 1) Capital                                                                                        
  (to adjusted total assets)            23,381       7.98%        8,794      3.00%         14,657        5.00% 

Tangible Capital    
  (to adjusted total assets)            23,381       7.98%        4,397      1.50%              -           -
</TABLE> 

<TABLE> 
<CAPTION> 
                                                              As of December 31, 1996
                                     ----------------------------------------------------------------------------
                                                                                         To Be Well capitalized
                                                                 Minimum Capital        Under Prompt Corrective
                                            Actual                 Requirements            Actions Provisions
                                     ---------------------   -----------------------   -------------------------- 
                                      Amount       Ratio        Amount      Ratio        Amount         Ratio   
                                     ---------   ---------   -----------  ----------   -----------  ------------- 
                                                               (dollars in thousands)
<S>                                  <C>         <C>         <C>          <C>          <C>          <C>           
Total Capital               
  (to risk-weighted assets)           $ 29,393      39.15%      $ 6,006      8.00%       $  7,507       10.00%  

Tier 1 capital                                                                                                
  (to risk-weighted assets)             28,447      37.90%            -         -           4,504        6.00%
                                                                                                              
Core (Tier 1) Capital                                                                                         
  (to adjusted total assets)            28,447      12.06%        7,079      3.00%         11,798        5.00%
                                                                                                              
Tangible Capital                                                                                              
  (to adjusted total assets)            28,447      12.06%        3,539      1.50%              -           -  
</TABLE> 


As of December 4, 1997, the most recent notification from the OTS, the Bank was
categorized as well capitalized under the regulatory framework for prompt
corrective action.  There are no conditions existing or events which have
occurred since notification that management believes have changed the
institution's category.


13.   RETIREMENT PLAN
---------------------

The Bank has a non-contributory pension plan covering all eligible employee.
The plan is a defined benefit plan which provides benefits based on a
participant's years of service and compensation.  The Bank's funding policy is
to contribute annually the maximum amount that can be deducted for federal
income tax purposes.

                                     F-24

<PAGE>
 
                        WEST ESSEX BANK AND SUBSIDIARY 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                        

13.   RETIREMENT PLAN (Cont'd.)
---------------------

The following table sets forth the plan's annually determined funded status:

<TABLE> 
<CAPTION> 
                                                                              December 31,
                                                                        --------------------------
                                                                           1997            1996
                                                                        -----------     -----------
<S>                                                                     <C>             <C> 
Actuarial present value of benefit obligation, including                           
vested benefits of $2,658,587 and $2,238,389, respectively.             $  2,709,212    $  2,271,153
                                                                        =============   =============

Projected benefit obligation                                            $ (3,257,644)   $ (2,789,153) 
Plan assets at fair value; primarily mutual funds                          2,984,086       2,534,416
                                                                        -------------   -------------
Projected benefit obligation in excess of plan assets                       (273,558)       (254,737)
Unrecognized net transition obligation                                       189,872         221,517
Unreconized past service cost                                                 80,492          90,045
Unreconized net (gain)                                                      (131,598)       (188,143)  
                                                                        -------------   ------------- 
Accured pension cost included in other liabilities                      $   (134,792)   $   (131,318)    
                                                                        =============   =============
</TABLE> 


The following table sets forth the components of net periodic pension cost:

<TABLE> 
<CAPTION> 
                                                                                  Year Ended December 31,
                                                                       --------------------------------------------------    
                                                                           1997               1996               1995
                                                                       ------------       ------------      -------------
<S>                                                                    <C>                <C>               <C> 
Net periodic pension cost
included the following components
     Service cost                                                      $  109,752         $  130,573        $   90,794    
     Interest cost                                                        206,416            187,634           173,961
     Actual return on plan assets                                        (361,720)          (284,857)         (427,904)
     Net amortization and deferral                                        222,518            170,747           348,456
                                                                       ------------       ------------      -------------  
Net periodic pension cost
 included in salaries and employee benfits                             $  176,966         $  204,097        $  185,307  
                                                                       ============        ===========      =============
</TABLE> 


Retirement Plan expense recorded for the three months ended March 31, 1998 and
1997 totalled approximately $47,000 (unaudited) and $48,000 (unaudited),
respectively.

Assumptions used to develop the net periodic pension cost were as follows:

<TABLE> 
<CAPTION> 
                                                                                    Year Ended December 31
                                                                      ---------------------------------------------------
                                                                           1997               1996              1995
                                                                      -------------       ------------      -------------   
<S>                                                                   <C>                 <C>                <C> 
Discount rates                                                                7.50%              7.00%              8.25%
Expected long-term rate of return                                             7.00%              7.00%              7.00%
Rate of increase in compensation levels                                       5.50%              5.00%              6.00%
</TABLE> 


                                     F-25 

<PAGE>
 
                        WEST ESSEX BANK AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  ------------------------------------------
                                        

14.  INCOME TAXES
-----------------

The Bank qualifies as a Savings Institution under the provisions of the Internal
Revenue Code and, therefore, was permitted, prior to January 1, 1996, to deduct
from taxable income an allowance for bad debts based upon the more favorable of:
(i) a method based on the Bank's actual loss experience (the "experience"
method); or (ii) a method based on eight percent of taxable income before such
deduction, less certain adjustments and subject to certain limitations (the
"percentage of taxable income" method). Effective January 1, 1996, the
percentage of taxable income method was repealed. The Bank may now use either
the experience method or the specific charge off method. See Note 16 to
consolidated financial statements. Retained earnings at December 31, 1997,
include approximately $6.8 million of such bad debt allowance for which federal
income taxes have not been provided.

The components of income taxes are summarized as follows:

<TABLE> 
<CAPTION> 
                                            Three Months Ended
                                                 March 31,                      Year Ended December 31,
                                        -------------------------     -----------------------------------------
                                           1998           1997            1997           1996           1995
                                        ----------     ----------     -----------    -----------    -----------
                                               (unaudited)    
<S>                                     <C>            <C>            <C>            <C>            <C> 
Current tax expense:
     Federal income                     $  193,763     $  261,184     $ 1,066,590    $   801,976    $   925,368
     State income                           16,126         23,301          95,024         70,584         41,152
                                        ----------     ----------     -----------    -----------    -----------

                                           209,889        284,485       1,161,614        872,560        966,520
                                        ----------     ----------     -----------    -----------    -----------
Deferred tax (benefit) expense:    
     Federal income                         45,528         -             (664,857)       (33,554)       197,099
     State income                            4,142         -              (60,478)        (3,055)        57,198
                                        ----------     ----------     -----------    -----------    -----------

                                            49,670         -             (725,335)       (36,609)       254,297
                                        ----------     ----------     -----------    -----------    -----------

                                        $  259,559     $  284,485     $   436,279    $   835,951    $ 1,220,817
                                        ==========     ==========     ===========    ===========    ===========
</TABLE> 

The components of the net deferred income tax asset are as follows:

<TABLE> 
<CAPTION> 
                                                                       March 31,            December 31,
                                                                                     --------------------------
                                                                          1998           1997          1996
                                                                      -----------    -----------    -----------
                                                                      (unaudited)
<S>                                                                   <C>            <C>            <C> 
Deferred tax assets:
     Allowance for loan losses                                        $   716,829    $   777,563    $   519,185
     Deferred loan origination fees, net                                   -              -              89,538
     Goodwill                                                             589,660        581,747         -
     Other                                                                 65,093         41,073         33,450
                                                                      -----------    -----------    -----------

          Total deferred tax assets                                     1,371,582      1,400,383        642,173
                                                                      -----------    -----------    -----------

Deferred tax liabilities:
     Deferred loan origination fees, net                                   57,809         36,940         -
     Unrealized gain on securities available for sale                      44,838         36,269         -
     Other                                                                 -              -               4,065
                                                                      -----------    -----------    -----------

          Total deferred tax liabilities                                  102,647         73,209          4,065
                                                                      -----------    -----------    -----------

          Net deferred tax asset included in other assets             $ 1,268,935    $ 1,327,174    $   638,108
                                                                      ===========    ===========    ===========
</TABLE> 


                                     F-26
<PAGE>
 

                        WEST ESSEX BANK AND SUBSIDIARY
                   NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
                   -----------------------------------------

14.  INCOME TAXES (Cont'd.)
-----------------          

Refundable income taxes totalling $54,834 (unaudited), $88,904 and $178,960 are
included in other assets at March 31, 1998 and December 31, 1997 and 1996,
respectively.  Income taxes payable totalling $135,606 (unaudited), $39,069 and
$6,319 are included in other liabilities at March 31, 1998 and December 31, 1997
and 1996, respectively.

The following table presents a reconciliation between the reported income taxes
and the income taxes which would be computed by applying the normal federal
income tax rate of 34% to income before income taxes:

<TABLE> 
<CAPTION> 
                                                       Three Months Ended                        Year Ended
                                                            March 31,                           December 31
                                                     -------------------------      ---------------------------------------
                                                       1998          1997              1997          1996          1995
                                                     ------------  -----------      ----------    -----------   -----------
                                                            (unaudited)
<S>                                                  <C>           <C>              <C>           <C>           <C> 
Federal income tax                                   $  262,038    $  274,564       $  398,860     $  847,266   $ 1,187,542
Increases (reductions) in taxes resulting from:                
     Reinstatement of portion of base
     year bad debt reserve for income tax purposes            -             -                -              -       (57,328) 
     Non-deductible captial loss                              -             -            6,883                        7,485
     Utilization of capital loss carryforward                 -             -                -        (34,936)            -
     New Jersey savings institution tax,
       net of federal income tax effect                  13,377        15,379           22,800         44,569        64,911
     Other items, net                                   (15,856)       (5,458)           7,736        (20,948)       18,207
                                                     ------------  -----------      -----------    -----------  -----------
Effective income tax                                 $  259,559    $  284,485       $  436,279     $  835,951   $ 1,220,817
                                                     ============  ===========      ===========    ===========  ===========
</TABLE> 

15.  COMMITMENTS AND CONTINGENCIES
----------------------------------

The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers and to
reduce its own exposure to fluctuations in interest rates. These financial
instruments primarily include commitments to extend credit. Such instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the consolidated statements of financial condition.
The contractual amounts of these instruments reflect the extent of involvement
the Bank has in those particular classes of financial instruments.

The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instruments for commitments to extend credit is
represented by the contractual amount of those instruments.  The Bank uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments.

At March 31, 1998 (unaudited), the Bank had $12,860,000 in commitments to
originate loans, consisting of $11,445,000 for fixed rate loans with interest
rates ranging from 6.625% to 7.625%, $760,000 for adjustable rate loans with
initial interest rates ranging from 6.625% to 6.875%, $50,000 for a floating
rate equity line of credit with an initial interest rate of 8.00% and $605,000
for the purchase of loan participation interests.  The $605,000 in loan
participations include $275,000 for a twelve-month, 8.25% construction loan,
$80,000 for a fixed rate loan whose rate will be fixed at funding at 1.60% above
the Federal Home Loan Bank CIP advance rate and a $250,000 adjustable rate loan
whose initial rate will be fixed at funding for five or ten years at 1.60% above
the Federal Home Loan Bank CIP advance rate and will adjust every fifth or tenth
year thereafter.

                                     F-27
<PAGE>
 
                         WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                        

15.  COMMITMENTS AND CONTINGENCIES  (Cont'd.)
----------------------------------           

At December 31, 1997 and 1996, the Bank had $1,324,000 and $2,374,000,
respectively, in outstanding commitments to originate loans. The outstanding
commitments at December 31, 1997 include $724,000 for fixed rate loans with
interest rates ranging from 7.25% to 7.75%, $100,000 for a floating rate equity
line of credit with an initial rate of 8.00% and $500,000 for the purchase of
loan participations consisting of $200,000 for fixed rate loans whose rates will
be fixed at funding at 1.60% above the Federal Home Loan Bank CIP advance rate
and a $300,000 adjustable rate loan whose initial rate will be fixed at funding
for five years at 1.60% above the Federal Home Loan Bank CIP advance rate and
will adjust every fifth year thereafter.

At March 31, 1998 and December 31, 1997 and 1996, undisbursed funds from
approved lines of credit under a homeowners' equity lending program amounted to
approximately $4,339,000 (unaudited), $4,137,000 and $3,117,000, respectively.
Unless they are specifically cancelled by notice from the Bank, these funds
represent firm commitments available to the respective borrowers on demand.  The
interest rate charged for any month on funds disbursed under the program is 1.0%
above the prime rate published in The Wall Street Journal on the last day of the
preceding month.

At March 31, 1998 and December 31, 1997, undisbursed funds from approved
unsecured lines of credit under the Credit Reserve program totalled $115,000
(unaudited) and $99,000, respectively.  Funds drawn on these lines are assessed
interest at a rate of 18.00%.

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee.  Since some of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the counterparty. Collateral held varies but primarily
includes commercial and residential real estate.

Rentals under a long-term operating lease for a branch office amounted to
approximately $12,000 (unaudited) for each of the three months ended March 31,
1998 and 1997 and approximately $50,000 for each of the years ended December 31,
1997, 1996 and 1995.  At December 31, 1997, the minimum rental commitment under
this noncancellable lease expiring in 1998 is $41,000.
 
The Bank also has, in the normal course of business, commitments for services
and supplies.  Management does not anticipate losses on any of these
transactions.

During the year ended December 31, 1997, the Bank became a defendant in a
litigation matter under which it is accused of breach of contract, fraud and
violation of the New Jersey Consumer Fraud Act.  The lawsuit is related to a
condominium construction project which the Bank halted financing on due to
borrower default.  The Bank denies the material allegations set forth in the
Complaint.  The Bank filed a motion to dismiss the contract claims and to re-
plead the fraud claims.  On February 20, 1998, the

                                     F-28
<PAGE>
 
                         WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                        

Superior Court of New Jersey denied the Bank's motion to dismiss the contract
claims, but granted the Bank's motion requiring plaintiffs to re-plead the fraud
counts with particularity. On March 13, 1998, the plaintiffs filed an amended
complaint and, on April 8, 1998, the Bank filed its answer to the amended
complaint. The plaintiffs are seeking, among other things, compensatory damages,
punitive damages in the amount of $5,000,000, and reimbursement of costs and
legal fees associated with this matter. The Bank's ultimate liability, if any,
which might arise from the disposition of these claims cannot presently be
determined. Accordingly, no provision for any liability that may result
upon adjudication has been recognized in the accompanying consolidated financial
statements.

The Bank is also a party to various litigation which arises primarily in the
ordinary course of business. In the opinion of management, the ultimate
disposition of such litigation should not have a material effect on the
consolidated financial position or operations of the Bank.
 

16.  LEGISLATIVE MATTERS
------------------------

On September 30, 1996, legislation was enacted which, among other things,
imposed a special one-time assessment on Savings Association Insurance Fund
("SAIF") member institutions, including the Bank, to recapitalize the SAIF and
spread the obligation for payment of Financial Corporation ("FICO") bonds across
all SAIF and Bank Insurance Fund ("BIF") members.  The special assessment levied
amounted to 65.7 basis points on SAIF assessable deposits held as of March 31,
1995.  The special assessment was recognized in the third quarter of 1996 and
was tax deductible.  The Bank took a charge of $1,098,000 as a result of the
special assessment.  This legislation eliminated the substantial disparity
between the amount that BIF and SAIF members had been paying for deposit
insurance premiums.

Currently, the FDIC has estimated that, in addition to normal deposit insurance
premiums, BIF members will pay a portion of the FICO payment equal to 1.3 basis
points on BIF-insured deposits compared to 6.4 basis points by SAIF members on
SAIF-insured deposits.  All institutions will pay a pro-rata share of the FICO
payment on the earlier of January 1, 2000 or the date upon which the last
savings association ceases to exist.  The legislation also requires BIF and SAIF
to be merged by January 1, 1999 provided that legislation is adopted to
eliminate the savings association charter and no savings associations remain as
of that time.

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

On August 21, 1996, legislation was enacted to allow for the recapture of post-
1987 tax bad debt reserves ("excess reserves").  Prior to enactment certain
thrift institutions such as the Bank were allowed deductions for bad debts under
methods more favorable than those granted to other taxpayers.  This legislation
repealed the Code Section 593 reserve method of accounting for bad debts by
thrift institutions effective for taxable years beginning after 1995.  Thrift
institutions that are treated as small banks are allowed to utilize the
experience method applicable to such institutions or the specific charge-off
method, while thrift institutions that are treated as large banks are required
to use only the specific charge off method.

                                     F-29
<PAGE>
 
                         WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                        

16.  LEGISLATIVE MATTERS  (Cont'd.)
------------------------           

For small institutions such as the Bank, the amount of the institution's
applicable excess reserves generally is the excess of the balances of its
reserve for losses on qualifying real property loans and its reserve for losses
on nonqualifying loans as of the close of its last taxable year beginning before
January 1, 1996, over the greater of the balance of (a) its pre-1988 tax
reserves or (b) what the reserves would have been at the close of its last year
beginning before January 1, 1996, had the Savings Bank always used the
experience method. At January 1, 1996, the Bank had excess reserves of
approximately $18,000, which, in accordance with the legislation, are being
recaptured over a six-year period commencing January 1, 1996. As such amount has
been treated as a temporary difference in accordance with Financial Accounting
Standard Board ("FASB") Statement of Financial Accounting Standards
("Statement") No. 109, the recapture has no impact on consolidated earnings.


17.  ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
--------------------------------------------------

The fair value of a financial instrument is defined as the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than a forced or liquidation sale.  Significant estimations were used by
the Bank for the purposes of this disclosure.  Estimated fair values have been
determined by the Bank using the best available data and estimation methodology
suitable for each category of financial instruments.  For those loans and
deposits with floating interest rates, it is presumed that estimated fair values
generally approximate their recorded book balances.  The estimation
methodologies used and the estimated fair values and carrying values of the
Bank's financial instruments are set forth below:

     Cash and cash equivalents and accrued interest receivable
     ---------------------------------------------------------

     The carrying amounts for cash and cash equivalents and accrued interest
     receivable approximate fair value.

     Securities
     ----------

     The fair values for securities available for sale, investment securities
     held to maturity and mortgage-backed securities held to maturity are based
     on quoted market prices or dealer prices, if available.  If quoted market
     prices or dealer prices are not available, fair value is estimated using
     quoted market prices or dealer prices for similar securities.

     Loans
     -----

     The fair value of loans is estimated by discounting future cash flows,
     using the current rates at which similar loans with similar remaining
     maturities would be made to borrowers with similar credit ratings.

                                     F-30 
<PAGE>
 
                         WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                        

17.  ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS  (Cont'd.)
--------------------------------------------------           

     Deposits
     --------

     For demand, savings and club accounts, fair value is the carrying amount
     reported in the consolidated financial statements.  For certificates of
     deposit, fair value is estimated by discounting future cash flows, using
     rates currently offered for deposits of similar remaining maturities.

     Borrowed money
     --------------

     Fair value is estimated using rates currently offered for liabilities of
     similar remaining maturities, or when available, quoted market prices.

     Commitments to extend credit
     ----------------------------

     The fair value of credit commitments is estimated using the fees currently
     charged to enter into similar agreements, taking into account the remaining
     terms of the agreements and the present creditworthiness of the
     counterparties.  For fixed-rate loan commitments, fair value also considers
     the difference between current levels of interest rates and the committed
     rates.

The carrying values and estimated fair values of the Bank's financial
instruments are as follows (in thousands):

<TABLE> 
<CAPTION> 
                                                      March 31,                               December 31,
                                                                      ------------------------------------------------------------
                                                      1998                        1997                             1996
                                             --------------------     -----------------------------      -------------------------
                                             Carrying  Estimated      Carrying         Estimated         Carrying       Estimated
                                              Value    Fair Value       Value          Fair Value          Value        Fair Value
                                             -------- -----------     ----------    ---------------      ----------    -----------
Financial assets                                  (unaudited)
----------------              
<S>                                          <C>        <C>           <C>           <C>                  <C>           <C>   
Cash and cash equivalents                    $ 17,329  $ 17,329         $ 8,696           $ 8,696         $ 7,754         $7,754
Term deposits                                   5,000     5,000               -                 -               -              -
Securities available for sale                   7,105     7,105           7,081             7,081           1,647          1,647
Investment securities held to maturity         28,768    29,082          22,929            23,339          22,476         22,766
Mortgage-backed securities held to maturity   122,633   124,399         130,174           131,681         113,254        114,358
Loans receivable                              114,302   115,352         112,735           114,021          82,134         84,615
Accrued interest receivable                     2,072     2,072           2,012             2,012           1,651          1,651

Financial liabilities
---------------------

Deposits                                      239,120   240,064         238,192           239,241         179,946        181,155 
Borrowed money                                 42,300    41,814          30,300            30,337          23,650         23,730 

Commitments
-----------

Loan origination and purchase                  12,860    12,860           1,324             1,324           2,374          2,374
Unused lines of credit                          4,454     4,454           4,236             4,236           3,117          3,117
</TABLE> 

                                     F-31
<PAGE>
 
                         WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                        


17.  ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS  (Cont'd.)
--------------------------------------------------           

Fair value estimates are made at a specific point in time based on relevant
market information and information about the financial instrument.  These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the entire holdings of a particular financial instrument.
Because no market value exists for a significant portion of the financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. These estimates are subjective
in nature, involve uncertainties and matters of judgment and, therefore, cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates.

In addition, fair value estimates are based on existing on-and-off balance sheet
financial instruments without attempting to estimate the value of anticipated
future business, and exclude the value of assets and liabilities that are not
considered financial instruments.  Other significant assets and liabilities that
are not considered financial assets and liabilities include premises and
equipment, real estate owned and advance payments by borrowers for taxes and
insurance.  In addition, the tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in any of the estimates.

Finally, reasonable comparability between financial institutions may not be
likely due to the wide range of permitted valuation techniques and numerous
estimates which must be made given the absence of active secondary markets for
many of the financial instruments.  This lack of uniform valuation methodologies
introduces a greater degree of subjectivity to these estimated fair values.


18.  IMPACT OF NEW ACCOUNTING STANDARDS
---------------------------------------

In June 1996, the FASB issued Statement No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities."  Statement
No. 125 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.  Under
that approach, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes the financial assets when control has been surrendered, and
derecognizes liabilities when extinguished.  This Statement provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings.  A transfer of financial assets in which
the transferor surrenders control, as defined, over those assets is accounted
for as a sale to the extent that consideration other than beneficial interests
in the transferred assets is received in exchange.  Statement No. 125 requires
that liabilities and derivatives incurred or obtained by transferors as part of
a transfer of financial assets be initially measured at fair value, if
practicable, and requires that servicing assets and other retained interests in
the transferred assets be measured by allocating the previous carrying amount
between the assets sold, if any, and retained interest, if any, based on the
relative fair values at the date of the transfer.  Further, servicing assets and
liabilities must be subsequently measured by (a) amortization in proportion to
and over the period of estimated net servicing income or loss and (b) assessment
for asset impairment or increased obligation based on their values.  Statement
No. 125 requires that debtors reclassify financial assets pledged as

                                     F-32
<PAGE>
 
                         WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------


18.  IMPACT OF NEW ACCOUNTING STANDARDS  (Cont'd.)
---------------------------------------           

collateral and that secured parties recognize those assets and their obligation
to return them in certain circumstances in which the secured party has taken
control of those assets.  Statement No. 125 is effective for transactions
occurring after December 31, 1996, with the exception of certain provision which
have had their effective date delayed an additional year via FASB Statement No.
127. The application of the provisions of Statement No. 125 has not had and, for
provisions not applicable until January 1, 1998, is not expected to have a
material adverse effect on the Bank's consolidated financial condition or
results of operations.

In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income".  Statement No. 130 requires that all items that are components of
"comprehensive income" be reported in a financial statement that is displayed
with the same prominence as other financial statements.  Comprehensive income is
defined as the "change in equity (net assets) of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources.  It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners".  Companies
will be required to (a) classify items of other comprehensive income by their
nature in the financial statements and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position.
Statement No. 130 is effective for fiscal years beginning after December 15,
1997 and requires reclassification of prior periods presented.  As the
requirements of Statement No. 130 are disclosure-related, its implementation,
effective January 1, 1998, had no impact on the Bank's consolidated financial
condition or results of operations.  Management has presented a consolidated
statement of comprehensive income corresponding to each period for which a
consolidated statement of income has been presented.


19.  MUTUAL HOLDING COMPANY REORGANIZATION AND INITIAL STOCK OFFERING
---------------------------------------------------------------------
     (UNAUDITED)
     -----------

On March 18, 1998, the Board of Directors of the Bank unanimously adopted the
Plan of Reorganization and Stock Issuance (the "Plan") pursuant to which the
Bank will convert from a federal mutual savings bank to a federal stock savings
bank and reorganize into the federal mutual holding company structure (the
"Reorganization").  As part of the Reorganization, the Bank will concurrently
form a Federally-chartered stock holding company ("Bancorp"), which will own
100% of the Bank's common stock following the conversion, as well as a federal
mutual holding company ("MHC"), which will own at least 51% of Bancorp's
outstanding common stock following the Reorganization and stock issuance, and
Bancorp will issue up to 49% of its outstanding common stock in a subscription
and community offering, as contemplated under the Plan.  The Plan must be
approved by both the OTS and by the Bank's members as of the voting record date
to be established by the Bank.

Following the completion of the Reorganization, all depositors who had
membership or 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 MHC 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 membership and liquidation rights with respect to
the MHC.

                                     F-33
<PAGE>
 
                         WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                        

19.  MUTUAL HOLDING COMPANY REORGANIZATION AND INITIAL STOCK OFFERING
---------------------------------------------------------------------
     (UNAUDITED)  (Cont'd.)
     -----------           

In addition to the shares offered through the subscription and community
offering, Bancorp plans to fund a charitable foundation with a contribution
equal to 4.0% of the common stock sold in the subscription and community
offering as well as a $100,000 cash contribution.  An Employee Stock Ownership
Plan, which is expected to be established by the Bank for the benefit of its
employees, is expected to purchase 8.0% of the combined number of shares issued
to the public and the charitable foundation.  The MHC will maintain the majority
ownership of at least 51% of Bancorp shares issued, in addition to $100,000
received from the Bank, which is the anticipated amount of the initial
capitalization of the MHC. Bancorp will use a portion of the proceeds received
from the stock offering to purchase 100% of the outstanding capital stock of the
Bank.  Costs incurred in connection with the offering, which totalled $30,000 at
March 31, 1998 and are included in other assets, will be recorded as a reduction
of the proceeds from the offering.

                                     F-34
<PAGE>
 
================================================================================

NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE BANK OR WEST ESSEX BANCORP, INC. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE BANK SINCE ANY
OF THE DATES AS OF WHICH INFORMATION IS FURNISHED HEREIN OR SINCE THE DATE
HEREOF.
                           ________________________
                               TABLE OF CONTENTS

<TABLE> 
<CAPTION> 
                                                                            Page
                                                                            ----
<S>                                                                         <C> 
Summary of the Reorganization and the Offering..............................
Selected Consolidated Financial and Other Data of the Bank..................
[RECENT DEVELOPMENTS].......................................................
Risk Factors................................................................
West Essex Bancorp, M.H.C...................................................
West Essex Bancorp, Inc.....................................................
West Essex Bank.............................................................
Regulatory Capital Compliance...............................................
Use of Proceeds.............................................................
Dividend Policy.............................................................
Waiver of Dividends by the Mutual Company...................................
Conversion of the Mutual Company to Stock Form..............................
Market for the Common Stock.................................................
Capitalization..............................................................
Pro Forma Data..............................................................
Comparison of Valuation and Pro Forma Information With No Foundation........
Consolidated Statements of Income for West Essex Bank, F.S.B
    and Subsidiaries........................................................
Management's Discussion and Analysis of Financial Condition and 
    Results of Operations...................................................
Business of Bancorp.........................................................
Business of the Bank........................................................
Federal and State Taxation..................................................
Regulation and Supervision..................................................
Management of Bancorp.......................................................
Management of the Bank......................................................
The Reorganization and Stock Offering.......................................
Certain Restrictions on Acquisition of Bancorp..............................
Description of Capital Stock of Bancorp.....................................
Transfer Agent and Registrar................................................
Experts.....................................................................
Legal and Tax Opinions......................................................
Additional Information......................................................
Index to Consolidated Financial Statements..................................
</TABLE> 

                           ________________________

    UNTIL ___________, ____ OR 25 DAYS AFTER COMMENCEMENT OF THE SYNDICATED
COMMUNITY OFFERING, IF ANY, WHICHEVER IS LATER, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER 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.


                               2,071,955 Shares
                                   
                                   
                                   
                           WEST ESSEX BANCORP, INC.
 
 
 
                                 COMMON STOCK



                                  __________
                                   
                                  PROSPECTUS
                                  __________
       
       
       
       
                           __________________, 1998








                            ______________________


================================================================================
<PAGE>
 
                                    PART II
                    INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<CAPTION>
 
<S>                                                              <C>
     SEC filing(1).............................................  $  7,324
     OTS filing fee............................................    23,917
     NASD filing fee(1)........................................     2,300
     Exchange listing fee(1)...................................    25,000
     Printing, postage and mailing.............................   100,000
     Legal fees and expenses...................................   225,000
     Accounting fees and expenses..............................    70,000
     Appraisers' fees and expenses (including business plan)...    33,000
     Marketing fees and selling commissions(1).................   220,000
     Underwriter's expenses (including underwriter's counsel)..    60,000
     Conversion agent fees and expenses........................    15,000
     Transfer agent fees and expenses..........................     3,000
     Certificate printing......................................     1,000
     Blue Sky..................................................    15,000
     Miscellaneous.............................................    19,459
     TOTAL.....................................................  $820,000
                                                                 ========
----------------------
</TABLE>
(1)  Unless otherwise noted, based upon the registration of 4,200,000 shares and
     offering of 1,800,000 shares at $10.00 per share.

ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Article XII of the registrant's Bylaws provides as follows:

ARTICLE XII:   INDEMNIFICATION

     The Holding Company shall indemnify all officers, directors and employees
of the Holding Company, and their heirs, executors and administrators, to the
fullest extent permitted under federal law against all expenses and liabilities
reasonably incurred by them in connection with or arising out of any action,
suit or proceeding in which they may be involved by reason of their having been
a director or officer of the Holding Company, whether or not they continue to be
a director or officer at the time of incurring such expenses or liabilities,
such expenses and liabilities to include, but not be limited to, judgments,
court costs and attorneys' fees and the cost of reasonable settlements.

     This indemnification provision is consistent with the Office of Thrift
Supervision Regulation 12 C.F.R. Section 545.121.


ITEM 15.    RECENT SALES OF UNREGISTERED SECURITIES

None.
<PAGE>
 
ITEM 16.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

The exhibits and financial statement schedules filed as a part of this
registration statement are as follows:

(a)  List of Exhibits (filed herewith unless otherwise noted)

1.1    Engagement Letters between West Essex Bank, F.S.B. and Sandler O'Neill &
       Partners, L.P.
1.2    Draft Form of Agency Agreement between West Essex Bank, F.S.B. and
       Sandler O'Neill & Partners, L.P.*
2.1    Plan of Mutual Holding Company Reorganization and Stock Issuance
       (including Federal Mutual Holding Company Charter and Bylaws of West
       Essex Bancorp, M.H.C., Federal MHC Subsidiary Holding Company Charter and
       Bylaws of West Essex Bancorp, Inc. and Federal Stock Charter and Bylaws
       of West Essex Bank)
3.1    Federal MHC Subsidiary Holding Company Charter of West Essex Bancorp,
       Inc. (See Attachment B-1 to Exhibit 2.1)
3.2    Bylaws of West Essex Bancorp, Inc.  (See Attachment B-2 to Exhibit 2.1)
4.0    Draft Stock Certificate of West Essex Bancorp, Inc.
5.1    Draft Opinion of Muldoon, Murphy & Faucette re: legality
8.1    Draft Opinion of Muldoon, Murphy & Faucette re:  Federal Tax Matters
8.2    Draft Opinion of Fontanella and Babitts re:  State Tax Matters
10.1   Form of West Essex Bank Employee Stock Ownership Plan
10.2   Form of West Essex Bank Employee Stock Ownership Plan Trust
10.3   Form of ESOP Loan Commitment Letter
10.4   Form of West Essex Bank Employee Stock Ownership Trust Loan and Security
       Agreement
10.5   Form of Proposed Employment Agreement between West Essex Bank and certain
       executive officers
10.6   Form of Proposed Employment Agreement between West Essex Bancorp, Inc.
       and certain executive officers
10.7   Form of Proposed Change in Control Agreement between West Essex Bank and
       certain executive officers
10.8   Form of Proposed Change in Control Agreement between West Essex Bancorp,
       Inc. and certain executive officers
10.9   Form of Proposed West Essex Bank Employee Severance Compensation Plan
10.10  Form of Proposed West Essex Bank Supplemental Executive Retirement Plan
10.11  Form of Proposed West Essex Bank Management Supplemental Executive
       Retirement Plan
10.12  Employment Agreement between West Essex Bank and Leopold W. Montanaro
10.13  Restated Executive Supplemental Retirement Income Agreement for Leopold
       W. Montanaro
10.14  Restated Executive Supplemental Retirement Income Agreement for Charles
       E. Filippo
23.1   Consent of Radics & Co., LLC
23.2   Consent of Muldoon, Murphy & Faucette
23.3   Consent of Fontanella and Babitts
23.4   Consent and Subscription Rights Opinion of FinPro, Inc.
24.1   Powers of Attorney
27.0   Financial Data Schedule
99.1   Appraisal Report of FinPro, Inc. (P)
99.2   Draft of West Essex Bancorp Charitable Foundation Gift Instrument*

--------------------------------------
*To be filed by amendment
(P) Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
 
(b)  Financial Statement Schedules

All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.

ITEM 17.  UNDERTAKINGS.

     The undersigned registrant hereby undertakes:

     (1)  To file, during any period in which offers or sales are being made, a
          post-effective amendment to this registration statement:

          (i)  To include any prospectus required by Section 10(a)(3) of the
               Securities Act of 1933;

          (ii) To reflect in the prospectus any facts or events arising after
               the effective date of the registration statement (or the most
               recent post-effective amendment thereof) which, individually or
               in the aggregate, represent a fundamental change in the
               information set forth in the registration statement;

          (iii)To include any material information with respect to the plan of
               distribution not previously disclosed in the registration
               statement or any material change to such information in the
               registration statement;

     (2)  That, for the purpose of determining any liability under the
          Securities Act of 1933, each such post-effective amendment shall be
          deemed to be a new registration statement relating to the securities
          offered therein, and the offering of such securities at that time
          shall be deemed to be the initial bona fide offering thereof.

     (3)  To remove from registration by means of a post-effective amendment any
          of the securities being registered which remain unsold at the
          termination of the offering.

     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to 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.
<PAGE>
 
CONFORMED
                                  SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Caldwell, State of New
Jersey, on June 12, 1998.

West Essex Bancorp, Inc.
(in organization)


By:  /s/ Leopold W. Montanaro
     -----------------------------
     Leopold W. Montanaro
     President, Chief Executive
     Officer and Director


     Pursuant to the requirements of the Securities Act of 1933, this 
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
 
             Name                               Title                     Date
             ----                               -----                     ----      
<S>                                <C>                                 <C>
 
/s/ Leopold W. Montanaro           President, Chief Executive Officer  June 12, 1998
---------------------------------  and Director
Leopold W. Montanaro               (principal executive officer)
 
/s/ Dennis A. Petrello             Executive Vice President and        June 12, 1998
---------------------------------  Chief Financial Officer
Dennis A. Petrello                 (principal accounting
                                   and financial officer)


/s/ William J. Foody               Chairman of the Board               June 12, 1998
---------------------------------                                      
William J. Foody


/s/ David F. Brandley              Director                            June 12, 1998
---------------------------------
David F. Brandley


/s/ Everett N. Leonard             Director                            June 12, 1998
---------------------------------                                   
Everett N. Leonard


/s/ James P. Vreeland              Director                            June 12, 1998
---------------------------------                                 
James P. Vreeland


/s/ John J. Burke                  Director                            June 12, 1998
---------------------------------                                         
John J. Burke
</TABLE> 
<PAGE>
 
     As filed with the Securities and Exchange Commission on June 12, 1998
                                              Registration No. 333-_____________
================================================================================
 


                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

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



                                   EXHIBITS

                                    TO THE

                                   FORM S-1

                            REGISTRATION STATEMENT

                                     UNDER

                          THE SECURITIES ACT OF 1933


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


                           WEST ESSEX BANCORP, INC.

            (Exact name of registrant as specified in its charter)


================================================================================
<PAGE>
 
                               TABLE OF CONTENTS


LIST OF EXHIBITS (FILED HEREWITH UNLESS OTHERWISE NOTED)

1.1    Engagement Letters between West Essex Bank, F.S.B. and Sandler O'Neill &
       Partners, L.P.
1.2    Draft Form of Agency Agreement between West Essex Bank, F.S.B. and
       Sandler O'Neill & Partners, L.P.*
2.1    Plan of Mutual Holding Company Reorganization and Stock Issuance
       (including Federal Mutual Holding Company Charter and Bylaws of West
       Essex Bancorp, M.H.C., Federal MHC Subsidiary Holding Company Charter and
       Bylaws of West Essex Bancorp, Inc. and Federal Stock Charter and Bylaws
       of West Essex Bank)
3.1    Federal MHC Subsidiary Holding Company Charter of West Essex Bancorp,
       Inc. (See Attachment B-1 to Exhibit 2.1)
3.2    Bylaws of West Essex Bancorp, Inc. (See Attachment B-2 to Exhibit 2.1)
4.0    Draft Stock Certificate of West Essex Bancorp, Inc.
5.1    Draft Opinion of Muldoon, Murphy & Faucette re: legality
8.1    Draft Opinion of Muldoon, Murphy & Faucette re:  Federal Tax Matters
8.2    Draft Opinion of Fontanella and Babitts re:  State Tax Matters
10.1   Form of West Essex Bank Employee Stock Ownership Plan
10.2   Form of West Essex Bank Employee Stock Ownership Plan Trust
10.3   Form of ESOP Loan Commitment Letter
10.4   Form of West Essex Bank Employee Stock Ownership Trust Loan and Security
       Agreement
10.5   Form of Proposed Employment Agreement between West Essex Bank and certain
       executive officers
10.6   Form of Proposed Employment Agreement between West Essex Bancorp, Inc.
       and certain executive officers
10.7   Form of Proposed Change in Control Agreement between West Essex Bank and
       certain executive officers
10.8   Form of Proposed Change in Control Agreement between West Essex Bancorp,
       Inc. and certain executive officers
10.9   Form of Proposed West Essex Bank Employee Severance Compensation Plan
10.10  Form of Proposed West Essex Bank Supplemental Executive Retirement Plan
10.11  Form of Proposed West Essex Bank Management Supplemental Executive
       Retirement Plan
10.12  Employment Agreement between West Essex Bank and Leopold W. Montanaro
10.13  Restated Executive Supplemental Retirement Income Agreement for Leopold
       W. Montanaro
10.14  Restated Executive Supplemental Retirement Income Agreement for Charles
       E. Filippo
23.1   Consent of Radics & Co., LLC
23.2   Consent of Muldoon, Murphy & Faucette
23.3   Consent of Fontanella and Babitts
23.4   Consent and Subscription Rights Opinion of FinPro, Inc.
24.1   Powers of Attorney
27.0   Financial Data Schedule
99.1   Appraisal Report of FinPro, Inc. (P)
99.2   Draft of West Essex Bancorp Charitable Foundation Gift Instrument*

--------------------------------------
*To be filed by amendment
(P) Filed pursuant to Rule 202 of Regulation S-T.
[{"type": "S-1", "sequence": "1", "description": "FORM S-1", "secsgml_size_bytes": 913738}]
{"company-data": {"conformed-name": "WEST ESSEX BANCORP INC", "cik": "0001063438", "assigned-sic": "", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-56729", "film-number": "98647364"}, "business-address": {"street1": "417 BLOOMFIELD AVE", "city": "CALDWELL", "state": "NJ", "zip": "07006", "phone": "9732267911"}, "mail-address": {"street1": "417 BLOOMFIELD AVE", "city": "CALDWELL", "state": "NJ", "zip": "07006"}}
As filed with the Securities and Exchange Commission on June 12, 1998
                                                 Registration No. 333-__________
================================================================================

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM S-1
                            REGISTRATION STATEMENT
                       UNDER THE SECURITIES ACT OF 1933
                           WEST ESSEX BANCORP, INC.
                                        
                            WEST ESSEX BANK, F.S.B.
                         401(K) EMPLOYEE BENEFIT PLAN
            (exact name of registrant as specified in its charter)
UNITED STATES                           6035                BEING APPLIED FOR
(State or Other Jurisdiction of     (Primary Standard Industrial      (IRS Employer 
 Incorporation or Organization)      Classification Code Number)    Identification No.)
417 BLOOMFIELD AVENUE
                          CALDWELL, NEW JERSEY  07006
                                (973) 226-7911
             (Address, including zip code, and telephone number, 
       including area code, of registrant's principal executive offices)

                             LEOPOLD W. MONTANARO
                     PRESIDENT AND CHIEF EXECUTIVE OFFICER
                                WEST ESSEX BANK
                             417 BLOOMFIELD AVENUE
                          CALDWELL, NEW JERSEY  07006
                                (973) 226-7911
           (Name, Address, Including Zip Code, and Telephone Number,
                  Including Area Code, of Agent for Service)

                                  Copies to:
                         DOUGLAS P. FAUCETTE, ESQUIRE
                          LORI M. BERESFORD, ESQUIRE
                          MULDOON, MURPHY & FAUCETTE
                          5101 WISCONSIN AVENUE, N.W.
                            WASHINGTON, D.C. 20016
                                (202) 362-0840

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

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

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

     If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering.   /   /
            ---- 

     If 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 number of the earlier effective registration statement for the same
offering.   /   /
            ---- 
 
 If delivery of the prospectus is expected to be made pursuant to Rule 434,
 please check the following box. /   /
                                 ----
CALCULATION OF REGISTRATION FEE
-----------------------------------------------------------------------------------------------------------------------
                                                       Proposed Maximum         Proposed Maximum          Amount of
   Title of each Class of           Amount to           Offering Price         Aggregate Offering        Registration
 Securities to be Registered      be Registered            Per Unit                 Price (2)                Fee
-----------------------------------------------------------------------------------------------------------------------
Common Stock                        2,482,585
$.01 par value(1)                    Shares                 $10.00                 $24,825,850             $7,324
-----------------------------------------------------------------------------------------------------------------------
Participation                          59,795               _______                                         (3)
Interests
=======================================================================================================================
(1) Includes shares of Common Stock to be issued to the West Essex Bancorp
    Charitable Foundation, a private foundation.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) The securities of West Essex Bancorp, Inc. to be purchased by the West Essex
    Bank 401(k) Savings Plan are included in the amount shown for Common Stock.
    Accordingly, no separate fee is required for the participation interests. In
    accordance with Rule 457(h) of the Securities Act, as amended, the
    registration fee has been calculated on the basis of the number of shares of
    Common Stock that may be purchased with the current assets of such Plan.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
[To be used in connection with sales to Participants in the WEST ESSEX BANK,
F.S.B. 401(k) SAVINGS PLAN IN RSI TRUST]
 

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

                           WEST ESSEX BANCORP, INC.

                                WEST ESSEX BANK
                            PARTICIPATION INTERESTS
                            WEST ESSEX BANK, F.S.B.
                              401(K) SAVINGS PLAN

     This Prospectus Supplement relates to the offer and sale to participants
(the "participants") in the West Essex Bank, F.S.B. 401(k) Savings Plan in RSI
Retirement Trust (the "Plan") of participation interests and shares of common
stock, par value $.01 per share of West Essex Bancorp, Inc. common stock (the
"Common Stock"), as set forth herein.

     The Plan will be amended in connection with the proposed reorganization of
West Essex Bank, F.S.B. from a federally chartered mutual savings bank to a
federally chartered stock savings bank (the "Bank") in the mutual holding
company form of organization (the "Reorganization"), and concurrent offering of
West Essex Bancorp, Inc. (the "Bancorp") Common Stock ("Stock Offering") to
permit the investment of Plan assets in the Common Stock. The amended Plan will
permit participants to direct the trustee of the Plan (the "Trustee") to invest
in the Common Stock with amounts in the Plan attributable to such participants.
Such investments in the Common Stock will be made by means of the West Essex
Bancorp, Inc. Stock Fund (the "Employer Stock Fund").  Based upon the value of
the Plan assets at March 31, 1998, 59,794 shares of the Common Stock could be
purchased with Plan assets (assuming a purchase price of $10.00 per share).
This Prospectus Supplement relates to the initial election of participants to
direct that all or a portion of their accounts be invested in the Employer Stock
Fund in connection with the Reorganization and Stock Offering and also to
elections by participants to direct that all or a portion of their accounts be
invested in the Employer Stock Fund after the Reorganization and Stock Offering
on a quarterly basis.

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

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

     THE DATE OF THIS PROSPECTUS SUPPLEMENT IS ___________, 1998.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION OR ANY OTHER STATE OR
FEDERAL AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS SUCH COMMISSION OR
OTHER AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT.  ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

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

     No person has been authorized to give any information or to make any
representations other than those contained in the Prospectus or this Prospectus
Supplement, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Bank or the Plan. This
Prospectus Supplement does not constitute an offer to sell or solicitation of an
offer to buy any securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Bank or the Plan since the date hereof, or
that the information herein contained or incorporated by reference is correct as
of any time subsequent to the date hereof.
TABLE OF CONTENTS
THE OFFERING ...................................................................
     Securities Offered ........................................................
     Election to Purchase the Common Stock in the Reorganization and 
          Stock Offering .......................................................
     Value of Participation Interests ..........................................
     Method of Directing Transfer ..............................................
     Time for Directing Transfer ...............................................
     Irrevocability of Transfer Direction ......................................
     Direction to Purchase the Common Stock After the Reorganization and 
          Stock Offering ............................                           
     Purchase Price of the Common Stock.........................................
     Nature of a participant's Interest in the Common Stock.....................
     Voting and Tender Rights of the Common Stock...............................

DESCRIPTION OF THE PLAN ........................................................
     Introduction ..............................................................
     Eligibility and Participation .............................................
     Contributions Under the Plan ..............................................
     Limitations on Contributions ..............................................
     Investment of Contributions ...............................................
     Benefits Under the Plan ...................................................
     Withdrawals and Distributions From the Plan ...............................
     Administration of the Plan ................................................
     Reports to Plan participants ..............................................
     Plan Administrator ........................................................
     Amendment and Termination .................................................
     Merger, Consolidation or Transfer .........................................
     Federal Income Tax Consequences ...........................................
     ERISA and Other Qualification .............................................
     Restrictions on Resale ....................................................
     SEC Reporting and Short-Swing Profit Liability ............................

LEGAL OPINION ..................................................................

TRANSFER FORM ..................................................................
THE OFFERING

SECURITIES OFFERED

     The securities offered hereby are participation interests in the Plan. Up
to 59,794 shares (assuming the actual purchase price is $10.00 per share) of the
Common Stock may be acquired by the Plan to be held in the Employer Stock Fund.
The Bancorp is the issuer of the Common Stock. All eligible employees of the
Bank (hereinafter referred to as the "Employer") may participate in the Plan.
The Common Stock to be issued hereby is conditioned on the consummation of the
Reorganization and Stock Offering. A participant's investment in units in the
Employer Stock Fund in connection with the Reorganization and Stock Offering is
subject to priorities set forth in the Plan of Reorganization and Stock
Issuance.

     Information with regard to the Plan is contained in this Prospectus
Supplement and information with regard to the Reorganization and Stock Offering
and the financial condition, results of operations and business of the Bank is
contained in the attached Prospectus.  The address of the principal executive
office of the Bank is 417 Bloomfield Avenue, Caldwell, New Jersey 07006.  The
Bank's telephone number is (973) 226-7911.

ELECTION TO PURCHASE THE COMMON STOCK IN THE REORGANIZATION AND STOCK OFFERING

     In connection with the Reorganization and Stock Offering, the Plan has been
amended to permit each participant to direct that all or part of the funds which
represent his or her beneficial interest in the assets of the Plan may be
transferred to the Employer Stock Fund. To the extent shares are available,
these transferred funds will be used to purchase the Common Stock sold in the
Stock Offering , and to purchase the Common Stock in the open market. [IF THERE
IS NOT ENOUGH COMMON STOCK IN THE STOCK OFFERING TO FILL ALL SUBSCRIPTIONS, THE
COMMON STOCK WOULD BE APPORTIONED AND THE PLAN MAY NOT BE ABLE TO PURCHASE ALL
OF THE COMMON STOCK REQUESTED BY THE PARTICIPANTS. IN SUCH CASE, THE TRUSTEE
WILL PURCHASE SHARES IN THE OPEN MARKET AFTER THE STOCK OFFERING TO FULFILL
PARTICIPANTS' REQUESTS. SUCH PURCHASES MAY BE AT PRICES HIGHER THAN THE PURCHASE
PRICE IN THE STOCK OFFERING.] The ability of each participant to invest in the
Employer Stock Fund in the Reorganization and Stock Offering pursuant to
directions to transfer all or a portion of their beneficial assets in the Plan,
will be based on such participant's status as an Eligible Account Holder
(depositors whose accounts with the Bank totalled $50.00 or more on February 28,
1997), Supplemental Eligible Account Holder (depositors whose account totalled
$50.00 or more on _________, 1998) or Other Member (depositors of the Bank as of
the voting record date) pursuant to the Plan of Reorganization. No Eligible
Account Holders, Supplemental Eligible Account Holders or Other Member may
purchase in the Stock Offering more than $350,000 of the Common Stock. The
Trustee of the Plan will follow the participants' directions in transferring
funds to the Employer Stock Fund. Funds not transferred to the Employer Stock
Fund will remain in the other investment funds of the Plan as directed by the
participant on the attached Transfer Form.

                                       1
VALUE OF PARTICIPATION INTERESTS

     The market value of the assets of the Plan, as of March 31, 1998, was 
$597,949 and each participant was informed of the value of his or her beneficial
interest in the Plan. This value represented the past contributions to the Plan
by the participants and any earnings or losses thereon, less previous
withdrawals.

 METHOD OF DIRECTING TRANSFER

     The last page of this Prospectus Supplement is a form to direct a transfer
to the Employer Stock Fund (the "Transfer Form"). If a participant wishes to
transfer all or part (in multiples of not less than 1%) of his or her beneficial
interest in the assets of the Plan to the Employer Stock Fund being established
in connection with the Reorganization and Stock Offering, he or she should
indicate that decision in Part 2 of the Transfer Form. If a participant does not
wish to make such an election, he or she does not need to take any action.

TIME FOR DIRECTING TRANSFER

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

IRREVOCABILITY OF TRANSFER DIRECTION

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

DIRECTION TO PURCHASE THE COMMON STOCK AFTER THE REORGANIZATION AND STOCK
OFFERING

     After the Reorganization and Stock Offering, a participant shall be able to
direct that a certain percentage (in multiples of not less than 1%) of the net
value of such participant's interests in the trust fund established for the Plan
(the "Trust Fund") be transferred to the Employer Stock Fund and invested in the
Common Stock, or to the other investment funds available under the Plan.
Alternatively, a participant may direct that a certain percentage of such
participant's interest in the Employer Stock Fund be transferred to the Trust
Fund to be invested in accordance with the terms of the Plan.  Participants will
be permitted to direct that future contributions made to the Plan by or on their
behalf will be invested in the Common Stock. Following the initial election, the
allocation of a participant's interest in the Employer Stock Fund may be changed
once each calendar quarter in any Plan Year by filing a written notice with the
plan administrator at least ten days before the effective date of the change.
Special

                                       2
restrictions apply to transfers directed by those participants who are officers,
directors and principal shareholders of the Bank who are subject to the
provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "1934 Act").

PURCHASE PRICE OF THE COMMON STOCK

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

     The Common Stock purchased by the Trustee after the Reorganization and
Stock Offering will be acquired in open market transactions. The prices paid by
the Trustee for shares of the Common Stock will not exceed "adequate
consideration" as defined in Section 3(18) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). Transaction fees associated with
purchase, sale or transfer of the Common Stock after the Reorganization and
Stock Offering will be paid by the Employer Stock Fund.

NATURE OF A PARTICIPANT'S INTEREST IN THE COMMON STOCK

     A Participant's interest in the Employer Stock Fund does not consist of a
specific number of shares; rather, his interest consists of units whose value is
related to a pro rata portion of the net asset value ("NAV") of the Employer
Stock Fund. The NAV is determined daily and all realized and unrealized gains,
dividends, and expenses are used to calculate the NAV. For purposes of such
valuation, all assets of the Trust are valued at their fair market value. The
Common Stock in the Employer Stock Fund will be held in the name of the Trustee
for the Plan, as trustee.

VOTING AND TENDER RIGHTS OF THE COMMON STOCK

     The Trustee generally will exercise voting and tender rights attributable
to all the Common Stock held by the Trust Fund as directed by participants with
interests in the Employer Stock Fund. With respect to each matter as to which
holders of the Common Stock have a right to vote, each participant will be
allocated a number of voting instruction rights reflecting such participant's
proportionate interest in the Employer Stock Fund. The number of shares of the
Common Stock held in the Employer Stock Fund that are voted in the affirmative
and negative on each matter shall be proportionate to the number of voting
instruction rights exercised in the affirmative and negative, respectively. In
the event of a tender offer for the Common Stock, the Plan provides that each
participant will be allotted a number of tender instruction rights reflecting
such participant's proportionate interest in the Employer Stock Fund. The
percentage of shares of the Common Stock held in the Employer Stock Fund that
will be tendered will be the same as the percentage of the total number of
tender instruction rights that are exercised in favor of tendering. The
remaining shares of the Common Stock held in the Employer Stock Fund will

                                       3
not be tendered. The Plan makes provision for participants to exercise their
voting instruction rights and tender instruction rights on a confidential basis.

                            DESCRIPTION OF THE PLAN

I.   INTRODUCTION

     Effective January 1, 1993, the Employer adopted the West Essex Savings Bank
401(k) Plan. Effective as of January 1, 1996, the West Essex Savings Bank 401(k)
Plan was amended and restated in its entirety and the Employer adopted
resolutions wherein RSI Retirement Trust was named successor trustee and the RSI
Retirement Trust Agreement was adopted. On ______, 1998, the Plan was amended to
provide for the Employer Stock Fund.

     The Plan is a cash or deferred arrangement established in accordance with
the requirements under Section 401(a) and Section 401(k) of the Internal Revenue
Code of 1986 (the "Code"). The Plan, as amended, will be submitted to the
Internal Revenue Service (the "IRS") in a timely manner for a determination that
the amended Plan is qualified under Section 401(a) of the Code, and that its
related trust(s) are qualified under Section 501(a) of the Code. The Employer
intends that the Plan, in operation, will comply with the requirements under
Section 401(a) and Section 401(k) of the Code. The Employer will adopt any
amendments to the Plan that may be necessary to ensure the qualified status of
the Plan under the Code and applicable Treasury Regulations.

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

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

                                       4
Reference to Full Text of Plan.  The following statements are summaries of
      ------------------------------                                            
certain provisions of the Plan. They are not complete and are qualified in their
entirety by the full text of the Plan. Copies of the Plan are available to all
employees by filing a request with the Plan Administrator, Dennis A. Petrello,
West Essex Bank, FSB, 417 Bloomfield Avenue, Caldwell, New Jersey 07006 . The
Plan Administrator's telephone number is (973) 226-7911. Each employee is urged
to read carefully the full text of the Plan.

II.   ELIGIBILITY AND PARTICIPATION

      Any employee of the Employer may participate in the Plan upon satisfaction
of certain eligibility requirements, unless the employee belongs to one of the
groups of ineligible employees listed below. Employees satisfy the eligibility
requirements upon attainment of age 21 and completion of at least 182 days of
eligibility service with the Employer. Eligibility service is measured from an
employee's date of hire with the Employer. In order to commence participation,
an employee must submit an enrollment form at least 10 days in advance of the
date he desires to enter the Plan. Employees compensated on daily, fee or
retainer basis, leased employees (within the meaning of Section 414(n) of the
Code) and employees covered by a collective bargaining agreement which does not
expressly provide for their coverage under the Plan, are not eligible to
participate in the Plan ("ineligible employees").

      As of March 31, 1998, there were approximately 46 employees eligible to
participate in the Plan, and 29 employees had elected to participate in the
Plan.

III.  CONTRIBUTIONS UNDER THE PLAN

      401(k) Plan Contributions.  Subject to certain limitations on
      -------------------------                                    
contributions, each participant in the Plan is permitted to elect to reduce such
participant's Compensation (as defined below) pursuant to a "Compensation
Reduction Agreement" by an amount not less than 1% nor greater than 15% and have
that amount contributed to the Plan on such participant's behalf ("Before-Tax
Contributions"). Such amounts are credited to the participant's "Before-Tax
Contribution Account." See "Section IV Limitations on Contributions" below. For
purposes of the Plan, "Compensation" means an employee's wages, salary, fees and
other amounts defined as Compensation in Section 415(c)(3) of the Code and
related Income Tax Regulations received for personal services actually rendered
in the course of employment with the Employer for the calendar year prior to any
reduction pursuant to the Compensation Reduction Agreement. Compensation
includes commissions, overtime, bonuses, wage continuation payments to an
employee absent due to illness or disability of a short-term nature, amounts
paid or reimbursed by the Employer for employee moving expenses (to the extent
not deductible by the employee), and the value of any non-qualified stock
options granted to an employee by the Employer (to the extent includable in
gross income for the year granted). "Compensation" does not include
contributions made by the Employer to any other pension, deferred compensation,
welfare or other employee benefit plan, amounts realized from the exercise of a
non-qualified stock option or the sale of a qualified stock option, and other
amounts which receive special tax benefits. As of January 1, 1998, the annual
compensation of each participant taken into account under the

                                       5
Plan is limited to $160,000 (adjusted for increases in the cost of living as
permitted by the Code). Generally, a participant may elect to modify the amount
contributed to the Plan under such participant's Compensation Reduction
Agreement not more often than once in any calendar quarter by providing notice
to the Plan Administrator at least 10 days before commencement of the first day
of the payroll period for which the modification is to become effective.
However, special restrictions apply to persons subject to Section 16 of the 1934
Act.  Before-Tax Contributions are transferred by the Employer to the Trustee of
the Plan.

     Employer Contributions.  The Employer may, in its sole and absolute
     ----------------------                                             
discretion, make discretionary employer contributions to the Plan for a Plan
Year ("Discretionary Employer Contributions"). As of this date, no Discretionary
Employer Contributions have been made. After the Reorganization, at the
discretion of the Bank, the Discretionary Employer Contributions, if any, may be
credited to the participants' Accounts in the West Essex Bank, FSB Employee
Stock Ownership Plan. At its discretion, the Employer may also make special
contributions to the Plan as of the end of the Plan Year in an amount determined
by the Employer for the purpose of ensuring that the Plan complies with Section
401(k) of the Code ("Special Contributions"). Such amounts are credited to
participants' "Special Contribution Accounts" based on each participant's
compensation. Special Contributions may be made only to the accounts of non-
highly compensated eligible employees.

IV.  LIMITATIONS ON CONTRIBUTIONS

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

     (i)   Any excess amount in the participant's Accounts will be used to
reduce the Before-Tax Contributions, Discretionary Employer Contributions and/or
Special Contributions to be made on behalf of such participant in the next
Limitation Year, and each succeeding Limitation Year, if necessary, provided
that such participant is an eligible employee during such succeeding Limitation
Year; and

     (ii)  If, an excess amount still exists, and the participant is not covered
                                                                     ---
by the Plan at the end of the Limitation Year, any remaining excess amounts will
be allocated during the succeeding Limitation Year to each participant then
actively participating in the Plan. Such

                                       6
allocation shall be in proportion to the Before-Tax Contributions made to date
on his behalf for such Limitation Year; or the prior Limitation Year with
respect to an allocation as of the beginning of a Limitation Year, before any
other contributions are made in such succeeding Limitation Year.

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

     Limitation on Plan Contributions for Highly Compensated Employees.
     -----------------------------------------------------------------  
Sections 401(k) and 401(m) of the Code limit the amount of deferred compensation
that may be made to the Plan in any Plan Year on behalf of Highly Compensated
Employees (defined below) in relation to the amount of deferred compensation
made by or on behalf of all other employees eligible to participate in the Plan.
Specifically, the percentage of Before-Tax Contributions made on behalf of a
Participant who is a Highly Compensated Employee shall be limited so that the
Average Actual Deferral Percentage for the group of such Highly Compensated
Employees for the Plan Year does not exceed the greater of (i) the Average
Actual Deferral Percentage for the group of eligible Employees who are Non-
Highly Compensated Employees for the Plan Year multiplied by 1.25; or (ii) the
Average Actual Deferral Percentage for the group of eligible Employees who are
Non-Highly Compensated Employees for the Plan Year, multiplied by two (2);
provided that the difference in the Average Actual Deferral Percentage for
eligible Non-Highly Compensated Employees does not exceed two percent (2%).  Use
of this alternative limitation shall be subject to the provisions of Income Tax
Regulations Section 1.401(m)-2 regarding the multiple use of the alternative
deferral test set forth in Sections 401(k) and 401(m) of the Code.

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

      In addition, the compensation of an employee who is a family member of a
5% owner, or one of the ten most highly compensated employees during the
relevant period is aggregated with

                                       7
that of the Highly Compensated Employee.  All such family members are treated as
a single employee with respect to the application of the limitations on Highly
Compensated Employees.

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

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

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

V.   INVESTMENT OF CONTRIBUTIONS

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

     Prior to [insert date of Prospectus here], the Accounts of a participant
held in the Trust have been invested by the Trustee at the direction of the
participant in the following funds:

     a.   Core Equity Fund:  a diversified fund which seeks to achieve a total
          return in excess of the total return of the Lipper Growth and Income
          Mutual Funds Average measured over a period of three to five years.

     b.   Emerging Growth Equity Fund:  a diversified fund which seeks to
          maximize total return, primarily through capital appreciation, through
          investments in securities of rapidly growing, emerging companies.

                                       8
c.   Value Equity Fund:  a diversified fund which seeks to achieve a total
          return which exceeds the Lipper Growth and Mutual Funds Average
          measured over a period of three to five years, primarily through
          capital appreciation.

     d.   Actively Managed Bond Fund:  a diversified fund which seeks through
          selective investment in bonds and other debt securities, to achieve a
          total return in excess of the Lipper U.S. Government Bond Funds
          Average measured over a period of three to five years.

     e.   Intermediate-Term Bond Fund:  a diversified fund which seeks to
          achieve a total return in excess of the Lipper Short-Intermediate
          (five to ten year maturity) U.S. Government Mutual Funds Average
          measured over a period of three to five years.

     f.   Short-Term Investment Fund:  a diversified fund which seeks current
          income and stability of principal through investment in short term,
          fixed-income securities, and seeks to achieve a 12 month total return
          in excess of the average return of a broad-based universe of
          institutional money market funds.

     g.   International Equity Fund:  a diversified fund which seeks to achieve
          a total return (currency adjusted) in excess of the total return of
          the Lipper International Mutual Funds Average measured over a period
          of three to five years.

 
     The Plan, as amended effective _______, 1998, will provide that in addition
to the Funds specified above, a participant who is employed by the Bank may
direct the Trustee to invest all or a portion of his Accounts in the Employer
Stock Fund.

     Once in any calendar quarter a participant may elect (in increments of 1%),
to have both past and future contributions and additions to his Accounts
invested in the Employer Stock Fund. These elections will be effective on the
effective date of the participant's written notice to the plan administrator,
provided such notice is filed with the administrator at least 10 days before it
is to become effective.  Any amounts credited to a participant's Account for
which investment directions are not given will be invested in the Short-Term
Investment Fund in accordance with the terms of the Plan.

                                       9
A.   Previous Funds.
          -------------- 

     Prior to the Reorganization and Stock Offering, contributions under the
Plan were invested in the Funds specified below.  The annual percentage return
on these funds for the prior three years was:
1997   1996   1995
                                        --------------------
a.   Core Equity Fund               25.32  21.53  40.17
     b.   Emerging Growth Equity Fund     8.25  27.09  42.83
     c.   Value Equity Fund              31.70  25.90  33.96
     d.   Actively Managed Bond Fund      9.70   3.15  17.70
     e.   Intermediate-Term Bond Fund     7.07   4.02  13.99
     f.   Short-Term Investment Fund      4.93   4.70   5.39
     g.   International Equity Fund       0.92  10.86  12.46
B.   The Employer Stock Fund.
          ------------------------

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

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

     Any brokerage commissions, transfer fees and other expenses incurred in the
sale and purchase of the Common Stock for the Employer Stock Fund will be paid
out of a cash account

                                      10
managed by the Trustee.  Therefore, although participants' accounts will not be
directly adjusted for such fees, the market value of their accounts will be
reduced.

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

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

VI.  BENEFITS UNDER THE PLAN

     Vesting.  A participant, at all times, has a fully vested, nonforfeitable
     -------                                                                  
interest in his Before-Tax Contribution Account and the earnings thereon under
the Plan.  A participant vests in his Discretionary Employer Contribution
Account under the Plan according to the following schedule:
PERIOD OF SERVICE              VESTED PERCENTAGE   
                   --------------------------    -------------------
1 year                                   0%        
                   2 years but less than 3                 20         
                   3 years but less than 4                 40         
                   4 years but less than 5                 60         
                   5 years but less than 6                 80         
                   6 years or more                        100
VII. WITHDRAWALS AND DISTRIBUTIONS FROM THE PLAN

     Withdrawals Prior to Termination of Employment.  Plan participants may take
     ----------------------------------------------                             
in-service distributions under limited circumstances in the form of non-hardship
distributions, hardship distributions and Plan loans.  In the case of non-
hardship withdrawals, a participant may make a withdrawal from his Before-Tax
Contribution Account, Rollover Contribution Account, and Discretionary Employer
Contribution Account after he turns 59 1/2.  Such withdrawals may not be made
more often than once during any Plan Year.  Participants may also be eligible
for hardship withdrawals.  In order to qualify for a hardship withdrawal, a
participant must have an immediate and substantial need to meet certain expenses
and have no other reasonably available resources to meet the financial need.  If
a participant qualifies for a hardship distribution, the distribution will be
made, pro rata, from the Investment Funds in which a participant has invested
his account balances.  Participants may not make more than one hardship
withdrawal in any calendar year.

                                      11
In addition to hardship and non-hardship distributions, Plan participants
may borrow against Plan accounts at any time for any reason.  The minimum amount
a participant may borrow is $500 and the maximum amount is the lesser of 50% of
a participant's vested portion of his accounts or $50,000 (reduced by
outstanding loans). Such withdrawals may not be made more often than two (2)
times during any Plan Year.

     Distribution Upon Retirement, Disability or Termination of Employment.
     ---------------------------------------------------------------------  
Payment of benefits to a participant who retires, incurs a disability, or
otherwise terminates employment generally shall be made in a lump sum cash
payment as soon as administratively feasible after such termination of
employment if the vested value of the participant's Account is $5,000 or less.
If the vested portion of the participant's Account balance is greater than
$5,000, the participant may request a distribution (subject to the minimum
distribution rules) in a lump sum payment: (a) as soon as administratively
possible after termination, (b) as of any valuation date up to 13 months after
termination or (c) as of the date the participant attains normal retirement age.
At the request of the participant, the distribution may include an in kind
distribution of the Common Stock of the Holding Company equal to the number of
shares that can be purchased with the participant's balance in the Employer
Stock Fund.  Benefit payments ordinarily shall be made not later than 60 days
following the end of the Plan Year in which occurs the latest of the
participant's:  (i) termination of employment; (ii) the attainment of age 65 or
(iii) 10th anniversary of commencement of participation in the Plan; but in no
event paid later than the April 1st of the later of (a) the calendar year
following the calendar year in which the participant attains age 70 1/2 or (b)
the calendar year in which a participant retires.  However, if the vested
portion of the participant's Account balances exceeds or has ever exceeded
$5,000, no distribution shall be made from the Plan prior to the participant's
attaining age 65 unless the participant elects to receive an earlier
distribution.

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

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

                                      12
ADMINISTRATION OF THE PLAN

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

     Trustees.  The Trustee is appointed by the Board of Trustees of the Bank to
     --------                                                                   
serve at its pleasure.  The current Trustee of the Plan is the RSI Retirement
Trust.  However, an additional Trustee may be appointed to hold funds invested
in the Employer Stock Fund.

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

REPORTS TO PLAN PARTICIPANTS

     The Plan Administrator  will furnish to each participant a statement at
least quarterly showing (i) the balance in the participant's Account as of the
end of that period, (ii) the amount of contributions allocated to such
participant's Account for that period, and (iii) the adjustments to such
participant's Account to reflect earnings or losses (if any).

PLAN ADMINISTRATOR

     Pursuant to the terms of the Plan, the Plan is administered by one or more
persons who are appointed by and who serve at the pleasure of the Bank.
Currently, the Plan Administrator is Dennis A. Petrello of the Bank.  The
address and telephone number of the Plan Administrator is West Essex Bank, 417
Bloomfield Avenue, Caldwell, New Jersey 07006, (973) 226-7911.  The Plan
Administrator is responsible for the administration of the Plan, interpretation
of the provisions of the Plan, prescribing procedures for filing applications
for benefits, preparation and distribution of information explaining the Plan,
maintenance of Plan records, books of account and all other data necessary for
the proper administration of the Plan, and preparation and filing of all returns
and reports relating to the Plan which are required to be filed with the U.S.
Department of Labor and the IRS, and for all disclosures required to be made to
participants, Beneficiaries and others under Sections 104 and 105 of ERISA.

AMENDMENT AND TERMINATION

     It is the intention of the Bank to continue the Plan indefinitely.
Nevertheless, the Bank may terminate the Plan at any time.  If the Plan is
terminated in whole or in part, then regardless of other provisions in the Plan,
each employee affected by such termination shall have a fully vested interest in
his Accounts.  The Bank reserves the right to make, from time to time, any
amendment or amendments to the Plan which do not cause any part of the Trust to
be used for, or diverted to, any purpose other than the exclusive benefit of
participants or their beneficiaries;

                                      13
provided, however, that the Bank may make any amendment it determines necessary
or desirable, with or without retroactive effect, to comply with ERISA.

MERGER, CONSOLIDATION OR TRANSFER

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

FEDERAL INCOME TAX CONSEQUENCES

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

     The Plan will be submitted to the IRS in a timely manner for a
determination that it is qualified under Section 401(a) and 401(k) of the Code,
and that the related Trust is exempt from tax under Section 501(a) of the Code.
A plan that is "qualified" under these sections of the Code is afforded special
tax treatment which include the following:  (1) The sponsoring employer is
allowed an immediate tax deduction for the amount contributed to the Plan each
year; (2) participants pay no current income tax on amounts contributed by the
employer on their behalf; and (3) earnings of the plan are tax-deferred thereby
permitting the tax-free accumulation of income and gains on investments.  The
Plan will be administered to comply in operation with the requirements of the
Code as of the applicable effective date of any change in the law.  The Bank
expects to timely adopt any amendments to the Plan that may be necessary to
maintain the qualified status of the Plan under the Code.  Following such an
amendment, the Bank will submit the Plan to the IRS for a determination that the
Plan, as amended, continues to qualify under Sections 401(a) and 501(a) of the
Code and that it continues to satisfy the requirements for a qualified cash or
deferred arrangement under Section 401(k) of the Code.  Should the Plan receive
from the IRS an adverse determination letter regarding its tax exempt status,
all participants would generally recognize income equal to their vested interest
in the Plan, the participants would not be permitted to transfer amounts
distributed from the Plan to an IRA or to another qualified retirement plan, and
the Bank may be denied certain deductions taken with respect to the Plan.

                                      14
Lump Sum Distribution.  A distribution from the Plan to a participant or
     ---------------------                                                   
the beneficiary of a participant will qualify as a Lump Sum Distribution if it
is made:  (i) within one taxable year of the participant or beneficiary; (ii) on
account of the participant's death, disability or separation from service, or
after the participant attains age 59 1/2; and (iii) consists of the balance to
the credit of the participant under this Plan and all other profit sharing
plans, if any, maintained by the Bank.  The portion of any Lump Sum Distribution
that is required to be included in the participant's or beneficiary's taxable
income for federal income tax purposes (the "total taxable amount") consists of
the entire amount of such Lump Sum Distribution less the amount of after-tax
contributions, if any, made by the participant to any other profit sharing plans
maintained by the Bank which is included in such distribution.

     Averaging Rules.  The portion of the total taxable amount of a Lump Sum
     ---------------                                                        
Distribution that is attributable to participation after 1973 in this Plan or in
any other profit-sharing plan maintained by the Bank (the "ordinary income
portion") will be taxable generally as ordinary income for federal income tax
purposes.  However, a participant who has completed at least five (5) years of
participation in this Plan before the taxable year in which the distribution is
made, or a beneficiary who receives a Lump Sum Distribution on account of the
participant's death (regardless of the period of the participant's participation
in this Plan or any other profit-sharing plan maintained by the Employers), may
elect to have the ordinary income portion of such Lump Sum Distribution taxed
according to a special averaging rule ("five-year averaging").  The election of
the special averaging rules may apply only to one Lump Sum Distribution received
by the participant or beneficiary, provided such amount is received on or after
the participant turns 59-1/2 and the recipient elects to have any other Lump Sum
Distribution from a qualified plan received in the same taxable year taxed under
the special averaging rule.  Under a special grandfather rule, individuals who
turned 50 by 1986 may elect to have their Lump Sum Distribution taxed under
either the five-year averaging rule or under the prior law ten-year averaging
rule.  Such individuals also may elect to have that portion of the Lump Sum
Distribution attributable to the participant's pre-1974 participation in the
Plan taxed at a flat 20% rate as gain from the sale of a capital asset.

     The Common Stock Included in Lump Sum Distribution.  If a Lump Sum
     --------------------------------------------------                
Distribution includes the Common Stock, the distribution generally will be taxed
in the manner described above, except that the total taxable amount will be
reduced by the amount of any net unrealized appreciation with respect to such,
i.e., the excess of the value of such Common Stock at the time of the
distribution over its cost or other basis of the securities to the  Trust.  The
tax basis of such Common Stock to the participant or beneficiary for purposes of
computing gain or loss on its subsequent sale will be the value of the Common
Stock at the time of distribution less the amount of net unrealized
appreciation.  Any gain on a subsequent sale or other taxable disposition of
such Common Stock, to the extent of the amount of net unrealized appreciation at
the time of distribution, will be considered long-term capital gain regardless
of the holding period of such Common Stock.  Any gain on a subsequent sale or
other taxable disposition of the Common Stock in excess of the amount of net
unrealized appreciation at the time of distribution will be considered long-term
capital gain regardless of the holding period of the Common Stock. Any gain on a
subsequent sale or other taxable disposition of the Common Stock in excess of
the

                                      15
amount of net unrealized appreciation at the time of distribution will be
considered either short-term, mid-term or long-term capital gain depending upon
the length of the holding period of the Common Stock.  The recipient of a
distribution may elect to include the amount of any net unrealized appreciation
in the total taxable amount of such distribution to the extent allowed by the
regulations to be issued by the IRS.

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

ERISA AND OTHER QUALIFICATION

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

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

RESTRICTIONS ON RESALE

     Any person receiving a distribution of shares of Common Stock under the
Plan who is an "affiliate" of the Bank as the term "affiliate" is used in Rules
144 and 405 under the Securities Act of 1933, as amended (the "Securities Act")
(e.g., directors, officers and substantial shareholders of the Bank) may reoffer
or resell such shares only pursuant to a registration statement filed under the
Securities Act assuming the availability thereof, pursuant to Rule 144

                                      16
or some other exemption of the registration requirements of the Securities Act
Any person who may be an "affiliate" of the Bank may wish to consult with
counsel before transferring any Common Stock owned by him.  In addition,
participants are advised to consult with counsel as to the applicability of
Section 16 of the 1934 Act which may restrict the sale of Common Stock where
acquired under the Plan, or other sales of Common Stock.

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

SEC REPORTING AND SHORT-SWING PROFIT LIABILITY

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

     In addition to the reporting requirements described above, Section 16(b) of
the 1934 Act provides for the recovery by the Holding Company of profits
realized by any officer, director or any person beneficially owning more than
ten percent of the Bancorp's Common Stock ("Section

                                      17
16(b) Persons") resulting from the purchase and sale or sale and purchase of the
Common Stock within any six-month period.

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

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

                                 LEGAL OPINIONS

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

                                      18
WEST ESSEX BANK, FSB
                  401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST
                                 Transfer Form
                                 -------------

Name of Plan participant:  ________________________________

Social Security Number:    ________________________________

     1.   INSTRUCTIONS.  In connection with the proposed Reorganization, the
          ------------                                                      
West Essex Bank, FSB 401(k) Savings Plan in RSI Retirement Trust ("Plan") has
been amended to permit participants to direct their current account balances for
their Before-Tax Contribution Account, Discretionary Employer Contribution
Account and Rollover Account into a new fund: the Employer Stock Fund.  The
percentage of a participant's account transferred at the direction of the
participant into the Employer Stock Fund will be used to purchase shares of
common stock of West Essex Bancorp, Inc. (the "Common Stock").

     To direct a transfer of all or a part of the funds credited to your
accounts to the Employer Stock Fund, you should complete and file this form with
the Human Resources Department, no later than 10 days prior to the expiration
date of the Offering (_____________, 1998.)  A representative for the Plan
Administrator will retain a copy of this form and return a copy to you.  If you
need any assistance in completing this form, please contact _____________ at
______________.  If you do not complete and return this form to the Plan
Administrator by ____________, the funds credited to your accounts under the
Plan will continue to be invested in accordance with your prior investment
direction, or in accordance with the terms of the Plan if no investment
direction has been provided.

2.   INVESTMENT DIRECTIONS.  I hereby authorize the Plan Administrator to direct
the Trustee to invest the following percentage (in multiples of not less than
1%) of my Basic Contribution Account, Company Contribution Account and Rollover
Account in the Employer Stock Fund:

          a.   Core Equity Fund ____%                      
          b.   Emerging Growth Fund ____%                  
          c.   Value Equity Fund ____%                     
          d.   Actively Managed Bond Fund ____%            
          e.   Intermediate - Term Investment Fund ____%  
          f.   Short-Term Investment Fund ____%            
          g.   International Equity Fund ____%             

NOTE:  The total percentage of directed investments, above, may not exceed 100%.

3.   PURCHASER INFORMATION.  The ability of participants in the Plan to
purchase Common Stock in the Reorganization and to direct their current account
balances into the Employer Stock Fund is based upon the participant's status as
an Eligible Account Holder, Supplemental Eligible Account Holder or Other
Member.  Please indicate your status.
                         
               a.   [_]  Eligible Account Holder - Check here if you were a
                         depositor with $50.00 or more on deposit with West
                         Essex Bank, FSB as of February 28, 1997.

               b.   [_]  Supplemental Eligible Account Holder - Check here if
                         you were a depositor with $50.00 or more on deposit
                         with West Essex Bank, FSB as of ____________, but are
                         not an Eligible Account Holder.

               c.   [_]  Other Member - Check here if you were a depositor on
                         ___________ ("Voting Record Date").

4.   ACKNOWLEDGMENT OF PARTICIPANT.  I understand that this Transfer Form shall
be subject to all of the terms and conditions of the Plan.  I acknowledge that I
have received a copy of the Prospectus and the Prospectus Supplement.

-------------------           -----------          
Signature of Participant      Date

                                      19
______________________________________

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

______________      __________
By:______________   Date

     THE PARTICIPATION INTERESTS REPRESENTED BY COMMON STOCK OFFERED HEREBY ARE
NOT DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE BANK INSURANCE FUND OR THE
SAVINGS ASSOCIATION INSURANCE FUND OF THE  FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENT AGENCY AND ARE NOT GUARANTEED BY THE COMPANY OR BANK.
THE COMMON STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF
THE PRINCIPAL INVESTED.

                                      20
[To be used in connection with the Syndicated Community Offering only]

SYNDICATED PROSPECTUS SUPPLEMENT

                           WEST ESSEX BANCORP, INC.
         (PROPOSED STOCK HOLDING COMPANY FOR WEST ESSEX BANK, F.S.B.)
                       __________ SHARES OF COMMON STOCK

     West Essex Bancorp, Inc. ("Bancorp"), a federally chartered corporation, is
offering for sale in a syndicated community offering (the "Syndicated Community
Offering") __________ shares, at a per share price of $10.00, of its common
stock, par value $.01 per share (the "Common Stock"), in a minority stock
offering in connection with the reorganization of West Essex Bank, F.S.B. (the
"Bank" or "West Essex") from a federally chartered mutual savings bank to a
federally chartered stock savings bank in the federal mutual holding company
form of organization (the "Reorganization"). As part of the Reorganization, the
Bank will become a wholly owned subsidiary of Bancorp and Bancorp will issue a
majority of its Common Stock to West Essex Bancorp, M.H.C., a mutual holding
company (the "Mutual Company"), and, pursuant to the Bank's Plan of
Reorganization and Stock Issuance (the "Plan"), Bancorp will sell a minority of
its Common Stock to the public (the "Offering"). The remaining __________ shares
of the Common Stock will be offered on a priority basis in a subscription and
community offering to the public (the "Subscription and Community Offerings")
to holders of deposit accounts with the Bank with a balance of $50 or more as of
February 28, 1997, by the West Essex Bank Employee Stock Ownership Plan, a tax-
qualified employee benefit plan, and related trust (the "ESOP"), by holders of
deposit accounts with the Bank with a balance of $50 or more as of
______________, 1998, by certain other account holders of the Bank and, then, by
certain members of the general public. See "The Reorganization and Stock
Offering." Contained herein is the Prospectus in the form used in the
Subscription and Community Offerings. The purchase price for all shares sold in
the Syndicated Community Offering will be the same as the price paid by
subscribers in the Subscription and Community Offerings (the "Purchase Price").
The Purchase Price of $10.00 per share is the amount to be paid for each share
at the time a purchase order is submitted. See the cover page of the Prospectus
and the table below for information as to the method by which the range within
which the number of shares offered may vary and the method of subscribing for
shares of the Common Stock.

     Funds submitted to the Bank with purchase orders will earn interest at the
Bank's passbook rate of interest from the date of receipt until completion or
termination of the Reorganization and Offering.  The Syndicated Community
Offering will expire no later than _______________, 199_, unless extended by the
Bank and Bancorp with the approval of the Office of Thrift Supervision (the
"OTS").  Such extensions may not go beyond _______________, 199_.  If an
extension of time has been granted, all subscribers will be notified of such
extension, and of their rights to confirm their subscriptions, or to modify or
rescind their subscriptions and have their funds returned promptly with
interest, and of the time period within which the subscriber must notify the
Bank of his intention to confirm, modify or rescind his subscription.  If an
affirmative response to any resolicitation is not
received by the Bank and Bancorp from subscribers, such orders will be rescinded
and all funds will be returned promptly with interest.  The minimum number of
shares which may be purchased is 25 shares.  Except for the ESOP, which may
purchase up to 10% of the total number of shares of Common Stock issued in the
Offering, no person, together with associates of and persons acting in concert
with such person, may purchase more than the total number of shares offered in
the Community Offering and the Syndicated Community Offering that could be
purchased for $350,000 at the Purchase Price and the maximum number of shares of
Common Stock which may be subscribed for or purchased by any person together
with any associate or group or persons acting in concert shall not exceed
$700,000 of the Common Stock offered.  See "Plan of Reorganization and Stock
Offering - Limitations on Common Stock Purchases."  The Company reserves the
right, in its absolute discretion, to accept or reject, in whole or in part, any
or all subscriptions in the Syndicated Community Offering.

     Bancorp and the Bank have engaged Sandler, O'Neill & Partners, L.P.
("Sandler O'Neill") as financial advisors to assist them in the sale of the
Common Stock in the Syndicated Community Offering.  It is anticipated that
Sandler O'Neill will use the services of other registered broker-dealers
("Selected Dealers") and that fees to Sandler O'Neill and such Selected Dealers
will not exceed 7% of the aggregate Purchase Price of the shares sold in the
Syndicated Community Offering.  Neither Sandler O'Neill nor any Selected Dealer
shall have any obligation to take or purchase any shares of Common Stock in the
Syndicated Community Offering.

     Bancorp has applied to have its Common Stock quoted on the Nasdaq National
Market ("Nasdaq") under the symbol "WEBK."  Prior to this offering, there has
not been a public market for the Common Stock, and there can be no assurance
that an active and liquid trading market for the Common Stock will develop.  The
absence or discontinuance of a market may have an adverse impact on both the
price and liquidity of the stock.

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

THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED.

                                       2
Estimated Net
                                                    Estimated                         Proceeds
                                                  Underwriting    Estimated Net    of Subscription,
                                                   Commissions     Proceeds of        Community
                                   Syndicated       and Other      Syndicated       and Syndicated
                                   Community        Fees and        Community         Community
                                 Offering Price    Expenses(1)      Offering       Offerings(2)(3)
-------------------------------------------------------------------------------------------------
Minimum Per Share                $10.00          $                $              $
-------------------------------------------------------------------------------------------------
Midpoint Per Share               $10.00          $                $              $
-------------------------------------------------------------------------------------------------
Maximum Per Share                $10.00          $                $              $
-------------------------------------------------------------------------------------------------
Total Minimum(4)                 $               $                $              $
-------------------------------------------------------------------------------------------------
Total Midpoint                   $               $                $              $
-------------------------------------------------------------------------------------------------
Total Maximum(4)                 $               $                $              $
-------------------------------------------------------------------------------------------------
Total Maximum, As Adjusted(5)    $               $                $              $
-------------------------------------------------------------------------------------------------
______________________________
(1) Consists of a pro rata allocation of estimated expenses of the Bank and
    Bancorp in connection with the Reorganization and Offering (other than
    estimated fees to be paid to Sandler O'Neill for services in connection with
    the Subscription and Community Offerings) and estimated compensation of
    Sandler O'Neill and Selected Dealers in connection with the sale of the
    remaining shares in the Syndicated Community Offering which fees are
    estimated to be $__________ and $__________ at the minimum and the maximum
    of the estimated price range and may be deemed to be underwriting fees.  The
    information under "Pro Forma Data" in the Prospectus was based on the
    assumptions stated therein, which may differ from the estimates used for
    this table.  See "The Conversion - Marketing and Underwriting Arrangements"
    for a more detailed discussion of fee arrangements.
(2) Bancorp applied to retain up to 40% of the net proceeds.  The balance of the
    net proceeds will be transferred to the Bank in exchange for all of the
    capital stock of the Bank to be issued in connection with the Reorganization
    and Offering.
(3) The net proceeds of the Subscription and Community Offerings (based upon the
    sale of the __________ shares subscribed for at a price of $_____ per share
    and after allocation of a pro rata portion of the estimated expenses
    relating to the Reorganization and Offering) are estimated to be
    $__________.
(4) Based on an offering range of $__________ to $__________ at $10.00 per share
    (the "Offering Range").  The Total Minimum reflects the sale of __________
    shares at a per share price of $10.00, leaving a total of __________ shares
    to be sold in the Syndicated Community Offering.
(5) Gives effect to an increase in the number of shares which could occur due to
    an increase in the Offering Range of up to 15% to reflect changes in market
    and financial conditions following commencement of the offerings.  See "The
    Reorganization and Offering - Stock Pricing."  For a discussion of the
    distribution and allocation of the additional shares, see "The
    Reorganization and Offering - Subscription Rights and Limitations on Common
    Stock Purchases."

                       SANDLER O'NEILL & PARTNERS, L.P.
                                        
                       _________________________________

       The date of this Prospectus Supplement is _______________, 1998.

                                       3
PROSPECTUS

                           WEST ESSEX BANCORP, INC.
            2,071,955 (Anticipated Maximum) Shares of Common Stock

     West Essex Bancorp, Inc. ("Bancorp") a federally chartered corporation, is
offering up to 2,071,955 shares of its common stock, par value $.01 per share
(the "Common Stock"), for a purchase price of $10.00 per share (the "Purchase
Price") in a minority stock offering in connection with the reorganization of
West Essex Bank, F.S.B. (the "Bank" or "West Essex") from a federally chartered
mutual savings bank to a federally chartered stock savings bank in the federal
mutual holding company form of organization (the "Reorganization").  As part of
the Reorganization, the Bank will become a wholly owned subsidiary of Bancorp
and Bancorp will issue a majority of its Common Stock to West Essex Bancorp,
M.H.C., a mutual holding company (the "Mutual Company"), and, pursuant to
Bancorp's Plan of Mutual Holding Company Reorganization and Stock Issuance (the
"Plan"), sell a minority of its Common Stock to the public as described herein.
Depending on changes in market and financial conditions, the number of shares
offered may be increased to 2,382,748 shares following commencement of the
offering.

                                                   (continued on following page)

     FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" BEGINNING ON PAGE 15.

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

THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
        THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND
            OR ANY OTHER GOVERNMENT AGENCY NOR ARE THEY INSURED OR
                            GUARANTEED BY THE BANK.
-----------------------------------------------------------------------------------------------------
                                                                        ESTIMATED                  
                                                       ESTIMATED        UNDERWRITING                  
                                                        MINORITY         COMMISSIONS                  
                                        PURCHASE       OWNERSHIP        AND OTHER FEES      ESTIMATED  
                                        PRICE(1)         REST(1)(2)    AND EXPENSES(3)     NET PROCEEDS 
    -----------------------------------------------------------------------------------------------------
Minimum Per Share.............   $     10.00             N/A           $    .06       $      9.94
    -----------------------------------------------------------------------------------------------------
      Midpoint Per Share............   $     10.00             N/A           $    .05       $      9.95
    -----------------------------------------------------------------------------------------------------
      Maximum Per Share.............   $     10.00             N/A           $    .04       $      9.96
    -----------------------------------------------------------------------------------------------------
      Total Minimum.................   $15,314,450             43%           $851,000       $14,463,450
    -----------------------------------------------------------------------------------------------------
      Total Midpoint................   $18,017,000             43%           $889,000       $17,128,000
    -----------------------------------------------------------------------------------------------------
      Total Maximum.................   $20,719,550             43%           $926,000       $19,793,550
    -----------------------------------------------------------------------------------------------------
      Total Maximum, as adjusted(4)    $23,827,480             43%           $969,000       $22,858,480
    -----------------------------------------------------------------------------------------------------
(1) The shares of Common Stock (including shares to be held by the Mutual
    Company) will be issued at an aggregate purchase price equal to the
    estimated pro forma market value of such stock based on an independent
    appraisal (the "Independent Valuation") of Bancorp prepared by FinPro, Inc.
    ("FinPro"), an independent appraisal firm. FinPro determined that the
    estimated pro forma market value of Bancorp, including the impact of the
    Mutual Company, was $41.9 million as of June 12, 1998.  The shares of Common
    Stock being offered represent a minority interest in Bancorp equal to 43% of
    the Independent Valuation. The aggregate purchase price of the Common Stock
    to be offered in the Offering (as defined herein) will range from
    $15,314,450 to $20,719,550 , subject to adjustment up to $23,827,480
    million if there is an increase of up to 15% in the Independent Valuation
    (the "Offering Range").  The Independent Valuation will be updated at the
    time of completion of the Offering  (as defined herein), and the percentage
    of the outstanding shares to be offered in the Offering (as defined herein)
    (the "Minority Ownership Interest") may increase or decrease to reflect
    changes in market and financial conditions, the estimated pro forma market
    value of Bancorp, or both.  The Purchase Price will remain fixed.  In the
    event the Independent Valuation at the completion of the Offering  (as
    defined herein) increases, Bancorp may increase the Offering (as defined
    herein) by up to 15% without giving prospective purchasers the opportunity
    to change or withdraw their purchase orders.  See "The Reorganization and
    Stock Offering--Stock Pricing and Number of Shares Issued." In the event the
    Independent Valuation decreases, the aggregate purchase price necessary to
    purchase the Minority Ownership Interest will also decrease.  Any adjustment
    of shares within the Offering Range will have a corresponding effect on the
    estimated net proceeds of the Offering and the pro forma capitalization and
    per share data of Bancorp.  See "Use of Proceeds," "Capitalization" and "Pro
    Forma Data."

(2) The shares of Common Stock issued in the Offering (as defined herein) will
    represent a minority ownership interest in Bancorp.  The remaining shares
    will be owned by the Mutual Company.  The Minority Ownership Interest is
    calculated as a percentage of the total shares of Bancorp's Common Stock
    that will be outstanding upon completion of the Offering (as defined
    herein), and assumes there has been no change in the estimated pro forma
    market value of Bancorp as determined by the Independent Valuation.

(3) Consists of estimated costs to Bancorp arising from the Offering  (as
    defined herein), including estimated fixed expenses of $600,000, and
    marketing fees to be paid to Sandler O'Neill & Partners, L.P. ("Sandler
    O'Neill"), which marketing fees are estimated to be $205,000.  The actual
    fees and expenses may vary from the estimated amounts.  See "Pro Forma Data"
    and "The Reorganization and Stock Offering" for the assumptions used to
    determine these estimates.

(4) As adjusted to reflect the sale of up to an additional 15% of the Common
    Stock which may be offered at the Purchase Price, without resolicitation of
    subscribers or any right of cancellation, due to regulatory considerations,
    changes in market conditions or general financial and economic conditions.
    See "Pro Forma Data" and "The Reorganization and Stock Offering -- Stock
    Pricing and Number of Shares Issued."  For a discussion of the distribution
    and allocation of the additional shares, if any, see "The Reorganization and
    Stock Offering -- Subscription Offering and Subscription Rights," " --
    Community Offering" and "--Limitations on Common Stock Purchases."

                       SANDLER O'NEILL & PARTNERS, L.P.

             THE DATE OF THIS PROSPECTUS IS ______________, 1998.
PURSUANT TO THE BANK'S PLAN, THE SHARES OF COMMON STOCK ARE BEING OFFERED
IN A SUBSCRIPTION OFFERING (THE "SUBSCRIPTION OFFERING") ON A PRIORITY BASIS TO:
(1) HOLDERS OF DEPOSIT ACCOUNTS (AS DEFINED BY THE PLAN AND AS DESCRIBED HEREIN)
AT THE BANK WHICH TOTALLED $50 OR MORE ON FEBRUARY 28, 1997 ("ELIGIBLE ACCOUNT
HOLDERS"); (2) THE BANK'S EMPLOYEE STOCK OWNERSHIP PLAN (THE "ESOP"), A TAX-
QUALIFIED EMPLOYEE STOCK OWNERSHIP PLAN; (3) HOLDERS OF DEPOSIT ACCOUNTS AT THE
BANK WHICH TOTALLED $50 OR MORE ON ___________, 1998 ("SUPPLEMENTAL ACCOUNT
HOLDERS"); AND (4) MEMBERS OF THE BANK CONSISTING OF HOLDERS OF DEPOSIT ACCOUNTS
AT THE BANK AS OF ___________, 1998, THE VOTING RECORD DATE ("VOTING RECORD
DATE") FOR THE SPECIAL MEETING (AS DEFINED HEREIN), OTHER THAN THOSE MEMBERS WHO
OTHERWISE QUALIFY AS ELIGIBLE ACCOUNT HOLDERS OR SUPPLEMENTAL ACCOUNT HOLDERS
("OTHER MEMBERS"). SUBSCRIPTION RIGHTS ARE NONTRANSFERABLE. PERSONS FOUND TO BE
TRANSFERRING SUCH RIGHTS WILL BE SUBJECT TO THE FORFEITURE OF SUCH RIGHTS AND
POSSIBLE FURTHER SANCTIONS AND PENALTIES IMPOSED BY THE OFFICE OF THRIFT
SUPERVISION ("OTS").

     Subject to the prior rights of holders of subscription rights, Bancorp may
offer shares of Common Stock not subscribed for in the Subscription Offering for
sale in a community offering to certain members of the general public, with
preference given to natural persons residing in Essex, Morris and Bergen
Counties in the State of New Jersey (the "Community Offering") (the Subscription
Offering and Community Offering are referred to collectively as the
"Subscription and Community Offerings"). Shares not subscribed for in the
Subscription and Community Offerings will be offered to members of the general
public in a syndicated community offering (the "Syndicated Community Offering")
(the Subscription and Community Offerings and the Syndicated Community Offering
are referred to collectively as the "Offering").

     Pursuant to the Plan: (i) the Bank will establish Bancorp and the Mutual
Company; (ii) the Bank will exchange its mutual savings bank charter for a stock
savings bank charter; (iii) the Bank will issue 100% of its capital stock to
Bancorp and (iv) Bancorp will issue between 3,561,500 and 4,818,500 shares of
Common Stock in the Reorganization: 55.2% of these (or between 1,965,887 and
2,659,730 shares) will be issued to the Mutual Company, 43% (or between
1,531,445 and 2,071,955 shares) will be sold through the Offering to the
minority stockholders (the "Minority Stockholders") and 1.8% (or between 64,168
and 86,815 shares) will be issued to a newly formed charitable foundation
(described herein). Interests depositors had in the Bank prior to the
Reorganization will become interests in the Mutual Company, which will own 55.2%
of the shares of Common Stock of Bancorp, while minority ownership in the stock
of Bancorp will be held by the owners of the Common Stock. References herein to
the Bank shall include West Essex in its current form or post-reorganization
stock form, as indicated by the context.

     THE SHARES OF COMMON STOCK ISSUED IN THE OFFERING WILL REPRESENT A MINORITY
INTEREST IN BANCORP. THE REMAINING SHARES WILL BE OWNED BY THE MUTUAL COMPANY.
ASSUMING NO CHANGE IN THE ESTIMATED PRO FORMA MARKET VALUE OF BANCORP AS OF THE
DATE OF COMPLETION OF THE OFFERING, 1,801,700 SHARES OF COMMON STOCK WILL
REPRESENT APPROXIMATELY 43% OF THE ISSUED AND OUTSTANDING SHARES OF BANCORP.
Except for the ESOP, which intends to subscribe for up to 8% of the Common Stock
issued in the Offering, including shares contributed to the Foundation, no
Eligible Account Holder, Supplemental Eligible Account Holder or Other Member
may, in their respective capacities as such, purchase in the Subscription
Offering more than $350,000 of the Common Stock offered in the Offering; no
person, together with associates of and persons acting in concert with such
person, may purchase in the Community Offering and the Syndicated Community
Offering more than $350,000 of the shares offered in the Offering; and no
person, together with associates of and persons acting in concert with such
person, may purchase in the aggregate more than the overall maximum purchase
limitation of $700,000 of the shares of Common Stock offered in the Offering;
provided, however, that such purchase limitations may be increased or decreased
in the sole discretion of Bancorp without further approval of subscribers or the
Bank's members to the extent permitted by applicable regulations. See "The
Reorganization and Stock Offering --The Offering," "-- Community Offering" and 
"--Limitations on Common Stock Purchases." The minimum purchase is 25 shares.

     Pursuant to the Plan, Bancorp intends to establish a charitable foundation,
in connection with the Reorganization and Offering. The Bank and Bancorp will
form the West Essex Bancorp Charitable Foundation (the "Foundation") which will
be incorporated under Delaware law as a non-stock corporation. The Plan provides
that Bancorp will fund the Foundation with cash and shares of Common stock
contributed by Bancorp from authorized but

                                       2
unissued shares in an amount equal to approximately 4.2% of the shares sold in
the Offering. The Foundation will be dedicated to charitable purposes within the
Bank's community. The establishment of the Foundation is subject to the approval
of the Bank's members at the Special Meeting being held to consider the Plan.
For a discussion of the Foundation and its effects on the Reorganization, see
"Risk Factors--Establishment of the Charitable Foundation," "Pro Forma Data" and
"The Reorganization and Stock Offering--Establishment of the Charitable
Foundation."

     THE SUBSCRIPTION OFFERING WILL TERMINATE AT __:__, EASTERN TIME, ON
________, 1998 (THE "EXPIRATION DATE") UNLESS EXTENDED BY BANCORP, WITH THE
APPROVAL OF THE OTS, IF NECESSARY. The Community Offering and Syndicated
Community Offering, if any, must be completed within 45 days of the Subscription
Offering, or __________, 1998, unless extended by Bancorp with the approval of
the OTS. Orders submitted are irrevocable until the completion of the
Reorganization and Offering; provided that, if the Reorganization and Offering
is not completed within the 45 day period referenced to above, unless such
period has been extended with the consent of the OTS, if necessary, all
subscribers will have their funds returned promptly with interest, and all
withdrawal authorizations will be cancelled. Such extensions may not go beyond
________, 2000. See "The Reorganization and Stock Offering --The Offering," " --
Community Offering" and "-- Procedure for Purchasing Shares in the Offering."

     Bancorp has received conditional approval to have its Common Stock quoted
on the Nasdaq National Market ("Nasdaq") under the symbol "WEBK" upon completion
of the Reorganization and Offering. Prior to this offering there has not been a
public market for the Common Stock, and there can be no assurance that an active
and liquid trading market for the Common Stock will develop or that the Common
Stock will trade at or above the Purchase Price. The absence or discontinuance
of a market may have an adverse impact on both the price and liquidity of the
Common Stock. See "Risk Factors--Absence of a Market for the Common Stock," and
"Market for the Common Stock."

     EXPLANATORY NOTE:  This Prospectus contains certain forward looking
statements consisting of estimates with respect to the financial condition,
results of operations and business of Bancorp and the Bank. Prospective
investors are cautioned that such forward looking statements are not guarantees
of future performance and are subject to various factors which could cause
actual results to differ materially from these estimates. These factors include
changes in general, economic and market conditions, and the development of an
interest rate environment that adversely affects the interest rate spread or
other income anticipated from Bancorp's and the Bank's operations and
investments. See "Risk Factors" for a discussion of other factors that might
cause actual results to differ from such estimates.

                                       3
[MAP GOES HERE]

                                       4
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                SUMMARY OF THE REORGANIZATION AND THE OFFERING

     The following summary of the Reorganization and the Offering is qualified
in its entirety by the terms of the Plan and more detailed information appearing
elsewhere in this Prospectus.

RISK FACTORS...................  A purchase of the Common Stock involves a
                                 substantial degree of risk. Eligible Account
                                 Holders, Supplemental Eligible Account Holders,
                                 Other Members and other prospective investors
                                 should carefully consider the matters set forth
                                 under "Risk Factors." THE SHARES OF COMMON
                                 STOCK OFFERED HEREBY ARE NOT INSURED OR
                                 GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
                                 CORPORATION ("FDIC"), THE BANK INSURANCE FUND
                                 ("BIF") OR THE SAVINGS ASSOCIATION INSURANCE
                                 FUND ("SAIF") OR ANY OTHER GOVERNMENT AGENCY
                                 AND ARE NOT GUARANTEED BY BANCORP OR THE BANK.

WEST ESSEX BANCORP, INC........  Bancorp has not yet been incorporated. It will
                                 be incorporated at the direction of the Bank
                                 under Federal law in connection with the
                                 consummation of the Reorganization and Offering
                                 to become a savings and loan holding company
                                 and own all of the Bank's capital stock to be
                                 issued upon the Reorganization. In connection
                                 with the Reorganization and Offering, Bancorp
                                 will offer shares of Common Stock through the
                                 Offering and issue at least 51% of its shares
                                 to the Mutual Company. Its executive office is
                                 located at 417 Bloomfield Avenue, Caldwell, New
                                 Jersey 07006 and its telephone number is (973)
                                 226-7911.

WEST ESSEX BANCORP, M.H.C......  The Mutual Company is being organized by the
                                 Bank to be a federally chartered mutual holding
                                 company that will own a majority of the Common
                                 Stock of Bancorp following the Reorganization
                                 and Offering. The Mutual Company's principal
                                 assets will be shares of common stock received
                                 in the Reorganization and Offering and up to
                                 $100,000 received as its initial
                                 capitalization.

WEST ESSEX BANK, F.S.B.........  The Bank is a federally chartered mutual
                                 savings bank. At March 31, 1998, the Bank had
                                 total assets of $312.5 million, total deposits
                                 of $239.1 million and total equity of $29.8
                                 million. The Bank currently operates eight full
                                 service banking offices including its main
                                 office, all of which are located in Essex,
                                 Morris and Bergen Counties, New Jersey. The
                                 Bank has historically operated as a community-
                                 oriented savings institution whose business
                                 currently primarily consists of accepting
                                 deposits from customers in its primary market
                                 area and investing those deposits in mortgage-
                                 backed securities and one- to four-family
                                 residential mortgage loans secured by
                                 properties located primarily in the Bank's
                                 primary market area. To a significantly lesser
                                 extent, the Bank originates commercial real
                                 estate loans and home equity loans,
                                 construction and development loans, multi-
                                 family loans and consumer loans and invests in
                                 debt obligations of the federal government and
                                 federal agencies, as well as states and
                                 municipalities. The Bank considers that its
                                 market area consists of Essex, Morris and
                                 Bergen Counties, all of which are located in
                                 Northern New Jersey. Its executive offices are
                                 located at 417 Bloomfield Avenue, Caldwell, New
                                 Jersey 07006 and its telephone number is (973)
                                 226-7911.

THE REORGANIZATION.............  On March 18, 1998, the Board of Directors of
                                 the Bank adopted the Plan pursuant to which the
                                 Bank will reorganize from a federal mutual
                                 savings bank into a federal mutual holding
                                 company structure. The structure following the
                                 Reorganization will be as follows: the Mutual
                                 Company

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

                                       5
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                                 (which will be formed by the Bank) will own up
                                 to at least 51% of Bancorp's Common Stock and
                                 Bancorp will own 100% of the issued and
                                 outstanding capital stock of the Bank. It is
                                 intended that, following approval by the Bank's
                                 members of the Plan and the satisfaction of all
                                 other conditions precedent to the
                                 Reorganization, the Bank will effect the
                                 Reorganization in the following way: (i) the
                                 Bank will form an interim federal stock savings
                                 bank ("Interim I"), which will then form two
                                 subsidiaries, another interim federal stock
                                 savings bank ("Interim II") and Bancorp; (ii)
                                 the Bank will exchange its mutual charter for a
                                 stock charter and Interim I will exchange its
                                 charter for a federal mutual holding company
                                 charter to become the Mutual Company; (iii)
                                 Interim II will then merge with and into the
                                 Bank, with the Bank as the resulting entity and
                                 100% of the outstanding capital stock of the
                                 Bank will be transferred to the Mutual Company
                                 in exchange for membership interests in the
                                 Bank that existed when the Bank was in mutual
                                 form; and, finally, (iv) the Mutual Company
                                 will transfer 100% of the issued and
                                 outstanding capital stock of the Bank to
                                 Bancorp. In connection with the Reorganization,
                                 the Mutual Company will be capitalized by the
                                 Bank with $100,000.

THE MUTUAL COMPANY
 STRUCTURE AND REASONS FOR
 THE REORGANIZATION............  In adopting the Plan, the Board of Directors of
                                 the Bank has determined that for the reasons
                                 set forth below, the Reorganization is
                                 advisable and in the best interests of the Bank
                                 and its depositors, and is consistent with the
                                 Bank's business plan to operate as an
                                 independent, community-oriented savings
                                 institution. The Reorganization will structure
                                 the Bank in the stock form of organization,
                                 which is used by commercial banks, most major
                                 business corporations and an increasing number
                                 of savings institutions. The Reorganization
                                 will enable the Bank to access capital markets,
                                 expand its current operations, acquire other
                                 financial institutions or establish new branch
                                 offices, diversify into other financial
                                 services to the extent allowable by applicable
                                 law and regulation and to otherwise improve the
                                 Bank's ability to provide services to its
                                 community. Such access to the capital markets
                                 will also make it possible for the Bank to be
                                 more responsive to possible future changes in
                                 the regulations of the bank regulatory agencies
                                 mandating higher capital reserves and/or
                                 capital ratios. AT THE SAME TIME, THE MUTUAL
                                 HOLDING COMPANY STRUCTURE WILL PRESERVE THE
                                 MUTUAL FORM OF OWNERSHIP WITHIN THE MUTUAL
                                 HOLDING COMPANY STRUCTURE, CONSISTENT WITH THE
                                 BANK'S COMMITMENT TO BE AN INDEPENDENT,
                                 COMMUNITY ORIENTED SAVINGS INSTITUTION. IN THIS
                                 REGARD, SO LONG AS THE MUTUAL COMPANY IS IN
                                 EXISTENCE, IT WILL AT ALL TIMES OWN AT LEAST A
                                 MAJORITY INTEREST OF BANCORP, AND THEREFORE,
                                 INDIRECTLY, THE BANK AS WELL.

                                 The Board of Directors believes that these
                                 advantages outweigh the potential disadvantages
                                 of the mutual holding company structure, which
                                 include: (i) the inability to sell Common Stock
                                 in excess of 49.9% of Bancorp's total issued
                                 and outstanding voting stock so long as the
                                 Mutual Company remains in existence; (ii) the
                                 more limited liquidity of the Common Stock, as
                                 compared to a standard conversion; (iii) the
                                 inability of stockholders other than the Mutual
                                 Company to obtain majority ownership of the
                                 Bank and Bancorp, which may result in the
                                 perpetuation of the existing management and
                                 Board of Directors of Bancorp and the Bank; and
                                 (iv) the added expense of conducting more than
                                 one stock offering should the Mutual Company
                                 convert to the stock form at some future date.
                                 Because the Mutual Company will hold

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

                                       6
--------------------------------------------------------------------------------

                                 a majority of the Common Stock of Bancorp
                                 following consummation of the Reorganization
                                 and Offering, the Mutual Company could take
                                 certain actions that the Minority Stockholders
                                 may not believe is in their best interest,
                                 including but not limited to, preventing the
                                 sale of Bancorp, defeating Board candidates
                                 nominated or supported by Minority
                                 Stockholders, or defeating other proposals that
                                 may be supported by the Minority Stockholders.

                                 The Reorganization does not preclude the
                                 conversion of the Mutual Company from the
                                 mutual to stock form of organization following
                                 the Reorganization. NO ASSURANCE CAN BE GIVEN
                                 THAT THE MUTUAL COMPANY WILL EVER CONVERT TO
                                 STOCK FORM OR WHAT CONDITIONS THE OTS MAY
                                 IMPOSE ON ANY SUCH A TRANSACTION. SEE
                                 "CONVERSION OF MUTUAL COMPANY TO STOCK FORM."

WEST ESSEX BANCORP CHARITABLE
 FOUNDATION....................  The Plan provides for the establishment of a
                                 charitable foundation in connection with the
                                 Reorganization. The Foundation, which will be
                                 incorporated under Delaware law as a non-stock
                                 corporation, will be funded with a contribution
                                 by Bancorp equal to approximately 4.2% of the
                                 Common Stock sold in the Offering, in addition
                                 to a cash contribution of $100,000. The
                                 authority for the affairs of the Foundation
                                 will be vested in the Board of Directors of the
                                 Foundation, all of whom will be Directors of
                                 Bancorp or the Bank or officers of Bancorp or
                                 the Bank. See "The Reorganization and Stock
                                 Offering--Establishment of the Charitable
                                 Foundation."

TERMS OF THE
 SUBSCRIPTION OFFERING.........  The Plan of Stock Issuance authorizes Bancorp
                                 to offer Common Stock to persons other than the
                                 MHC in the Offering in an amount less than
                                 50.0% of the issued and outstanding shares of
                                 Bancorp Common stock. Bancorp is offering
                                 between 1,531,445 and 2,071,955 shares in the
                                 Offering, which represents a Minority Ownership
                                 Interest of 43%, based upon the Independent
                                 Valuation. The shares of Common Stock to be
                                 sold in connection with the Reorganization and
                                 Offering are being offered at a fixed price of
                                 $10.00 per share in the Subscription Offering
                                 pursuant to subscription rights in the
                                 following order of priority to: (i) Eligible
                                 Account Holders; (ii) the ESOP; (iii)
                                 Supplemental Eligible Account Holders; and (iv)
                                 Other Members. Subject to the prior rights of
                                 holders of subscription rights, any shares of
                                 Common Stock not subscribed for in the
                                 Subscription Offering will be offered in the
                                 Community Offering at $10.00 per share to
                                 certain members of the general public.
                                 Subscription rights will expire if not
                                 exercised by 12:00 noon, Eastern time, on
                                 ________, 1998, unless extended by the Bank and
                                 Bancorp, with the approval of the OTS, if
                                 necessary. Deposit accounts that will provide a
                                 subscription right to holders thereof consist
                                 of any "savings account" as defined by the Plan
                                 consistent with OTS Regulations. Pursuant to
                                 the Plan and OTS regulations, certain accounts
                                 do not qualify as "savings accounts,"
                                 including, but not limited to, non-interest-
                                 bearing demand accounts (primarily non-interest
                                 checking accounts) or mortgage loan escrow
                                 accounts maintained at the Bank. See "The
                                 Reorganization and Stock Offering--Subscription
                                 and Subscription Rights" and "--Community
                                 Offering."

PROCEDURE FOR ORDERING SHARES
 AND PROSPECTUS DELIVERY.......  Forms to order Common Stock offered in the
                                 Subscription Offering and the Community
                                 Offering will be preceded or accompanied by a
                                 Prospectus. Any person receiving a stock order
                                 and certification form who desires to subscribe

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

                                       7
--------------------------------------------------------------------------------
 
                                 for shares must do so prior to the Expiration
                                 Date by delivering to the Bank a properly
                                 executed stock order and certification form
                                 together with full payment. ONCE TENDERED,
                                 SUBSCRIPTION ORDERS CANNOT BE REVOKED OR
                                 MODIFIED WITHOUT THE CONSENT OF THE BANK. To
                                 ensure that each purchaser receives a
                                 prospectus at least 48 hours prior to the
                                 Expiration Date in accordance with Rule 15c2-8
                                 of the Securities Exchange Act of 1934, as
                                 amended (the "Exchange Act"), no prospectus
                                 will be mailed any later than five days prior
                                 to the Expiration Date or hand delivered any
                                 later than two days prior to such date. The
                                 Bank is not obligated to accept subscriptions
                                 not submitted on an original stock order form.
                                 See "The Reorganization and Stock Offering--
                                 Procedure for Purchasing Shares in the
                                 Subscription Offering."

FORM OF PAYMENT FOR SHARES.....  Payment for subscriptions may be made: (i) in
                                 cash (if delivered in person); (ii) by check,
                                 bank draft or money order; or (iii) by
                                 authorization of withdrawal from deposit
                                 accounts maintained at the Bank. See "The
                                 Reorganization and Stock Offering--Procedure
                                 for Purchasing Shares in the Offering."

NONTRANSFERABILITY OF
 SUBSCRIPTION RIGHTS...........  The subscription rights of Eligible Account
                                 Holders, Supplemental Eligible Account Holders,
                                 Other Members and the Employee Plans, including
                                 the ESOP, are nontransferable. See "The
                                 Reorganization and Stock Offering-- Certain
                                 Restrictions on Purchase or Transfer of the
                                 Common Stock."

PURCHASE LIMITATIONS...........  Except for the ESOP, no Eligible Account
                                 Holder, Supplemental Eligible Account Holder or
                                 Other Member may purchase in the Subscription
                                 Offering more than $350,000 of Common Stock. No
                                 person, together with associates or persons
                                 acting in concert with such person, may
                                 purchase in the Community Offering and the
                                 Syndicated Community Offering more than
                                 $350,000 of Common Stock. No person, together
                                 with associates or persons acting in concert
                                 with such person, may purchase in the aggregate
                                 more than $700,000 of Common Stock. However,
                                 the ESOP, may purchase up to 10% of the Common
                                 Stock issued in the Offering, including shares
                                 issued to the Foundation. Pursuant to the Plan,
                                 it is intended that the ESOP will purchase 8%
                                 of the Common Stock issued in the Offering,
                                 including shares issued to the Foundation. The
                                 minimum purchase is 25 shares of Common Stock.
                                 At any time during the Reorganization and
                                 Offering and without approval of the Bank's
                                 depositors or a resolicitation of subscribers,
                                 the Bank and Bancorp may, in their sole
                                 discretion, decrease the maximum purchase
                                 limitation below $350,000 of Common Stock;
                                 however, such amount may not be reduced to less
                                 than 0.10% of the Common Stock offered.
                                 Additionally, at any time during the
                                 Reorganization and Offering, the Bank and
                                 Bancorp may, in their sole discretion, increase
                                 the maximum purchase limitation in the
                                 Subscription and Community Offerings to an
                                 amount in excess of $350,000, up to a maximum
                                 of 5% of the shares to be issued in the
                                 Reorganization and Offering. Similarly, the
                                 $700,000 overall maximum purchase limitation
                                 may be decreased to an amount not below 1% of
                                 the Common Stock offered or increased up to 5%
                                 of the total shares of Common Stock offered in
                                 the Offering.

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                                       8
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SECURITIES OFFERED AND
 PURCHASE PRICE................  Bancorp is offering between 1,531,445 and
                                 2,071,955 shares of Common Stock at a purchase
                                 price of $10.00 per share. The maximum of the
                                 Offering Range may be increased by up to 15%
                                 and the maximum number of shares of Common
                                 Stock to be issued may be increased up to
                                 2,382,748 shares due to regulatory
                                 considerations and changes in market or general
                                 financial or economic conditions. See "The
                                 Reorganization and Stock Offering--Stock
                                 Pricing and Number of Shares Issued."

INDEPENDENT VALUATION..........  The purchase price per share has been fixed at
                                 $10.00. The total number of shares to be issued
                                 in the Conversion is based upon an independent
                                 appraisal prepared by FinPro, dated as of June
                                 12, 1998, which states that the estimated pro
                                 forma market value of the Common Stock ranged
                                 from $35.6 million to $48.2 million, taking
                                 into account shares issued to the Foundation.
                                 Establishing the Foundation in connection with
                                 the Reorganization and Offering will result in
                                 a lower aggregate market valuation than if the
                                 Reorganization and Offering were completed
                                 without the Foundation. See "Comparison of
                                 Valuation and Pro Forma Information With No
                                 Foundation." The final aggregate value will be
                                 determined at the time of closing of the
                                 Offering and is subject to change due to
                                 changing market conditions and other factors.
                                 See "The Reorganization and Stock Offering--
                                 Stock Pricing and Number of Shares Issued."

USE OF PROCEEDS................  Bancorp will use up to 75% of the net proceeds
                                 of the Offering to acquire 100% of the capital
                                 stock of the Bank. The remaining net proceeds
                                 will be used for general business activities,
                                 including the loan of funds to the ESOP (to the
                                 extent such loan is not funded by a third
                                 party) to enable the ESOP to purchase up to 8%
                                 of the stock issued in the Offering, including
                                 shares issued to the Foundation. Bancorp
                                 intends initially to invest the remaining net
                                 proceeds in federal funds and securities,
                                 primarily mortgage-related securities and
                                 federal agency obligations. In connection with
                                 the Reorganization, the Mutual Company will be
                                 capitalized by the Bank with $100,000. The Bank
                                 intends to utilize the net proceeds received by
                                 it for general business purposes, including
                                 investment in loans, and mortgage-related
                                 securities. On an interim basis, it is
                                 anticipated that most of the net proceeds will
                                 be invested in investments that qualify as
                                 short-term liquidity for regulatory purposes
                                 until such proceeds can be deployed in longer-
                                 term investments. See "Use of Proceeds."

DIVIDEND POLICY................  Upon consummation of the Reorganization and
                                 Offering, the Board of Directors of Bancorp
                                 will have the authority to declare dividends on
                                 the Common Stock, subject to statutory and
                                 regulatory requirements. In the future, the
                                 Board of Directors of Bancorp may consider a
                                 policy of paying cash dividends on the Common
                                 Stock. However, no decision has been made with
                                 respect to such dividends, if any. See
                                 "Dividend Policy."

BENEFITS OF THE REORGANIZATION 
 TO MANAGEMENT.................  Among the benefits to the Bank and Bancorp
                                 anticipated from the Reorganization and
                                 Offering is the ability to attract and retain
                                 personnel through the use of stock options and
                                 other stock related benefit programs.
                                 Subsequent to the Reorganization, Bancorp
                                 intends to adopt a Stock-Based Incentive Plan
                                 (as defined herein) for the benefit of
                                 directors, officers and employees of Bancorp
                                 and Bank. If the Stock-Based Incentive Plan is
                                 adopted within one year after the
                                 Reorganization, the plan will be subject to

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                                       9
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                                 stockholders' approval at a meeting of
                                 stockholders which may not be held earlier than
                                 six months after the Reorganization. The Stock-
                                 Based Incentive Plan would provide for the
                                 granting of stock-based benefits, including
                                 Common Stock in an amount equal to 4% of the
                                 Common Stock issued in the Offering, including
                                 shares issued to the Foundation, and options to
                                 purchase Common Stock in an amount equal to 10%
                                 of the Common Stock issued in the Offering,
                                 including shares issued to the Foundation. Any
                                 Common Stock awarded under the Stock-Based
                                 Incentive Plan will be awarded at no cost to
                                 the recipients.

                                 Additionally, certain officers of Bancorp and
                                 the Bank will be provided with employment
                                 agreements or change in control agreements
                                 which provide such officers with employment
                                 rights and/or payments upon their termination
                                 of service following a change in control. The
                                 Stock-Based Incentive Plan may also provide
                                 participants with benefits upon a change in
                                 control of Bancorp or the Bank. For a further
                                 description of the Stock-Based Incentive Plan
                                 and employment and change in control
                                 agreements, see "Risk Factors--Stock Based
                                 Benefits to Management and Directors,
                                 Employment Contracts and Change in Control
                                 Payments" and "Management of the Bank--Other
                                 Benefit Plans." See "Management of the Bank--
                                 Subscriptions by Executive Officers and
                                 Directors," "Certain Restrictions on
                                 Acquisition of Bancorp" and "The Reorganization
                                 and Stock Offering--Establishment of the
                                 Charitable Foundation."

VOTING CONTROL OF OFFICERS
  AND DIRECTORS................  Directors and executive officers of the Bank
                                 and Bancorp expect to purchase approximately
                                 18.8% or 13.9% of shares of Common Stock sold
                                 in the Offering, based upon the minimum and the
                                 maximum of the Offering Range, including shares
                                 issued to the Foundation, respectively.
                                 Additionally, assuming the implementation of
                                 the ESOP and Stock-Based Incentive Plan,
                                 directors, executive officers and employees
                                 have the potential to control the voting of
                                 approximately 36.4% or 32.1% of the Common
                                 Stock at the minimum and the maximum of the
                                 Offering Range, including shares issued to the
                                 Foundation, respectively. See "Management of
                                 the Bank--Subscriptions by Executive Officers
                                 and Directors," and "Certain Restrictions on
                                 Acquisition of Bancorp." In addition, the
                                 Mutual Company will control the voting of at
                                 least 51% of the total outstanding Common Stock
                                 of Bancorp, and the Bank's current Board of
                                 Directors will control the Mutual Company.

WAIVER OF DIVIDENDS BY THE
 MUTUAL COMPANY................  It has been the recent practice of the OTS to
                                 permit mutual holding companies to waive the
                                 receipt of cash dividends declared by savings
                                 association subsidiaries or subsidiary holding
                                 companies on a case-by-case basis and pursuant
                                 to OTS regulations, subject to the satisfaction
                                 of certain conditions, although there can be no
                                 assurance that the OTS will permit future
                                 dividend waivers, or of the terms of such
                                 permitted waivers. The Board of Directors of
                                 the Mutual Company, which initially will
                                 consist of the same individuals as the Board of
                                 Directors of the Bank, will determine whether
                                 the Mutual Company will waive receipt of such
                                 dividends as such dividends are declared by
                                 Bancorp. The Mutual Company may elect to
                                 receive dividends and to utilize the dividends
                                 received, if any, for general corporate
                                 purposes and to fund the purchase of Common
                                 Stock in the open market, as well as the
                                 payment of miscellaneous expenses. Any waiver
                                 of 

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                                       10
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                               dividends by the Mutual Company may result in an
                               adjustment to the ratio pursuant to which shares
                               of Common Stock are exchanged for shares of a
                               stock holding company should the Mutual Company
                               convert from the mutual to stock form of
                               organization. Such an adjustment would have the
                               effect of diluting the Minority Ownership
                               Interest. See "Risk Factors--Waiver of Dividends
                               by the Mutual Company," "Waiver of Dividends by
                               the Mutual Company" and "Conversion of the Mutual
                               Company to Stock Form."

CONVERSION OF THE MUTUAL
 COMPANY TO STOCK FORM......   Although the Mutual Company may convert to the
                               stock form of organization in the future (a
                               "Conversion Transaction") and OTS regulations
                               provide for a Conversion Transaction, there can
                               be no assurance when, if ever, a Conversion
                               Transaction will occur, or what conditions may be
                               imposed by the OTS on any Conversion Transaction.
                               Any Conversion Transaction would be subject to
                               federal securities laws and the regulations of
                               the OTS in effect at the time of the Conversion
                               Transaction. In the event of a Conversion
                               Transaction, subject to OTS approval, (1) the
                               stockholders of Bancorp other than the Mutual
                               Company will be entitled to exchange their shares
                               of Common Stock for shares of the stock holding
                               company in a manner that is fair and reasonable
                               to the stockholders and subject to the stock
                               purchase limitations of the OTS conversion
                               regulations (which may require, as a condition to
                               the approval of the Conversion Transaction by the
                               OTS, that certain insiders of Bancorp who have
                               accumulated shares in excess of the stock
                               purchase limitations of the Conversion
                               Transaction to divest such shares, and may also
                               potentially restrict or prohibit additional
                               purchases of common stock of the stock holding
                               company in the Conversion Transaction by other
                               stockholders that could be in excess of such
                               stock purchase limitation), or (2) the Mutual
                               Company may conduct a Conversion Transaction that
                               does not exchange shares of Common Stock for
                               stock of the stock holding company; provided,
                               however, the Mutual Company must purchase all
                               shares not owned by it simultaneously with the
                               closing of such Conversion Transaction at the
                               fair market value of such shares, determined as
                               if such shares had such exchange rights, as
                               determined by an independent appraisal. The
                               precise treatment of a Conversion Transaction by
                               the OTS cannot be determined at this time and the
                               OTS may impose, or the regulations of the OTS may
                               require, restrictions or conditions that may
                               adversely affect minority stockholders. See
                               "Conversion of the Mutual Company to Stock Form."

EXPIRATION DATE FOR THE
 SUBSCRIPTION OFFERING......   The Expiration Date for the Subscription Offering
                               is 12:00 noon Eastern Time on ________, 1998
                               unless extended by the Bank and Bancorp and
                               subject to any applicable regulatory approvals.

MARKET FOR STOCK............   As a mutual institution, the Bank has never
                               issued capital stock and, consequently, there is
                               no existing market for the Common Stock. Bancorp
                               has received conditional approval to have its
                               Common Stock listed on the Nasdaq under the
                               symbol "WEBK" subject to the completion of the
                               Offering and compliance with certain conditions.
                               See "Market for the Common Stock."

CONVERSION CENTER...........   If you have any questions regarding the
                               Reorganization and Offering, call the Stock
                               Offering Center at (___) ___-____.

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                                       11
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE BANK

     The selected consolidated financial and other data of the Bank set forth
below is derived in part from, and should be read in conjunction with, the
Consolidated Financial Statements of the Bank and Notes thereto presented
elsewhere in this Prospectus.
AT                                       
                                          MARCH 31,                    AT DECEMBER 31, 
                                          ---------   -------------------------------------------------
                                           1998(1)       1997      1996      1995      1994      1993
                                          ---------   ---------  --------  --------  --------  --------
                                                                (IN THOUSANDS)
SELECTED CONSOLIDATED FINANCIAL DATA:
Total assets(2).........................  $312,522     $299,025  $235,969  $223,165  $199,580  $195,714
Loans receivable, net(3)................   114,302      112,735    82,134    85,031    84,611    89,419
SECURITIES AVAILABLE-FOR-SALE(4):
   Investment securities, net...........     7,105        7,081     1,647     1,932     1,857    20,315
SECURITIES HELD-TO-MATURITY(4):
   Investment securities, net...........    28,768       22,929    22,476    18,482     7,498     7,502
   Mortgage-backed securities, net......   122,633      130,174   113,254   100,032    89,300    49,695
Deposits................................   239,120      238,192   179,946   178,392   164,181   168,004
Borrowed money..........................    42,300       30,300    23,650    17,000    10,000     5,000
Retained earnings.......................    29,801       29,275    28,452    26,856    24,477    21,838
AT OR FOR THE THREE
                                                MONTHS ENDED
                                                  MARCH 31,            AT OR FOR THE YEARS ENDED DECEMBER 31,
                                             --------------------  ----------------------------------------------
                                             1998(1)     1997(1)     1997      1996     1995      1994      1993
                                             --------  ----------  --------  --------  -------  --------  -------
                                                                      (IN THOUSANDS)
SELECTED OPERATING DATA:
Interest income............................  $5,115      $4,252     $18,116  $16,467   $15,735  $13,235   $13,819
Interest expense...........................   2,870       2,152       9,656    8,300     7,618    5,121     5,882
                                             ------      ------     -------  -------   -------  -------   -------
    Net interest income....................   2,245       2,100       8,460    8,167     8,117    8,114     7,937
Provision for loan losses..................     (22)         55         487      232       510     (247)     (200)
                                             ------      ------     -------  -------   -------  -------   -------
    Net interest income after
      provision for loan losses............   2,267       2,045       7,973    7,935     7,607    8,361     8,137
Noninterest income.........................     140         113         373      476       332       32       399
Noninterest expense(5).....................   1,636       1,351       7,173    4,821     4,446    4,648     4,492
                                             ------      ------     -------  -------   -------  -------   -------
    Income before income taxes(5)..........     771         807       1,173    3,590     3,493    3,745     4,044
Income taxes(5)............................     260         284         436    1,231     1,221      977     1,744
                                             ------      ------     -------  -------   -------  -------   -------
Income before SAIF Special
  Assessment and cumulative
  effect of change in accounting for
   income taxes............................     511         523         737    2,359     2,272    2,768     2,300
Cumulative effect of change in
  accounting for income taxes..............      --          --          --       --        --       --     1,096
SAIF Special Assessment, net of
    income taxes(5)........................      --          --          --     (703)       --       --        --
                                             ------      ------     -------  -------   -------  -------   -------
Net income.................................  $  511      $  523     $   737  $ 1,656   $ 2,272  $ 2,768   $ 3,396
                                             ======      ======     =======  =======   =======  =======   =======
(continued on next page)

                                       12
AT OR FOR THE THREE
                                                         MONTHS ENDED
                                                           MARCH 31,            AT OR FOR THE YEARS ENDED DECEMBER 31,
                                                    ----------------------   -------------------------------------------
                                                      1998(1)     1997(1)     1997     1996     1995     1994     1993
                                                    -----------  ---------   -------  -------  -------  -------  -------
                                                                               (DOLLARS IN THOUSANDS)
SELECTED FINANCIAL RATIOS AND OTHER DATA:
PERFORMANCE RATIOS(6):
   Return on average assets(5)...................       0.68%       0.89%      0.29%    1.05%    1.07%    1.44%    1.74%
   Return on average retained earnings(5)........       6.92        7.29       2.51     8.47     8.84    11.98    16.07
   Average retained earnings
    /average assets..............................       9.88       12.15      11.55    12.37    12.09    11.98    10.82
   Interest rate spread(7).......................       2.77        3.03       2.87     3.15     3.34     3.92     3.78
   Net interest margin(8)........................       3.17        3.66       3.44     3.74     3.93     4.33     4.19
   Non-interest expenses to average assets(5)....       2.19        2.29       2.82     2.14     2.09     2.41     2.30
   Retained earnings to assets...................       9.54       12.27       9.79    12.06    12.03    12.26    11.16
   Efficiency ratio(9)...........................      61.41       53.92      57.04    56.58    52.86    50.37    50.93
REGULATORY CAPITAL RATIOS(6)(10):
   Tangible capital..............................       7.84       12.27       7.98    12.06    12.02    12.26    11.16
   Core capital..................................       7.84       12.27       7.98    12.06    12.02    12.26    11.16
   Risk-based capital............................      19.95       40.13      26.10    39.15    37.50    35.89    25.18
ASSET QUALITY RATIOS(6):
   Non-performing loans to total assets..........       0.74        1.20       0.84     1.26     0.96     1.55     2.72
   Non-performing loans to total loans      
     receivable..................................       1.95        3.36       2.16     3.51     2.46     3.52     5.76
   Non-performing assets to total assets.........       1.10        1.66       1.24     1.85     1.57     2.48     4.38
   Allowance for loan losses to
    non-performing loans.........................      80.79       57.15      75.19    52.70    55.84    40.00    29.12
   Average interest-earning assets to average     
     interest-bearing liabilities................     109.52      116.73     114.39   115.46   115.94   114.86   112.96
   Net interest income after provision for          
     loan losses to non-interest expenses(5).....     138.57      151.37     111.15   164.59   171.10   179.88   181.14
NUMBER OF FULL-SERVICE CUSTOMER
   FACILITIES....................................          8           5          8        5        5        5        5
______________________________
(1)  The data presented at March 31, 1998 and for the three months ended March
     31, 1998 and 1997 were derived from unaudited consolidated financial
     statements and reflect, in the opinion of management, all adjustments
     (consisting only of normal recurring adjustments) which are necessary to
     present fairly the results for such interim periods. Interim results at and
     for the three months ended March 31, 1998 are not necessarily indicative of
     the results that may be expected for the year ended December 31, 1998. All
     operating results presented for selected financial ratios and other data
     for the three month periods ended March 31, 1998 and 1997 are presented on
     an annualized basis.
(2)  The increase in assets in fiscal 1997 was due primarily to the purchase of
     three branch offices from Summit Bank. See "Management's Discussion and
     Analysis."
(3)  The allowance for loan losses at March 31, 1998 and December 31, 1997,
     1996, 1995, 1994 and 1993 was $1.9 million, $1.9 million, $1.6 million,
     $1.2 million, $1.2 million and $1.5 million, respectively.
(4)  The Bank adopted Statement of Financial Accounting Standards ("SFAS") No.
     115, "Accounting for Certain Investments in Debt and Equity Securities"
     ("SFAS No. 115"), as of December 31, 1993.
(5)  Excludes, for the year ended December 31, 1996, the SAIF Special Assessment
     of $1.1 million and the related income tax benefit of $395,000. If
     included, return on average assets, return on average retained earnings,
     non-interest expenses to average assets and net interest income after
     provision for loan losses to non-interest expenses would be 0.74%, 5.95%,
     2.63% and 134.06%, respectively for the year ended December 31, 1996.
(6)  With the exception of end of period ratios, all ratios are based on average
     monthly balances during the indicated periods and are annualized where
     appropriate.
(7)  The interest rate spread represents the difference between the weighted
     average yield on average interest-earning assets and the weighted average
     cost of average interest-bearing liabilities.
(8)  The net interest margin represents net interest income as a percent of
     average interest-earning assets.
(9)  The efficiency ratio represents non-interest expenses, excluding the SAIF
     Special Assessment, impairment loss and amortization relating to tangible
     assets and loss on REO, divided by the sum of net interest and non-interest
     income excluding income on REO and security gain/loss.
(10) For definitions and further information relating to the Bank's regulatory
     capital requirements, see "Regulation and Supervision - Federal Savings
     Institution Regulation -- Capital Requirements." See "Regulatory Capital
     Compliance" for the Bank's pro forma capital levels as a result of the
     Offerings.

                                       13
RISK FACTORS

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

COMPETITION FOR MORTGAGE LOANS IN MARKET AREA

     The Bank faces significant competition both in making loans and in
attracting deposits. While its lending area extends throughout New Jersey, most
of the Bank's mortgage loans are secured by properties located in Essex, Morris
and Bergen Counties, New Jersey (the Bank's "primary market area"). The State of
New Jersey has a high density of financial institutions, many of which have a
state-wide or regional presence, and, in some cases, a national presence, all of
which are competitors of the Bank to varying degrees. The Bank's competition for
loans comes principally from commercial banks, savings banks, savings and loan
associations, credit unions, mortgage banking companies and insurance companies.
Its most direct competition for deposits has historically come from commercial
banks, savings banks, savings and loan associations and credit unions, many of
which are significantly larger than the Bank and, therefore, have greater
financial and marketing resources than those of the Bank. Limited mortgage
lending opportunities in the Bank's primary market area may exist for the
foreseeable future. In an effort to address the intense competition for mortgage
loans, the Bank is aggressively seeking lending opportunities, including through
using loan brokers, expanding available lending products and aggressively
pricing its loan products. Although the Bank has been successful in
substantially increasing loan originations in the past year, there can be no
assurance the Bank will be able to continue to do so in the future. The Bank
faces additional competition for deposits from short-term money market funds,
common stock funds, other corporate and government securities funds and from
other financial institutions such as brokerage firms and insurance companies.
See "Business of the Bank -- Market Area and Competition."

POTENTIAL IMPACT OF CHANGES IN INTEREST RATES

     The Bank's profitability, like that of most financial institutions, is
dependent to a large extent upon its net interest income, which is the
difference between its interest income on interest-earning assets, such as loans
and investments, and its interest expense on interest-bearing liabilities, such
as deposits and borrowings. One method of analyzing an institution's exposure to
interest rate risk is by measuring the change in the institution's Net Portfolio
Value ("NPV") under various interest rate scenarios. NPV is the present value of
expected cash flows from assets, liabilities and off-balance sheet contracts. An
NPV Ratio, in any interest rate scenario, is defined as the NPV in that scenario
divided by the market value of assets in the same scenario. The sensitivity
measure is the decline in the NPV Ratio, in basis points, caused by a 2%
increase or decrease in rates, whichever produces a larger decline. The higher
an institution's sensitivity measure is, the greater its exposure to interest
rate risk is considered to be. As of March 31, 1998, the most recent date for
which information is available, the Bank's sensitivity measure, as measured by
the OTS, indicated that a 2% increase in interest rates would cause a 206 basis
point decline in the Bank's NPV Ratio. This NPV Ratio sensitivity measure does
not exceed the thresholds at which the Bank could be required to hold additional
risk-based capital under OTS regulation, if so determined by the OTS. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Management of Interest Rate Risk -- Net Portfolio Value" and
"Regulation and Supervision --Federal Savings Institution Regulation -- Capital
Requirements."

     A significant portion of the Bank's assets consist of fixed-rate
residential mortgage loans. At March 31, 1998, the Bank had $89.5 million of 
one- to four-family mortgage loans, or 75.7% of the Bank's total loans
receivable of which $44.6 million, or 49.8%, have fixed-rates of interest. The
Bank emphasizes fixed-rate mortgage loans due to customer preference for fixed-
rate mortgage loans in the Bank's market area. The

                                       14
Bank also retains in its portfolio all of the loans that it originates,
including fixed-rate mortgage loans. Investment in fixed-rate mortgage loans
generally results in increased interest rate risk as such loans do not reprice
as adjustable-rate mortgage loans do during periods of rising interest rates.
The Bank attempts to offset the risks associated with its predominantly fixed-
rate loan portfolio by investing in adjustable-rate mortgage-backed securities
and by maintaining a strong level of capital, although the Bank, to a lesser
extent, also invests in fixed-rate mortgage-backed and other securities. At
March 31, 1998, the Bank had $78.3 million of adjustable-rate mortgage-backed
securities and $44.3 million of fixed-rate mortgage-backed securities.

     Increases in the level of interest rates also may adversely affect the
amount of loans originated by the Bank. Increases in interest rates can
adversely affect the type (fixed-rate or adjustable-rate) of loans originated by
the Bank and the average life of loans and securities owned by the Bank, which
can adversely impact the yields earned on the Bank's loan portfolio. In periods
of decreasing interest rates, the average life of loans held by the Bank may be
shortened to the extent increased prepayment activity occurs during such
periods, which may result in the Bank investing funds from such prepayments in
lower yielding assets. Accordingly, the Bank's results of operations and
financial condition are largely dependent on movements in market interest rates
and its ability to manage its assets and liabilities in response to such
movements. However, management believes its substantial investment in 
adjustable-rate mortgage-backed securities will help offset that risk. In
addition, fluctuations in interest rates may also result in disintermediation,
which is the flow of funds away from depository institutions into direct
investments which pay a higher rate of return, and may adversely affect the
value of the Bank's investment securities and other interest-earning assets. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Management of Interest Rate Risk" and "Regulation and 
Supervision -- Federal Savings Institution Regulation --Capital Requirements."

CONSIDERATIONS RESULTING FROM MUTUAL HOLDING COMPANY STRUCTURE

     GENERAL.  The mutual holding company structure is a relatively new form of
corporate organization, originally authorized for OTS regulated savings
institutions by the Competitive Equality Banking Act of 1987 ("CEBA"), and
confirmed and clarified under the Financial Institutions Reform, Recovery and
Enforcement Act of 1989. Final mutual holding company regulations were adopted
by the OTS, effective March 1993 and those final regulations were revised on
April 1, 1998 to allow for the two-tier mutual holding company structure that
the Bank is utilizing. Accordingly, prospective investors should be aware that
there is limited historical experience for the market of the common stock of a
subsidiary of a mutual holding company, and there can be no assurance as to the
regulatory requirements regarding the treatment of the stockholders of the Bank
in the event of a subsequent mutual-to-stock conversion of the Holding Company.
See "Market for the Common Stock" and "Conversion of Mutual Company to Stock
Form."

     ANTITAKEOVER CONDITIONS.  Pursuant to OTS regulations, the Mutual Company
must own more than 50% of the outstanding voting stock of Bancorp as long as the
Mutual Company remains in existence. This effectively precludes the possibility
of a sale of Bancorp separate and apart from the Mutual Company. At the
conclusion of the Reorganization and Offering, and assuming the contributions to
the Foundation, the Mutual Company will own 55.2% of Bancorp's Common Stock
(based on the maximum of the Offering Range). As the majority owner of Bancorp,
the Mutual Company will elect Bancorp's directors and direct the affairs and
business operations of Bancorp. The directors of the Mutual Company are the
current directors of Bancorp. The Mutual Company's members consist of depositors
of the Bank. Accordingly, the purchasers of the Common Stock in the Offering
will be Minority Stockholders of Bancorp who will have limited influence in
electing directors or otherwise directing the affairs of Bancorp. Moreover, such
Minority Stockholders have no influence over the affairs of the Mutual Company,
except to the extent that they are also members of the Mutual Company. No
assurance can be given that the Mutual Company and

                                       15
Minority Stockholders will have the same interest in matters affecting Bancorp,
and, therefore, no assurance can be given that the Mutual Company will not take
actions which the Minority Stockholders believe to be adverse to their
interests. For example, the Mutual Company could prevent the sale of control of
Bancorp, or defeat a candidate for election to the Board of Directors of
Bancorp, prevent a conversion transaction or other proposals put forth by
Minority Stockholders. As long as the Mutual Company remains in the mutual form
of organization, the Mutual Company will always own at least a majority of
Bancorp's common stock and purchasers of the Common Stock will always be
Minority Stockholders.

     WAIVER OF DIVIDENDS BY THE MUTUAL COMPANY. The Board of Directors of the
Mutual Company will determine whether the Mutual Company will waive the receipt
of dividends declared by Bancorp each time Bancorp declares a dividend. The
Board of Directors of the Mutual Company presently intends to waive the receipt
of dividends declared by Bancorp. OTS regulations with respect to a mutual
holding company's waiver of dividends state that the Mutual Company may not
waive its right to receive any dividend declared by Bancorp unless either: (1)
no insider of the Mutual Company, associate of an insider, or tax-qualified or
non-tax-qualified employee stock benefit plan of the Mutual Company holds any
share of stock in the class of stock to which the waiver would apply; or (2) the
Mutual Company provides the OTS with written notice of its intent to waive its
right to receive dividends 30 days prior to the proposed date of payment of the
dividend, and the OTS does not object. The regulations further state that the
OTS shall not object to a notice of intent to waive dividends if: (1) the waiver
would not be detrimental to the safe and sound operation of the Bank; and (2)
the Board of Directors of the Mutual Company expressly determines that waiver of
the dividend by the Mutual Company is consistent with the Directors' fiduciary
duties to the mutual members of the Mutual Company. In addition, a dividend
waiver notice shall include a copy of the resolution of the Board of Directors
of the Mutual Company, in form and substance satisfactory to the OTS, together
with any supporting material relied upon by the Board, concluding that the
proposed dividend waiver is consistent with the Board's fiduciary duties to the
mutual members of the Mutual Company. Finally, the OTS has announced that the
value of any waived dividends be retained for the benefit of the members of a
mutual holding company to prevent potential windfalls to the minority
shareholders in a subsequent conversion of the mutual holding company.

     The Mutual Company's Board of Directors may conclude that a dividend waiver
by the Mutual Company, which permits retention of capital by Bancorp, is in the
best interest of the Mutual Company's members because, among other reasons: (i)
the Mutual Company has no need for the dividend for its business operations,
(ii) the cash that would be received could be invested by Bancorp more
effectively; and (iii) such waiver preserves the retained earnings of the Mutual
Company through its principal asset (Bancorp), which would be available for
distribution in the unlikely event of a voluntary liquidation of Bancorp after
satisfaction of claims of depositors and other 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 Company. There is no assurance
that the Mutual Company will waive the receipt of the dividends.

     Immediately after consummation of the Reorganization and the Offering, it
is expected that the Mutual Company's operations will consist of activities
relating to its investment in, and control of, a majority of the Common Stock of
Bancorp and maintenance of books and records relating to members of the Mutual
Company. In the future, the Mutual Company may accept dividends paid by Bancorp
to be used for the payment of operating expenses and other purposes, including
purchasing Common Stock from time to time in the open market or from Bancorp.
There can be no assurance that the Mutual Company will accept dividends paid by
Bancorp, or if such dividends are accepted, that the Mutual Company will
purchase shares of Common Stock in the open market. Any purchase of Common Stock
other than from the Mutual Company will increase the percentage of Bancorp's
outstanding shares of Common Stock held by the Mutual Company and increase the
number of shares eligible to be sold in any subsequent secondary offering or
mutual to stock conversion of the Mutual Company. Any waiver of dividends by the
Mutual Company is

                                       16
likely to result in an adjustment to the ratio pursuant to which shares of
Common Stock are exchanged for shares of the converted Mutual Company in a
Conversion Transaction, which adjustment will have the effect of diluting
Minority Stockholders' percentage ownership interest in the converted Mutual
Company's shares.

POTENTIAL DILUTION TO MINORITY STOCKHOLDERS RESULTING FROM ANY MUTUAL TO STOCK
CONVERSION OF THE MUTUAL COMPANY

     In the event of a Conversion Transaction, the Plan provides that, subject
to written OTS approval, (i) the stockholders of Bancorp will be entitled to
exchange their shares of stock for shares of the newly converted holding company
in a manner that is fair and reasonable to such stockholders and maintains
approximately the same percentage ownership interest in the newly converted
holding company after the Conversion Transaction as such stockholders held in
the Bank immediately prior to the Conversion Transaction or, (ii) the holding
company may purchase all shares not owned by it simultaneously with the
consummation of the Conversion Transaction at the fair market value of such
shares. The OTS's policy with respect to dividends waived by mutual holding
companies requires that in the case of mutual to stock conversion of recently
formed mutual holding companies, the aggregate amount of cash dividends waived
by a mutual holding company must be considered when establishing a fair and
reasonable basis for exchanging subsidiary savings institution common stock for
converted holding company common stock, and that the OTS will not permit a pro
rata exchange if the mutual holding company has waived the receipt of cash
dividends paid by the subsidiary savings institution. ACCORDINGLY, ANY WAIVER OF
DIVIDENDS BY THE MUTUAL COMPANY IS LIKELY TO RESULT IN AN ADJUSTMENT TO THE
RATIO PURSUANT TO WHICH SHARES OF COMMON STOCK ARE EXCHANGED FOR SHARES OF THE
NEWLY CONVERTED HOLDING COMPANY IN A CONVERSION TRANSACTION, WHICH ADJUSTMENT
WILL HAVE THE EFFECT OF DILUTING MINORITY STOCKHOLDERS' PERCENTAGE OWNERSHIP
INTEREST IN NEWLY CONVERTED HOLDING COMPANY SHARES. See "Conversion of the
Mutual Company to Stock Form."

ABSENCE OF A MARKET FOR THE COMMON STOCK

     The Bank is a mutual savings association and, therefore, has never issued
capital stock. Bancorp has received approval conditioned upon consummation of
the Reorganization and the Offering, to have its Common Stock traded on the
Nasdaq under the symbol "WEBK." However, there can be no assurance that an
established and liquid trading market for the Common Stock will develop or, once
developed, will continue, nor can there by any assurances that purchasers of
Common Stock will be able to resell their shares at or above the Purchase Price.
The absence or discontinuance of a market for the Common Stock would have an
adverse impact on both the price and liquidity of the Common Stock. See "Market
for the Common Stock."

FINANCIAL INSTITUTION REGULATION AND POSSIBLE LEGISLATION

     The Bank is subject to extensive regulation and supervision as a federal
savings institution. Bancorp will be regulated as a federally chartered
corporation and, in addition, the Mutual Company, as a savings institution
mutual holding company, will be subject to extensive regulation and supervision.
Such regulations that affect the Mutual Company, Bancorp and the Bank on a daily
basis, may be changed at any time, and the interpretation of the relevant law
and regulations is also subject to change by the authorities who examine the
Bank and interpret those laws and regulations. Any change in the regulatory
structure or the applicable statutes or regulations, whether by the OTS, the
FDIC or the Congress, could have a material impact on the Mutual Company,
Bancorp, the Bank, its operations or the Bank's Reorganization. See "Regulation
and Supervision."

                                       17
THRIFT RECHARTERING

     The Deposit Insurance Funds Act of 1996 (the "Funds Act"), which was
enacted in September 1996, provides that the BIF (the deposit insurance fund
that covers most commercial bank deposits) and the SAIF will merge on January 1,
1999, if there are no more savings associations as of that date. Several bills
have been introduced in the current Congress that would eliminate the federal
thrift charter and the OTS. A bill originally reported by the House Banking
Committee would have required federal thrifts to become national banks or state
banks within two years of enactment or they would have become national banks by
operation of law. OTS would have been abolished and its functions transferred to
the bank regulatory agencies. The bill as passed by the House of
Representatives, however, did not provide for the elimination of the federal
thrift charter or OTS, but did provide that unitary savings and loan holding
companies existing or applied for after March 31, 1998 would not have the
ability to engage in unlimited activities but would be subject to the activities
restrictions applicable to multiple savings and loan holding companies. Unitary
holding companies existing or applied for before 1998 would be grandfathered and
could continue to engage in unlimited activities and could transfer the
grandfather rights to acquirors of the holding company. The Senate has not acted
on the legislation but if such legislation was enacted, the Company would not
qualify for unlimited activities but would be subject to the activities
restrictions applicable to multiple savings and loan holding companies. The Bank
is unable to predict whether the legislation will be enacted or, given such
uncertainty, determine the extent to which the legislation, if enacted, would
affect its business. The Bank is also unable to predict whether the SAIF and BIF
will eventually be merged or the federal thrift charter eliminated, and what
effect, if any, such legislation would have on the Bank.

POTENTIAL LOW RETURN ON EQUITY FOLLOWING THE REORGANIZATION AND OFFERING

     At March 31, 1998, the Bank's ratio of retained earnings to assets was
9.5%. Bancorp's equity position will be significantly increased as a result of
the Offering. On a pro forma basis as of March 31, 1998, assuming the sale of
Common Stock at the midpoint of the Estimated Price Range, Bancorp's ratio of
equity to assets would exceed 14.0%. Bancorp's ability to deploy this new
capital through investments in interest-earning assets, such as loans and
securities which bear rates of return comparable to its current loans and
securities investments, will be significantly affected by industry competition.
Bancorp currently anticipates that it will take time to prudently deploy such
capital. As a result, Bancorp's return on equity initially is expected to be
below its historical return on equity and may be below peer group institutions
after the Conversion. No assurances can be made as to when or if Bancorp will
achieve returns on its equity that are comparable to industry peers or industry
averages. Additionally, due to implementation of stock-based benefit plans such
as the ESOP and Stock-Based Incentive Plan, Bancorp's future compensation
expense will be increased, thereby, adversely affecting its net income and
return on equity.

ESTABLISHMENT OF THE CHARITABLE FOUNDATION

     Pursuant to the Plan, the Company intends to establish a charitable
foundation in connection with the Reorganization and Offering. The Plan provides
that the Bank, Bancorp and the Mutual Company will establish the Foundation,
which will be incorporated under Delaware law as a non-stock corporation and
will be funded with $100,000 in cash and with shares of Common Stock contributed
by Bancorp. Establishment of the Foundation is subject to the approval of the
Bank's members at the Special Meeting. If approved by members, the establishment
of the Foundation will have an adverse impact on the operating results of
Bancorp in fiscal 1998, resulting in a reduction of earnings for the year in
which the Foundation is established.

                                       18
NEGATIVE IMPACT ON EARNINGS.  Assuming receipt of approval of the Bank's
members, establishment of the Foundation will have an adverse impact on
Bancorp's earnings in the year in which the contribution is made. Bancorp will
recognize an expense in the amount of the contribution to the Foundation in the
quarter in which it occurs, which is expected to be the fourth quarter of fiscal
1998. Such expense will reduce earnings and have a material adverse impact on
Bancorp's earnings for the year. The amount of the contribution will range from
$641,675 to $868,149, depending on the amount of Common Stock sold in the
Offering. The contribution expense will be partially offset by the tax
deductibility of the expense. Bancorp has been advised by its independent
accountants that the contribution to the Foundation will be deductible for
federal income tax purposes, subject to a limitation based on 10% of Bancorp's
annual taxable income. Assuming a contribution of $868,149 in Common Stock plus
the $100,000 cash, based on the maximum of the Offering Range, Bancorp estimates
a net tax effected expense of $619,000. If the Foundation had been established
at December 31, 1997, the Bank would have reported net income of $118,000 for
fiscal 1997 rather than reporting net income of $737,000.

     POSSIBLE NONDEDUCTIBILITY OF THE CONTRIBUTION.  Bancorp, the Bank and the
Mutual Company have been advised by their tax accountants that an organization
created for charitable purposes will qualify as a Section 501(c)(3) exempt
organization under the Code, and will be classified as a private foundation. In
this regard, the Foundation will submit a request to the Internal Revenue
Service ("IRS") to be recognized as a tax-exempt organization. Bancorp, the Bank
and the Mutual Company have received an opinion of their tax accountants that
the Foundation will qualify as a Section 501(c)(3) exempt organization under the
Code, except that such opinion does not consider the impact of the regulatory
condition on the gift imposed by the OTS which requires the shares of Common
Stock of Bancorp held by the Foundation to be voted in the same ratio as all
other shares of Bancorp's Common Stock on all proposals considered by
stockholders of Bancorp. See "The Reorganization and Stock Offering--
Establishment of the Charitable Foundation--Regulatory Conditions Imposed on the
Foundation." In the event that Bancorp or the Foundation receives an opinion of
their tax counsel satisfactory to OTS that compliance with the voting
restriction would have the effect of causing the Foundation to lose its tax
exempt status, otherwise have material adverse tax consequences on the
Foundation or subject the Foundation to an excise tax under Section 4941 of the
Code, the OTS will waive such voting restriction upon submission of such
opinion(s) by the Company or the Foundation. The tax accountants' opinion
further provides that Bancorp's contribution of its own stock to the Foundation
will not constitute an act of self-dealing, and that Bancorp will be entitled to
a deduction in the amount of the fair market value of the stock at the time of
the contribution less the nominal par value that the Foundation is required to
pay to Bancorp for such stock, subject to an annual limitation based on 10% of
Bancorp's annual taxable income. Bancorp, however, would be able to carry
forward any unused portion of the deduction for five years following the year in
which the contribution is initially made for federal tax purposes, subject to
the 10% annual limitation. Thus, while Bancorp expects, based on the maximum of
the Offering Range, to be able to utilize for federal income tax purposes a
charitable contribution deduction of approximately $_______ in fiscal year 1998,
Bancorp is permitted under the Code to carryover the excess of the total
contribution over such 1998 deduction over a five-year period for federal tax
purposes. For New Jersey state income tax purposes, Bancorp also will be able to
deduct its contributions and to carry forward the unused portion of the
deduction for a five-year period following the year in which the contribution is
initially made, subject to limitations based on 10% of Bancorp's unconsolidated
annual taxable income, and provided Bancorp generates sufficient state taxable
income on an unconsolidated basis. Assuming the sale of Common Stock at the
maximum of the Offering Range, Bancorp estimates that substantially all of the
contribution should be deductible for federal tax purposes over the combined 
six-year period. However, no assurances can be made that Bancorp will have
sufficient pre-tax income over the five-year period following the year in which
the contribution is initially made to fully utilize the carryover related to the
excess contribution. Although Bancorp, the Bank and the Mutual Company have
received an opinion of their independent accountants that Bancorp will be
entitled to the deduction for the charitable contribution, there can be no
assurances that the IRS will recognize the Foundation as a Section 501(c)(3)
exempt organization

                                       19
or that the deduction will be permitted. In such event, there would be no tax
benefit related to the Foundation.

     COMPARISON OF VALUATION AND OTHER FACTORS ASSUMING THE FOUNDATION IS NOT
ESTABLISHED AS PART OF THE REORGANIZATION. The establishment of the Foundation
was taken into account by FinPro in determining the estimated pro forma market
value of Bancorp. The aggregate price of the shares of Common Stock being
offered in the Subscription is based upon the independent appraisal conducted by
FinPro of the estimated pro forma market value of Bancorp. The pro forma
aggregate price of the shares being offered for sale in the Offering is
currently estimated to be between $15.3 million and $20.7 million, with a
midpoint of $18.0 million. Based on the appraisal, the pro forma market
capitalization of the Bank at the midpoint, including shares contributed to the
Foundation, is $18.8 million. The pro forma price to book ratio and the pro
forma price to earnings ratio are 93.46% and 17.86x, respectively, at the
midpoint of the Offering Range. In the event that the Reorganization did not
include the Foundation, FinPro has estimated that the estimated pro forma market
capitalization of the Bank would be approximately $19.5 million at the midpoint
based on the pro forma price to book ratio and the pro forma price to earnings
ratio of 98.52% and 19.2x, respectively. If the Foundation was not part of the
Reorganization and Offering, the pro forma market value of the shares being
offered is estimated to be between $16.6 million and $22.5 million. See
"Comparison of Valuation and Pro Forma Information with No Foundation." This
estimate by FinPro was prepared at the request of the OTS and is solely for
purposes of providing depositors with sufficient information with which to make
an informed decision on the Foundation. There is no assurance that if the
Foundation is not approved the appraisal prepared at that time would conclude
that the pro forma market value of Bancorp would be the same as the amount
estimated herein. Any appraisal prepared at that time would be based on the
facts and circumstances existing at that time, including, among other things,
market and economic conditions.

     The Bank believes that the establishment of the Foundation is in the best
interests of the Bank, its depositors, its prospective stockholders and the
communities in which it operates. The Foundation is integrally tied to the
Bank's business of operating a community banking institution and the Bank
believes that, based upon the additional goodwill and visibility expected to be
generated by the Foundation and the expected benefits it will provide the
communities in which the Bank's customers reside, the Foundation will have a
positive impact on the Bank's long-term franchise value. The amount of Common
Stock being offered in the Offering at the midpoint of the Offering Range is
approximately $1.5 million less than the estimated amount of Common Stock that
would be offered in the Offering without the Foundation based on the estimate
provided by FinPro. Accordingly, certain depositors of the Bank who subscribe to
purchase Common Stock in the Subscription Offering may receive fewer shares
depending on the appraisal valuation at that time, the number of shares sold
based on that appraisal, the size of a depositor's stock order, the amount of
his or her qualifying deposits in the Bank and the overall level of
subscriptions. The decrease in the amount of Common Stock being offered will not
have a significant effect on Bancorp or the Bank's capital position. The Bank's
regulatory capital is significantly in excess of its regulatory capital
requirements and will further exceed such requirements following the Offering.
The Bank's tangible, leverage and risk-based capital ratios at March 31, 1998
were 7.84%, 7.84% and 19.95%, respectively. Assuming the sale of shares at the
midpoint of the Offering Range, the Bank's pro forma tangible, leverage and 
risk-based capital ratios at March 31, 1998 would be 10.9%, 10.9% and 27.11%,
respectively. On a consolidated basis, Bancorp's pro forma stockholders' equity
would be $44.9 million or approximately 13.7% of pro forma consolidated assets,
assuming the sale of shares at the midpoint of the Offering Range. Pro forma
stockholders' equity per share and pro forma net earnings per share would be
$10.70 and $0.14, respectively. If the Foundation was not being established in
the Reorganization, based on the FinPro estimate, Bancorp's pro forma
stockholders' equity would be approximately $46.1 million or approximately 14.0%
of pro forma consolidated assets at the midpoint of the estimate and pro forma
stockholders' equity per share and pro

                                       20
forma net earnings per share would be $10.15 and $0.13, respectively. See
"Comparison of Valuation and Pro Forma Information with No Foundation."

     POTENTIAL CHALLENGES.  The establishment and funding of a charitable
foundation as part of a conversion is innovative and has been done in a limited
number of instances in connection with a mutual holding company reorganization.
As such, the Foundation may be subject to potential challenges notwithstanding
that the Boards of Directors of the Mutual Company, Bancorp and the Bank have
carefully considered the various factors involved in the establishment of the
Foundation in reaching its determination to establish the Foundation as part of
the Reorganization. See "The Reorganization and Stock Offering--Establishment of
the Charitable Foundation--Purpose of the Foundation." In conjunction with its
approval of the Reorganization, the Bank determined to submit the Foundation for
a vote of members so that members have a right to vote on whether the Foundation
should be established as part of the Reorganization. If certain parties were to
institute an action seeking to require the Bank to eliminate establishment of
the Foundation in connection with the Reorganization, no assurances can be made
that the resolution of such action would not result in a delay in the
consummation of the Reorganization or that any objecting persons would not be
ultimately successful in obtaining such removal or other equitable relief or
monetary damages against the Mutual Company, Bancorp or the Bank. Additionally,
if the Mutual Company, Bancorp and the Bank are forced to eliminate the
Foundation, Bancorp may be required to resolicit subscribers in the Offerings.

     APPROVAL OF MEMBERS.  Establishment of the Foundation is subject to the
approval of a majority of the total outstanding votes of the Bank's members
eligible to be cast at the Special Meeting. The Foundation will be considered as
a separate matter from approval of the Plan. If the Bank's members approve the
Plan, but not the establishment of the Foundation, the Bank intends to complete
the Reorganization and Stock Offering without the establishment of the
Foundation. Failure to approve the Foundation may materially increase the pro
forma market value of the Common Stock being offered for sale in the Offerings
since the Valuation Range, as set forth herein, takes into account the dilutive
impact of the issuance of shares to the Foundation. If the pro forma market
value of the Common Stock without the Foundation is either greater than $23.8
million or less than $15.3 million, the Bank will establish a new Offering Range
and commence a resolicitation of subscribers (i.e., subscribers will be
permitted to continue their orders, in which case they will need to
affirmatively reconfirm their subscriptions prior to the expiration of the
resolicitation offering or their subscriptions funds will be promptly refunded
with interest at the Bank's passbook rate of interest, or be permitted to
increase, decrease, or cancel their subscriptions). Any change in the Estimated
Price Range must be approved by the OTS. See "The Reorganization and Stock
Offering--Stock Pricing and Number of Shares Issued." A resolicitation, if any,
following the conclusion of the Subscription and Community Offerings would not
exceed 45 days unless further extended by the OTS for periods of up to 90 days
not to extend beyond ___________, 2000.

STOCK-BASED BENEFITS TO MANAGEMENT AND DIRECTORS, EMPLOYMENT CONTRACTS AND
CHANGE IN CONTROL PAYMENTS

     STOCK-BASED INCENTIVE PLAN.  Bancorp intends to adopt a Stock-Based
Incentive Plan which would provide for the granting of options to purchase
common stock ("Stock Options"), awards of common stock ("Stock Awards"), and
certain related rights to eligible officers, employees and directors of the
Company and Bank. While Bancorp currently anticipates granting Stock Options and
Stock Awards under a single plan, it may establish separate plans to provide for
such awards. In the event such plan is adopted within one year after the
Reorganization and Offering, OTS regulations require the plan to be approved by
stockholders at a meeting of stockholders which may be held no earlier than six
months after completion of the Offering. It is anticipated the Stock-Based
Incentive Plan will provide for the granting of options to purchase shares of
Common Stock equal to 10% of the shares of Common Stock issued in the Offering,
including shares

                                       21
issued to the Foundation (159,561 shares and 215,877 shares at the minimum and
maximum of the Offering Range, respectively) and the granting of Stock Awards in
an amount equal to 4% of the shares of Common Stock issued in the Offering,
including shares issued to the Foundation (63,825 shares and 86,350 shares at
the minimum and maximum of the Offering Range, respectively). Shares of common
stock used to satisfy such awards will be acquired by the Plan or a trust
established for the Plan either through open market purchases or from authorized
but unissued Common Stock. See "--Possible Dilutive Effect of Stock-Based
Incentive Plan."

     Under the Stock-Based Incentive Plan, Stock Awards would be granted in the
form of non-transferable, non-assignable shares of Common Stock. The Board of
Directors intends to appoint an independent trustee who will vote unallocated
stock awards in the same proportion as it receives instructions from recipients
with respect to allocated shares which have not been earned and distributed. The
trustee will not vote allocated shares which have not been distributed if it
does not receive instructions from the recipient.

     It is anticipated that the exercise price of Stock Options granted under
the Stock-Based Incentive Plan will be equal to the fair market value of the
underlying Common Stock on the date of grant. Such options will permit such
officers and directors to benefit from any increase in the market value of the
shares in excess of the exercise price at the time of exercise. Officers and
directors receiving Stock Options will not be required to pay for the shares
until the date of exercise. The granting of Stock Awards and the exercise of 
non-statutory stock options (and disqualifying dispositions of stock acquired
through the exercise of incentive stock options) will result in additional
compensation expense to Bancorp and, accordingly, may result in an increase in
the overall compensation expense in future periods. See "Management of the 
Bank -- Other Benefit Plans."

     Although no specific award determinations have been made, Bancorp
anticipates that it will provide Stock Awards and/or Stock Options to directors,
officers and employees to the extent permitted by applicable regulations.
Current OTS regulations provide that, with respect to any non-tax qualified
stock benefit plan, such as the Stock-Based Incentive Plan, which is implemented
within one year after consummation of the Reorganization and Offering, no
individual may receive more than 25% of the shares or options of any such plan
and non-employee directors may not receive more than 5% individually, or 30% in
the aggregate, of the shares or options awarded under any such plan. Such
regulations also provide that any awards granted under such a Plan may not vest
at a rate greater than 20% per year except in limited circumstances. It is also
anticipated that the Stock-Based Incentive Plan will provide for cash payments
to participants in the event of a change in control of Bancorp or the Bank.

     The Board of Directors, in determining specific allocations and grants of
Stock Awards and Stock Options, will consider various factors, including but not
limited to, the financial condition of Bancorp, current and past performance of
plan participants and tax and securities law and regulation requirements.

     EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL PROVISIONS. Employment and
change in control agreements with certain officers and the employee severance
compensation plan provide for benefits and cash payments in the event of a
change in control of Bancorp or the Bank. The provisions in such agreements and
plan would provide the recipient with a change in control payment in the event
of the recipient's involuntary or, in certain circumstances, voluntary
termination of employment subsequent to a change in control of Bancorp or the
Bank. In addition to any payments which may be made under the Stock-Based
Incentive Plan upon a change in control, these provisions may have the effect of
increasing the cost of acquiring Bancorp, thereby discouraging future attempts
to take over Bancorp or the Bank. Based on current salaries, cash payments to be
paid in the event of a change in control pursuant to the terms of the employment
agreements, change in control agreements and an employee severance compensation
plan would

                                       22
be approximately $____ million. However, the actual amount to be paid in the
event of a change in control of Bancorp or the Bank cannot be estimated at this
time because the actual amount is based on the average salary of the employee
and other factors existing at the time of the change in control. See "Certain
Restrictions on Acquisition of Bancorp," "Management of the Bank--Employment
Agreements," "-- Change in Control Agreements," and "-- Benefits."

POSSIBLE DILUTIVE EFFECT OF STOCK-BASED INCENTIVE PLAN

     Following the Reorganization, the Stock-Based Incentive Plan will acquire
an amount of shares equal to 4% of the shares of Common Stock issued in the
Offering, including shares issued to the Foundation, either through open market
purchases or the issuance of authorized but unissued shares of Common Stock from
Bancorp. If the Stock-Based Incentive Plan is funded by the issuance of
authorized but unissued shares, the voting interests of existing stockholders at
that time will be diluted by 1.86%. Also following the Offering, directors,
officers and employees will be granted stock options under the Stock-Based
Incentive Plan in an amount equal to 10% of the Common Stock issued in the
Offering, including shares issued to the Foundation. The exercise of such stock
options may be satisfied by the issuance of authorized but unissued shares.
Under certain circumstances, such options may be exercised and sold on the same
day, thereby eliminating any risk to officers and directors in exercising
options in the event that the market price exceeds the exercise price. If all of
the stock options were to be exercised using authorized but unissued Common
Stock and the stock awards granted under the Stock-Based Incentive Plan were
funded with authorized but unissued shares, the voting interests of existing
stockholders at that time would be diluted at that time by 4.66%.

POSSIBLE INCREASE IN OFFERING RANGE AND NUMBER OF SHARES ISSUED

     The number of shares to be issued in the Offering, including shares issued
to the Foundation may be increased as a result of an increase in the Offering
Range of up to 15% to reflect changes in market and financial conditions
following the commencement of the Subscription Offering. In the event that the
Offering Range is so increased, it is expected that Bancorp will offer up to
2,382,748 shares of Common Stock at the Purchase Price for an aggregate purchase
price of up to $23.8 million. An increase in the number of shares issued will
decrease a subscriber's pro forma net earnings per share and stockholders'
equity per share and will increase Bancorp's pro forma consolidated
stockholders' equity and net earnings. Such an increase will also increase the
Purchase Price as a percentage of pro forma stockholders' equity per share and
net earnings per share.

POSSIBLE ADVERSE INCOME TAX CONSEQUENCES OF THE DISTRIBUTION OF SUBSCRIPTION
RIGHTS

     The Bank has received an opinion of FinPro that, pursuant to FinPro's
Valuation, subscription rights granted to Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members have no value. However, such
valuation is not binding on the IRS. If the subscription rights granted to
Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members are deemed to have an ascertainable value, receipt of such rights could
result in taxable gain to those Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members who receive and/or exercise the subscription
rights in an amount equal to such value. Additionally, the Bank could recognize
a gain for tax purposes on such distribution. Whether subscription rights are
considered to have ascertainable value is an inherently factual determination.
See "The Reorganization and Stock Offering-- Tax Aspects of Reorganization."

                                       23
YEAR 2000 COMPLIANCE

     As the year 2000 approaches, an important business issue has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. Many existing application software products were
designed to accommodate only two-digits. For example, "98" is stored on the
system and represents 1998. Bancorp has been identifying potential problems
associated with the "Year 2000" issue and has implemented a plan designated to
ensure that all software used in connection with Bancorp's business will manage
and manipulate data involving the transition with data from 1999 to 2000 without
functional or data abnormality and without inaccurate results related to such
data. The Bank has prepared a critical issues schedule with a timeline and
assigned responsibilities. In addition, the Bank recognizes that its ability to
be Year 2000 compliant is dependent upon the cooperation of its vendors. The
Bank is requiring its computer systems and software vendors to represent that
the products provided are or will be Year 2000 compliant and has planned a
program of testing for compliance. The Bank has received representations from
its primary third party vendors that they will have resolved any Year 2000
problems in their software by December 31, 1998 and anticipates that all of its
vendors also will have resolved any Year 2000 problems in their software by that
same date. All Year 2000 issues for the Bank, including testing, are expected to
be addressed by December 31, 1998 and any problems would be remedied by March
31, 1999. The Bank will also prepare contingency plans in the event there are
any system interruptions. The Bank believes that its costs related to Year 2000
will be approximately $135,000. There can be no assurances, however, that such
plan or the performance by the Bank's vendors will be effective to remedy all
potential problems. To the extent Bancorp's systems are not fully Year 2000
compliant, there can be no assurance that potential systems interruptions or the
cost necessary to update software would not have a materially adverse effect on
Bancorp's business, financial condition, results of operations and business
prospects. Further, any Year 2000 failure on the part of the Bank's customers
could result in additional expense or loss to the Bank. The Bank plans also to
work with its customers to address any potential Year 2000 problems.

                          WEST ESSEX BANCORP, M.H.C.

     The Bank has submitted a Notice of Reorganization ("Notice") to the OTS
pursuant to which the Bank has requested approval to reorganize into a mutual
holding company structure. It is anticipated that the Bank will receive approval
of the Notice, however it is unknown prior to actual receipt of the OTS's final
approval of the Notice as to what conditions, if any, the OTS may impose on the
Reorganization. In the event the OTS approval contains conditions which, in the
opinion of the Board of Directors of the Bank, are unacceptable, the Bank may
determine to terminate the Reorganization and the Stock Issuance and return all
funds collected in connection with the minority stock offering. As part of the
Reorganization, the Bank will establish a federal mutual holding company under
the laws of the United States with the powers set forth in its proposed charter
and bylaws. As long as they remain depositors of the Bank, Members of the Bank
as of February 28, 1997 shall continue to have ownership and liquidation rights
solely with respect to the Mutual Company after the Reorganization. Such persons
shall elect the directors of the Mutual Company until the Mutual Company
converts to stock form. There can be no assurances, however, that the Mutual
Company will convert to stock form in the future. In connection with the
Reorganization, the Bank will capitalize the Mutual Company with $100,000. The
Mutual Company will be a mutual corporation chartered and regulated by the OTS.
The Mutual Company shall be subject to the limitations and restrictions imposed
on savings and loan holding companies by Section 10(o)(5) of Home Owners' Loan
Act, as amended ("HOLA"). Following the Reorganization, the Mutual Company will
hold a majority of the outstanding Common Stock of Bancorp, the subsidiary
holding company. See "Regulation and Supervision -- Holding Company Regulation."

                                       24
Immediately after consummation of the Reorganization, it is expected that
the Mutual Company will not engage in any business activity other than to hold a
majority of the Common Stock of Bancorp and to invest the funds retained at the
Mutual Company level.

     The Mutual Company's principal executive office will be located at 417
Bloomfield Avenue, Caldwell, New Jersey 07006, and its telephone number at that
address will be (973) 226-7911.

                           WEST ESSEX BANCORP, INC.

     Bancorp has not yet been incorporated. As part of the Bank's
Reorganization, Bancorp will be organized as a federally chartered corporation.
Following the Reorganization and Offering, Bancorp will own 100% of the Bank's
outstanding capital stock. The Mutual Company will own 55.2% of Bancorp's Common
Stock. Bancorp expects to retain at least 25% of the net proceeds obtained in
the Offering and will contribute the remaining net proceeds to the Bank in
return for its capital stock. Immediately after consummation of the
Reorganization and Offering, Bancorp will have no significant liabilities. The
management of Bancorp is set forth under "Management of Bancorp." Initially,
Bancorp will neither lease nor own any property, but will instead use the
premises, equipment and furniture of the Bank. At the present time, Bancorp does
not expect to employ any persons other than officers of Bancorp who are also
officers of the Bank, but will use the support staff of the Bank from time to
time.

     As a holding company, Bancorp will have greater flexibility than the Bank
to diversify its business through existing or newly formed subsidiaries or
through an acquisition or merger with other financial institutions, although
Bancorp does not currently have any plans, agreements, arrangements or
understandings with respect to such diversification, acquisitions or mergers.
After the Reorganization and Offering, Bancorp will be a savings and loan
holding company subsidiary of a mutual holding company and will be subject to
regulation by the OTS.

     Bancorp's executive offices are located at 417 Bloomfield Avenue, Caldwell,
New Jersey 07006.

                                WEST ESSEX BANK

     The Bank was originally organized in 1915 as a New Jersey chartered
building and loan association and, in 1995, became a federally chartered savings
bank. The Bank conducts business from its administrative/branch office located
in Caldwell, New Jersey and its seven other full service banking branch offices
located in West Orange, Franklin Lakes, River Vale, Pine Brook, Old Tappan and
Northvale, New Jersey. See "Business of the Bank -- Market Area and
Competition." At March 31, 1998, the Bank had total assets of $312.5 million,
total deposits of $239.1 million and retained earnings of $29.8 million. The
Bank's deposits are insured up to the maximum allowable amount by FDIC.

     The Bank is a community-oriented savings institution whose business
primarily consists of accepting deposits from customers and investing those
funds primarily in mortgage-backed securities and mortgage loans secured by one-
to four-family residences located in the Bank's primary market area. To a
significantly lesser extent, the Bank originates commercial real estate, home
equity, construction and development, multi-family and consumer and commercial
loans and invests in debt obligations of the federal government and federal
agencies as well as obligations of states and municipalities. The Bank generally
retains for its portfolio all one- to four-family mortgage loans which it
originates. At March 31, 1998 the Bank's securities portfolio totalled $158.5
million, or 50.7% of total assets, and its gross loan portfolio totalled $118.2
million, or 37.8% of total assets, of which $89.5 million were one- to four
family mortgage loans, $10.3 million were commercial real estate loans, $8.4
million were home equity loans, $7.1 million were construction and development
loans, $2.1 million were multi-family loans, and $801,000 were consumer loans.
Of the Bank's

                                       25
total mortgage-backed securities portfolio, 36.1% are secured by fixed-rate
loans and 63.9% are secured by adjustable-rate loans. The Bank generally retains
for its portfolio all mortgage loans which it originates. Subsequent to the
Reorganization and the Offering, the Bank intends to continue to seek means to
increase its loan portfolio. At March 31, 1998, the Bank's deposit accounts
totalled $239.1 million, or 84.6% of total liabilities, of which $95.9 million,
or 40.3%, were core deposits, which included all of the Bank's savings and club
accounts and demand accounts. From time to time, the Bank has utilized
borrowings from the Federal Home Loan Bank ("FHLB") of New York ("FHLB-NY") as a
source of funds, and may utilize such borrowings to a greater extent in the
future. At March 31, 1998, such borrowings totalled $42.3 million, or 15.0% of
total liabilities. See "Business of the Bank."

     The Bank's executive offices are located at 417 Bloomfield Avenue,
Caldwell, New Jersey 07006.

                                       26
REGULATORY CAPITAL COMPLIANCE

     At March 31, 1998, the Bank exceeded all regulatory capital requirements.
See "Regulation and Supervision -- Federal Savings Institution Regulation --
Capital Requirements." Set forth below is a summary of the Bank's compliance
with regulatory capital standards as of March 31, 1998, on a historical and pro
forma basis assuming that the indicated number of shares of Common Stock were
sold at $10.00 per share as of such date and receipt by the Bank of up to 75% of
the net proceeds. For purposes of the table below, the amount expected to be
borrowed by the ESOP and the cost of the shares expected to be acquired by the
Stock Programs are deducted from pro forma regulatory capital. In addition, the
table assumes that the Mutual Company will be capitalized with $100,000 of
proceeds of the Offering.
WEST ESSEX BANK
                                                                  PRO FORMA AT MARCH 31, 1998 BASED UPON SALE AT $10.00 PER SHARE
                                                                  ---------------------------------------------------------------
                                                                   1,531,445 SHARES       1,801,700 SHARES     2,071,955 SHARES   
                                                                     (MINIMUM OF            (MIDPOINT OF          (MAXIMUM OF     
                                               HISTORICAL AT          ESTIMATED               ESTIMATED            ESTIMATED      
                                               MARCH 31, 1998        PRICE RANGE)           PRICE RANGE)          PRICE RANGE)    
                                           --------------------   --------------------   ------------------   -------------------
                                                      PERCENT               PERCENT               PERCENT              PERCENT    
                                                         OF                    OF                    OF                   OF      
                                             AMOUNT    ASSETS(2)  AMOUNT    ASSETS(2)    AMOUNT   ASSETS(2)   AMOUNT   ASSETS(2)  
                                            ---------  ---------- --------  ----------   -------- ----------  -------- -----------
                                                                           (DOLLARS IN THOUSANDS)
GAAP Capital(3) ...........................  $29,801     9.54%    $38,647    12.03%    $40,307    12.48%    $41,969    12.93%
                                             =======              =======              =======              =======
Tangible Capital:
   Capital Level...........................  $24,040     7.84%    $32,886    10.42%    $34,546    10.89%    $36,208    11.36%
   Requirement.............................    4,600     1.50       4,733     1.50       4,758     1.50       4,783     1.50
                                             -------    -----     -------    -----     -------    -----     -------    -----
   Excess..................................  $19,440     6.34%    $28,153     8.92%    $29,788     9.39%    $31,425     9.86%
                                             =======              =======              =======              =======
Core Capital:
   Capital Level...........................  $24,040     7.84%    $32,886    10.42%    $34,546    10.89%    $36,208    11.36%
   Requirement(4)..........................   12,268     4.00     $12,622     4.00      12,688     4.00      12,755     4.00
                                             -------    -----     -------    -----     -------    -----     -------    -----
   Excess..................................  $11,772     3.84%    $20,264     6.42%    $21,858     6.89%    $23,453     7.36%
                                             =======              =======              =======              =======
Risk-Based Capital:
   Capital Level(5)(6).....................  $25,292    19.95%    $34,138    26.01%    $35,798    27.11%    $37,460    28.19%
   Requirement.............................   10,144     8.00      10,498     8.00      10,564     8.00      10,631     8.00
                                             -------    -----     -------    -----     -------    -----     -------    -----
   Excess..................................  $15,148    11.95%    $23,640    18.01%    $25,234    19.11%    $26,829    20.19%
                                             =======              =======              =======              =======
2,382,748 SHARES       
                                                  (15% ABOVE   
                                                    MAXIMUM    
                                                  OF ESTIMATED 
                                                PRICE RANGE)(1)  
                                             ---------------------
                                                          PERCENT        
                                                             OF          
                                             AMOUNT      ASSETS(2)      
                                             -------     ---------
GAAP Capital(3) ...........................  $43,879      13.44%
                                             =======                     
Tangible Capital:                                             
   Capital Level...........................  $38,118      11.88%   
   Requirement.............................    4,812       1.50    
                                              -------     -----    
   Excess..................................  $33,307      10.38%   
                                             =======               
Core Capital:                                                      
   Capital Level...........................  $38,118      11.88%   
   Requirement(4)..........................   12,831       4.00    
                                             -------      -----    
   Excess..................................  $25,287       7.88%   
                                             =======               
Risk-Based Capital:                                                
   Capital Level(5)(6).....................  $39,370      29.42%   
   Requirement.............................   10,707       8.00    
                                             -------      -----    
   Excess..................................  $28,663      21.42%    
                                             =======
(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 or changes in market or general
     financial and economic conditions following the commencement
     of the Subscription and Community Offerings.
(2)  Tangible capital levels are shown as a percentage of 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)  Generally accepted accounting principles ("GAAP") Capital includes
     unrealized gain on available-for-sale securities, net, which is not
     included as regulatory capital.
(4)  The current OTS core capital requirement for savings associations is 3% of
     total adjusted assets. The OTS has proposed core capital requirements which
     would require a core capital ratio of 3% of total adjusted assets for
     thrifts that receive the highest supervisory rating for safety and
     soundness and a 4% to 5% core capital ratio requirement for all other
     thrifts. See "Regulation and Supervision--Federal Savings Institution
     Regulation-- Capital Requirements."
(5)  Assumes net proceeds are invested in assets that carry a 50% risk-
     weighting.
(6)  The difference between equity under GAAP and regulatory risk-based capital
     is attributable to the addition of the general valuation allowance of
     $1,252,000 at March 31 1998, the subtraction of intangibles of $5,681,000
     and the subtraction of the unrealized gain on available-for-sale
     securities, net of $80,000.

                                      27
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 that the net proceeds from the sale of the Common Stock will
      be between $15.3 million and $20.7 million (or $23.8 million if the
      Offering Range is increased by 15%).  See "Pro Forma Data" and "The
      Reorganization and Stock Offering--Stock Pricing and Number of Shares
      Issued" as to the assumptions used to arrive at such amounts.  Bancorp
      will be unable to utilize any of the net proceeds of the Offerings until
      the consummation of the Conversion.

           Bancorp will purchase all of the outstanding capital stock of the
      Bank to be issued upon Reorganization in exchange for up to 75% of the net
      proceeds, with the remaining net proceeds to be retained by Bancorp.
      Based on the midpoint of the Offering Range, Bancorp expects to utilize
      $12.8 million of net proceeds to purchase the common stock of the Bank.
      Such portion of net proceeds will be added to the Bank's general funds
      which the Bank currently intends to utilize for general corporate
      purposes, including investments in loans, mortgage-backed and investment
      securities, the possible repayment of FHLB borrowings under appropriate
      market conditions, and the funding of stock-based benefit plans.  The Bank
      may also use such funds for the expansion of its facilities, and to expand
      operations through acquisitions of other financial institutions, branch
      offices or other financial services companies.  The Bank has not yet
      determined the approximate amount of net proceeds to be used for any of
      the purposes mentioned above.

           Bancorp intends to use a portion of the net proceeds to make a loan
      directly to the ESOP to enable the ESOP to purchase 8% of the Common Stock
      issued in the Offering, including shares issued to the Foundation.
      Bancorp and the Bank may alternatively choose to fund the ESOP's stock
      purchases through a loan by a third-party financial institution.  The
      remaining net proceeds retained by Bancorp will initially be invested in
      mortgage-related securities and federal agency obligations.  Based upon
      the sale of 1,531,445 shares or 2,071,955 shares at the minimum and
      maximum of the Offering Range, and the issuance of shares to the
      Foundation, the amount of the loan to the ESOP (assuming a per share price
      of $10.00) would be $1.3 million or $1.7 million, respectively (or $2.0
      million if the Offering Range is increased by 15%) to be repaid over a 10-
      year period at the prevailing prime rate of interest, which currently is
      ___%.  See "Management of the Bank -- Other Benefit Plans--Employee Stock
      Ownership Plan."

           The net proceeds retained by Bancorp may also be used to support the
      future expansion of operations through branch acquisitions, the
      establishment of branch offices and the acquisition of other financial
      institutions or their assets, including those located within the Bank's
      market area or diversification into other banking related businesses.
      Bancorp has no current arrangements, understandings or agreements
      regarding any such opportunities or transactions.

           Upon completion of the Reorganization and Offering, the Board of
      Directors of Bancorp will have the authority to adopt stock repurchase
      plans, subject to statutory and regulatory requirements.  Unless approved
      by the OTS, Bancorp, pursuant to OTS regulations, will be prohibited from
      repurchasing any shares of the Common Stock for three years except:  (i)
      for an offer to all stockholders on a pro rata basis (except that the
      Mutual Company may be excluded from the repurchase without the OTS'
      approval); or (ii) for the repurchase of qualifying shares of a director.

           Based upon facts and circumstances following 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 are not 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

                                       28
in terms of the rate of return and risk involved in the investment, the
      ability to increase the book value and/or earnings per share of the
      remaining outstanding shares, and the opportunity to improve Bancorp'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 Bancorp and its
      shareholders.  Although Bancorp has no current plans to repurchase its
      stock, in the event Bancorp does determine to repurchase stock, such
      repurchases may be made at market prices which may be in excess of the
      Purchase Price in the Offering.

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

                                DIVIDEND POLICY

           Upon completion of the Offering, the Board of Directors of Bancorp
      will have the authority to declare dividends on the Common Stock, subject
      to statutory and regulatory requirements.  In the future, the Board of
      Directors intends to consider a policy of paying cash or stock dividends
      on the Common Stock. However, no decision has been made with respect to
      the payment of dividends.  Declarations of dividends by the Board of
      Directors, if any, will depend upon a number of factors, including the
      amount of net proceeds retained by Bancorp in the Offering, investment
      opportunities available to Bancorp or the Bank, capital requirements,
      regulatory limitations, Bancorp's and the Bank's financial condition and
      results of operations, tax considerations and general economic conditions.
      No assurances can be given, however, that any dividends will be paid or,
      if commenced, will continue to be paid.

           The Bank's ability to pay dividends to Bancorp on its capital stock
      is subject to certain regulatory regulations.  For information concerning
      federal regulations which apply to the Bank in determining the amount of
      proceeds which may be retained by Bancorp and regarding a savings
      institution's ability to make capital distributions, including payment of
      dividends to its holding company, see "Federal and State Taxation--Federal
      Taxation--Distributions" and "Regulation and Supervision--Federal Savings
      Institution Regulation--Limitation on Capital Distributions."

                   WAIVER OF DIVIDENDS BY THE MUTUAL COMPANY

           The Board of Directors of the Mutual Company will determine whether
      the Mutual Company will waive the receipt of dividends declared by Bancorp
      each time Bancorp declares a dividend.  The Board of Directors of the
      Mutual Company presently intends to waive the receipt of dividends
      declared by Bancorp. OTS regulations with respect to a mutual holding
      company's waiver of dividends state that the Mutual Company may not waive
      its right to receive any dividend declared by Bancorp unless either:  (1)
      no insider of the Mutual Company, associate of an insider, or tax-
      qualified or non-tax-qualified employee stock benefit plan of the Mutual
      Company holds any share of stock in the class of stock to which the waiver
      would apply; or (2) the Mutual Company provides the OTS with written
      notice of its intent to waive its right to receive dividends 30 days prior
      to the proposed date of payment of the dividend, and the OTS does not
      object.  The regulations further state that the OTS shall not object to a
      notice of intent to waive dividends if: (1) the waiver would not be
      detrimental to the safe and sound operation of the Bank; and (2) the Board
      of Directors of the Mutual Company expressly determines that waiver of the
      dividend by the Mutual Company is consistent with the Directors' fiduciary
      duties to the mutual members of the Mutual Company.  It is the OTS'

                                       29
recent practice to review dividend waiver notices on a case-by-case basis,
      and, in general, not to object to any such waiver if: (1) 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; (2) for as long as the subsidiary holding company is
      controlled by the mutual holding company, the dollar amount of dividends
      waived by the mutual holding company is considered to be a restriction on
      the stockholders' equity of the subsidiary holding company, which
      restriction, if material, is disclosed in the public financial statements
      of the subsidiary holding company as a note to the financial statement;
      (3) 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 subsidiary holding
      company determines that the payment of such dividend to the mutual holding
      company is probable, an appropriate dollar amount is recorded as a
      liability; (4) the amount of any waived dividend is considered as having
      been paid by the subsidiary holding company in evaluating any proposed
      dividend under OTS capital distribution regulations; and (5) in the event
      the mutual holding company converts to stock form, the appraisal submitted
      to the OTS in connection with the Conversion Transaction takes into
      account the amount of the dividends waived by the mutual holding company.
      In addition, the OTS has announced that the dividends waived by mutual
      holding companies will affect the ratio pursuant to which shares of Common
      Stock of a subsidiary holding company held by Minority Stockholders would
      be exchanged for shares of common stock of the converted holding company
      in a Conversion Transaction.

           The Mutual Company's Board of Directors may conclude that a dividend
      waiver by the Mutual Company, which permits retention of capital by
      Bancorp, is in the best interest of the Mutual Company's members because,
      among other reasons: (i) the Mutual Company has no need for the dividend
      for its business operations, (ii) the cash that would be received could be
      invested by Bancorp more effectively; and (iii) such waiver preserves the
      retained earnings of the Mutual Company through its principal asset
      (Bancorp), which would be available for distribution in the unlikely event
      of a voluntary liquidation of Bancorp after satisfaction of claims of
      depositors and other 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 Company.  There is no assurance
      that the Mutual Company will waive the receipt of the dividends.

           Immediately after consummation of the Reorganization and the
      Offering, it is expected that the Mutual Company's operations will consist
      of activities relating to its investment in, and control of, a majority of
      the Common Stock of Bancorp and maintenance of books and records relating
      to members of the Mutual Company.  In the future, the Mutual Company may
      accept dividends paid by Bancorp to be used for the payment of operating
      expenses and other purposes, including purchasing Common Stock from time
      to time in the open market or from Bancorp.  There can be no assurance
      that the Mutual Company will accept dividends paid by Bancorp, or if such
      dividends are accepted, that the Mutual Company will purchase shares of
      Common Stock in the open market.  Any purchase of Common Stock other than
      from the Mutual Company will increase the percentage of Bancorp's
      outstanding shares of Common Stock held by the Mutual Company and increase
      the number of shares eligible to be sold in any subsequent secondary
      offering or mutual to stock conversion of the Mutual Company.  Any waiver
      of dividends by the Mutual Company is likely to result in an adjustment to
      the ratio pursuant to which shares of Common Stock are exchanged for
      shares of the converted Mutual Company in a Conversion Transaction, which
      adjustment will have the effect of diluting Minority Stockholders'
      percentage ownership interest in the converted Mutual Company's shares.

                CONVERSION OF THE MUTUAL COMPANY TO STOCK FORM

           As long as the Mutual Company remains a mutual holding company, it
      must own at least a majority of the outstanding voting stock of Bancorp.
      OTS regulations specifically authorize mutual holding companies to (i)
      convert to stock form pursuant to the conversion regulations of the OTS
      (the "Conversion Transaction"), and (ii) exchange stock issued by the
      converted holding company for stock issued by a

                                       30
subsidiary holding company or subsidiary stock savings bank. The Bank's Plan
provides that any such exchange will maintain approximately the same percentage
ownership interest in the newly converted holding company after the Conversion
Transaction as such stockholders held in Bancorp immediately prior to the
Conversion Transaction. OTS regulations require that such exchange be "fair and
reasonable" but do not specify the basis for such exchange. Although the Mutual
Company may conduct a Conversion Transaction in the future, the Bank has no
current plans to do so and there can be no assurance as to when, if ever, such a
Conversion Transaction will occur. Any Conversion Transaction would be subject
to federal securities laws and regulations of the OTS in effect at the time of
the Conversion Transaction. A decision by the Mutual Company to convert to stock
form would require the approval of its members prior to the Conversion
Transaction. It is expected that these members will have subscription rights to
purchase stock of the converted Mutual Company. Under OTS regulations, the
Mutual Company, Bancorp or the Bank will have to demonstrate to the OTS that the
terms of such exchange are fair and reasonable. The fairness of the exchange may
be supported by an opinion from an independent third party.

     The OTS policy with respect to dividends waived by mutual holding companies
requires that, in the case of mutual-to-stock conversions of recently formed
mutual holding companies, such as the Mutual Company, the aggregate amount of
cash dividends waived by a mutual holding company must be considered when
establishing a fair and reasonable basis for exchanging subsidiary holding
company common stock for converted mutual holding company common stock. The OTS
will not permit a pro rata exchange if the mutual holding company has waived the
receipt of cash dividends paid by the subsidiary holding company. Accordingly,
the precise treatment of any Conversion Transaction cannot be assured. ANY
WAIVER OF DIVIDENDS BY THE MUTUAL COMPANY IS LIKELY TO RESULT IN AN ADJUSTMENT
TO THE RATIO PURSUANT TO WHICH SHARES OF COMMON STOCK ARE EXCHANGED FOR SHARES
OF THE CONVERTED MUTUAL COMPANY IN A CONVERSION TRANSACTION, WHICH ADJUSTMENT
WOULD HAVE THE EFFECT OF DILUTING THE OWNERSHIP INTERESTS OF MINORITY
STOCKHOLDERS.

     In addition to the possible adjustment to the exchange ratio due to waived
dividends, the percentage of the converted Mutual Company's common stock
received by Minority Stockholders in any Conversion Transaction may be affected
by a number of other factors including any purchases of Common Stock by the
Mutual Company, any other stock issuances by Bancorp, any acquisitions by the
Mutual Company of other savings associations or Bancorp's dividend policy and
the amount of regular or special dividends paid by Bancorp.

     As an alternative to the exchange of shares discussed above, the Plan of
Reorganization provides that if the stockholders of Bancorp do not receive, for
any reason, shares of the Converted Mutual Company or the stock institution
resulting from the Conversion Transaction based upon a fair and reasonable
exchange ratio, or cash from the resulting institution in an amount equal to the
fair market value of their stock given the circumstances of the Conversion
Transaction, Bancorp or the Mutual Company (and its successors) may purchase all
shares not owned by it simultaneously with the consummation of the Conversion
Transaction at the fair market value of the stock on the date of the Conversion
Transaction, subject to OTS approval and compliance with the limitations of the
OTS regulations governing capital distributions and other conditions that the
OTS may impose.  The fair market value of the common stock of the Converted
Mutual Company shall be established by the independent appraisal utilized in the
Conversion Transaction pursuant to OTS regulations governing conversions.
Moreover, if the Common Stock is traded and has an established and liquid
trading market, of which there is no assurance, the fair market value of the
Common Stock, as established by the independent appraisal, may be greater than
or less than the trading price of such stock.

     In addition, the Plan of Reorganization provides, in the event that the
Mutual Company converts to stock form in a Conversion Transaction, that any
options or other convertible securities held by any officer, director or
employee of Bancorp, convertible into shares of Common Stock shall be
convertible into shares

                                       31
of the converted Mutual Company; provided, however, that if such shares cannot
be so converted, the holders of such options or other convertible securities
shall be entitled to receive a cash payment for such shares in an amount equal
to the offering price of the number of shares of the converted Holding Company
into which such securities would otherwise be converted, less the exercise price
of such options or other convertible securities. Any such exchange or redemption
of these securities will be subject to the written approval of the OTS, and
there can be no assurance that such approval would be obtained.

     Management of the Mutual Company may consider a Conversion Transaction in
the future. However, there is no plan, agreement or understanding with respect
to a Conversion Transaction and there can be no assurance that such a conversion
will occur.

                          MARKET FOR THE COMMON STOCK

     Bancorp and the Bank have not previously issued capital stock and,
consequently, there is no established market for the Common Stock. Bancorp has
received conditional approval to have its Common Stock listed on the Nasdaq
under the symbol "WEBK" upon completion of the Reorganization and Offering. Such
approval is subject to various conditions, including completion of the
Reorganization and Offering and the satisfaction of applicable listing criteria.
There can be no assurance that the Common Stock will be able to meet the
applicable listing criteria in order to maintain its listing on the Nasdaq or
that an active and liquid trading market will develop or, if developed, will be
maintained. A public market having the desirable characteristics of depth,
liquidity and orderliness, however, depends upon the presence in the marketplace
of both willing buyers and sellers of Common Stock at any given time, which is
not within the control of Bancorp. No assurance can be given that an investor
will be able to resell the Common Stock at or above the purchase price of the
Common Stock after the Offering.

                                       32
CAPITALIZATION

     The following table presents the unaudited historical capitalization of the
Bank at March 31, 1998, and the pro forma capitalization of Bancorp after giving
effect to the Offering, including the issuance of shares to the Foundation,
based upon the sale of the number of shares indicated in the table and the other
assumptions set forth under "Pro Forma Data."
BANK PRO FORMA BASED UPON SALE AT $10.00 PER SHARE
                                                      ------------------------------------------------------
                                                                                                  2,382,748
                                                        1,531,445     1,801,700      2,071,955      SHARES
                                                          SHARES        SHARES         SHARES     (15% ABOVE
                                                      (MINIMUM OF    (MIDPOINT OF   (MAXIMUM OF   MAXIMUM OF
                                             BANK       OFFERING      OFFERING       OFFERING      OFFERING
                                          HISTORICAL     RANGE)         RANGE)         RANGE)     RANGE)(1)
                                          ----------  -----------   ------------    ----------  ------------ 
                                                                     (IN THOUSANDS)
Deposit accounts(2)...................      $239,120   $  239,120     $  239,120    $  239,120   $  239,120
Total deposits and escrow funds.......       239,915      239,915        239,915       239,915      239,915
Stockholders' equity:
 Preferred Stock, $.01 par value,                 
    1,000,000 shares authorized;
    none to be issued.................            --           --             --            --           --
 Common Stock, $.01 par value,                    
    9,000,000 shares authorized;
    shares to be issued as
    reflected.........................            --           36             42            48           55
 Additional paid-in capital(3)........            --       15,053         17,825        20,598       23,786
 Retained earnings(4).................        29,721       29,721         29,721        29,721       29,721
 Less:Expense of contribution                   
      to Foundation...................            --          742            855           968        1,098
 Plus:Tax effect of                               
       Foundation(5)..................            --          267            308           349          395
      Net unrealized gain/(loss)            
       on AFS, net....................            80           80             80            80           80
 Less:Common Stock acquired                     
       by the ESOP(6).................            --        1,276          1,502         1,727        1,986
      Common Stock acquired                      
       by the Stock-Based                         --          638            751           864          993     
       Incentive Plan(7)..............      --------   ----------     ----------    ----------   ----------
 
 Total stockholders' equity...........       $29,801   $   42,501     $   44,868    $   47,237   $   49,960
                                            ========   ==========     ==========    ==========   ==========
-------------------------
(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 or changes in market or general
     financial and economic conditions following the commencement of the
     Subscription and Community Offerings.
(2)  Does not reflect withdrawals from deposit accounts for the purchase of
     Common Stock in the Offering. Such withdrawals would reduce pro forma
     deposits by the amount of such withdrawals.
(3)  No effect has been given to the issuance of additional shares of Common
     Stock to the Foundation at a value of $10.00 per share or to the issuance
     of additional shares for option grants under Bancorp's Stock-Based
     Incentive Plans intended to be adopted by Bancorp and presented for
     approval of Minority Stockholders at a meeting of stockholders following
     the Reorganization. If approved by the Minority Stockholders of Bancorp, an
     amount equal to __% of the shares of Common Stock issued in the Offering,
     including shares issued to the Foundation, will be reserved for issuance
     upon the exercise of options to be granted under the Stock-Based Incentive
     Plans. See "Risk Factors -- Possible Dilutive Effect of the ESOP and Stock-
     Based Incentive Plans," Footnotes 5 and 4 to the tables under "Pro Forma
     Data" at or for the three months ended March 31, 1998 and at or for the
     year ended March 31, 1997, respectively, and "Management of the Bank --
     Benefits -- Stock-Based Incentive Plans."
(4)  The retained earnings of the Bank will be substantially restricted after
     the Offering. See "The Reorganization and Stock Offering". Assumes that the
     Mutual Company will be capitalized by the Bank with $100,000.
(5)  Represents the value of the contribution of Common Stock to the Foundation
     at $10.00 per share reduced by the associated tax benefit of $267,000,
     $308,000, $349,000 and $395,000 at the minimum, midpoint, maximum and 15%
     above the maximum of the range, respectively. The realization of the
     federal tax benefit is limited annually to 10% of Bancorp's annual taxable
     income, subject to the ability of Bancorp to carry forward any unused
     portion of the deduction for five years following the year in which the
     contribution is made. For state income tax purposes, Bancorp will be able
     to deduct the contribution and to carry forward any unused portion of the
     deduction for a five-year period following the year in which the
     contribution is initially made. Such deductions by Bancorp for New Jersey
     income tax purposes can be utilized only if Bancorp generates sufficient
     state taxable income on an unconsolidated basis, and also are subject to
     the limitation of 10% of unconsolidated income of Bancorp.
(6)  Assumes that 8% of the shares issued in the Offering, including shares
     issued to the Foundation, will be purchased by the ESOP and that the funds
     used to acquire such shares will be borrowed from Bancorp. The Common Stock
     acquired by the ESOP is reflected as a reduction of stockholders' equity.
     See "Management of the Bank--Benefits--Employee Stock Ownership Plan."
(7)  Assumes that no sooner than six months following the Reorganization and
     Offering, an amount equal to 4% of the shares of Common Stock sold in the
     Offering and issued to the Foundation, is purchased by the Stock-Based
     Incentive Plan through open market purchases at the offering price of
     $10.00 per share. The Common Stock purchased by the Stock-Based Incentive
     Plan is reflected as a reduction of stockholders' equity. See "Risk 
     Factors--Possible Dilutive Effect of Stock-Based Incentive Plan," Footnote
     3 to the tables under "Pro Forma Data" and "Management of the Bank--Other
     Benefit Plans."

                                       33
PRO FORMA DATA

     The actual net proceeds from the sale of the Common Stock cannot be
determined until the Offering is completed. However, net proceeds are currently
estimated to be between $14.3 million and $19.7 million (or $22.7 million in the
event the Offering Range is increased by 15%) based upon the following
assumptions: (i) 100% of the shares of Common Stock offered will be sold in the
Subscription Offering to Eligible Account Holders, the ESOP and Supplemental
Eligible Account Holders; (ii) directors, officers and employees of the Bank and
members of their immediate families (collectively, "Insiders") will purchase an
aggregate of $2,880,000 of Common Stock and the ESOP will purchase 8% of the
Common Stock issued in connection with the Offering including shares issued to
the Foundation; (iii) Sandler O'Neill will receive an advisory, management and a
marketing fee equal to 1.5% of the aggregate Purchase Price of shares sold in
the Subscription and Community Offerings, excluding shares purchased by
directors, officers, employees and any immediate family member thereof and the
ESOP and shares contributed to the Foundation, for which Sandler O'Neill will
not receive a fee; and (iv) Offering expenses, excluding the marketing fees paid
to Sandler O'Neill, will be approximately $600,000. Actual Offering expenses may
vary from those estimated. As part of the Reorganization and Offering, the
Mutual Company will be capitalized at $100,000 and the Foundation will receive
$100,000 in cash, which will result in a reduction of the Bank's assets and
retained earnings by the same amount.

     Pro forma net income of Bancorp for the three months ended March 31, 1998,
and for the year ended December 31, 1997, have 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 an average yield of 5.41% which is equivalent to
the one year Treasury rate at March 31, 1998.  The table also reflects $100,000
being utilized to capitalize the Mutual Company in connection with the
Reorganization.  The tables below do not reflect the effect of withdrawals from
deposit accounts for the purchase of Common Stock or the effect of any possible
use of the net proceeds.  The pro forma after-tax yield for Bancorp and the Bank
is assumed to be 3.46% for the three months ended March 31, 1998 and 3.46% for
the year ended December 31, 1997, based on an effective tax rate of 36%.
Historical and pro forma net earnings per share amounts have been calculated by
dividing historical and pro forma amounts by the indicated number of shares of
Common Stock issued as adjusted to give effect to the purchase of shares by the
ESOP and the issuance of shares to the Foundation.  Historical and pro forma
stockholders' equity per share amounts have been calculated by dividing
historical and pro forma amounts by the indicated number of shares of Common
Stock issued.

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

     The following tables summarize historical data of the Bank and pro forma
data of Bancorp at or for the three months ended March 31, 1998, based on the
assumptions set forth above and in the table 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 Stock Awards reserved for grant under the Stock-
Based Incentive Plan, which is expected to be adopted by Bancorp following the
Reorganization and Offering.  See Footnote 3 to the tables and "Management of
the Bank-- Benefits."  No effect has been given in the tables to the possible
issuance of additional shares of Common Stock upon the exercise of stock options
to be granted under the Stock-Based Incentive Plan, nor does book value give any
effect to the liquidation account to be established for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders or, in the event of
liquidation of the Bank, to the tax effect of the bad debt reserve and other
factors.  See Footnote 5 to the 

                                       34
tables below, "The Reorganization and Stock Offering" and "Management of the
Bank-- Benefits." THE FOLLOWING TABLE ASSUMES THAT THE FOUNDATION IS APPROVED AS
PART OF THE REORGANIZATION AND THEREFORE GIVES EFFECT TO THE ISSUANCE OF
AUTHORIZED BUT UNISSUED SHARES OF BANCORP'S COMMON STOCK TO THE FOUNDATION
CONCURRENTLY WITH THE COMPLETION OF THE OFFERING. THE VALUATION RANGE, AS SET
FORTH HEREIN AND IN THE TABLE BELOW, TAKES INTO ACCOUNT THE DILUTIVE IMPACT OF
THE ISSUANCE OF SHARES TO THE FOUNDATION.

                                       35
AT OR FOR THE THREE MONTHS ENDED MARCH 31, 1998
                                                              ----------------------------------------------------------
                                                              1,531,445        1,801,700     2,071,955       2,382,748
                                                              SHARES SOLD      SHARES SOLD   SHARES SOLD   SHARES SOLD
                                                              AT $10.00        AT $10.00     AT $10.00     AT $10.00 PER
                                                              PER SHARE        PER SHARE     PER SHARE     SHARE (15%
                                                              (MINIMUM         (MIDPOINT     (MAXIMUM      ABOVE MAXIMUM
                                                              OF OFFERING      OF OFFERING   OF OFFERING   OF OFFERING
                                                              RANGE)(8)        RANGE)        RANGE)        RANGE)(8)
                                                              -----------      -----------   ----------    ------------
                                                                      (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Gross proceeds............................................... $   15,314       $   18,017    $   20,720      $   23,827
Plus:  Shares issued to Foundation (equal to 4.19% of the
       stock sold in the Offering)...........................        642              755           868             998
                                                              ----------       ----------    ----------      ----------
Pro forma market capitalization..............................     15,956           18,772        21,588          24,825
                                                              ----------       ----------    ----------      ----------
Gross proceeds...............................................     15,314           18,017        20,720          23,827
Less:  Offering expenses and commission......................        767              805           842             884
                                                              ----------       ----------    ----------      ----------
Estimated net proceeds.......................................     14,547           17,212        19,878          22,943
Less:  Cash to Foundation....................................        100              100           100             100
Less:  Cash to Mutual Company................................        100              100           100             100
Less:  Common Stock purchased by ESOP........................      1,276            1,502         1,727           1,986
       Common Stock purchased by Stock-Based Incentive
       Plan..................................................        638              751           864             993
                                                              ----------       ----------    ----------      ----------
   Estimated net proceeds, as adjusted.......................     12,433           14,759        17,087          19,764
Consolidated net earnings:(1)
   Historical................................................        511              511           511             511
   Pro forma earnings on net proceeds........................        108              128           148             171
   Less:  Pro forma ESOP adjustment(2).......................         20               24            28              32
          Pro forma Stock-Based Incentive Plan
          adjustment(3)......................................         20               24            28              32
                                                              ----------       ----------    ----------      ----------
       Pro forma net earnings................................        579              591           603             618
Per share net earnings:(1)
   Historical................................................       0.15             0.13          0.11            0.10
   Pro forma earnings on net proceeds........................       0.03             0.03          0.03            0.03
   Less:  Pro forma ESOP adjustment(2).......................       0.01             0.01          0.01            0.01
          Pro forma Stock-Based Incentive Plan
          adjustment(3)......................................       0.01             0.01          0.01            0.01
                                                              ----------       ----------    ----------      ----------
       Pro forma net earnings per share......................       0.16             0.14          0.12            0.11
Stockholders' equity:
   Historical (4)............................................     29,801           29,801        29,801          29,801
   Estimated net proceeds....................................     14,347           17,012        19,678          22,743
   Plus:  Shares issued to the Foundation....................        267              308           349             395
   Less:  After tax cost to Foundation (5)
          Common Stock acquired by ESOP(2)...................      1,276            1,502         1,727           1,986
          Common Stock acquired by Stock-Based
           Incentive Plan(3).................................        638              751           864             993
                                                              ----------       ----------    ----------      ----------
       Pro forma stockholders' equity(3)(4)(5)(6)(7).........     42,501           44,868        47,237          49,960
Stockholders' equity per share:
   Historical(4).............................................       8.37             7.11          6.18            5.38
   Estimated net proceeds....................................       4.03             4.06          4.08            4.10
   Plus:  Shares issued to the Foundation....................       0.07             0.07          0.07            0.07
   Less:  After tax cost to Foundation (5)
          Common Stock acquired by ESOP(2)...................       0.36             0.36          0.36            0.36
          Common Stock acquired by Stock-Based
           Incentive Plan(3).................................       0.18             0.18          0.18            0.18
                                                              ----------       ----------    ----------      ----------
       Pro forma stockholders' equity........................      11.93            10.70          9.79            9.01
          per share(3)(4)(5)(6)(7)
Offering price as a percentage of pro forma
   stockholders' equity per share............................      83.82%           93.46%       102.15%         110.99%
Offering price to pro forma annualized net
  earnings per share.........................................      15.63x           17.86x        20.83x        22.73x
36
_____________________
(1) Does not give effect to the non-recurring expense that is expected to be
    recognized in the fourth quarter of fiscal 1998 if the establishment of the
    Foundation is approved. In that event, Bancorp will recognize an after-tax
    expense for the amount of the contribution to the Foundation which is
    expected to be $475,000, $547,000, $619,000 and $703,000 at the minimum,
    midpoint, maximum, and maximum as adjusted, of the Estimated Price Range,
    respectively.

(2) It is assumed that 8% of the shares of Common Stock issued in the Offering,
    including shares issued to the Foundation, 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 Bancorp. The amount to be
    borrowed is reflected as a reduction of stockholders' equity. The Bank
    intends to make annual contributions to the ESOP in an amount at least equal
    to the principal and interest requirement of the debt. The Bank's total
    annual payment of the ESOP debt is based upon ten equal annual installments
    of principal, with an assumed interest rate at ___%. The pro forma net
    earnings assume: (i) that the Bank's contribution to the ESOP is equivalent
    to the debt service requirement for the three months ended March 31, 1998,
    and was made at the end of the period; (ii) that 3,063, 3,603, 4,144 and
    4,765 shares at the minimum, midpoint, maximum and 15% above the maximum of
    the range, respectively, were committed to be released during the three
    months ended March 31, 1998 at an average fair value of $10.00 per share in
    accordance with Statement of Position ("SOP") 93-6; and (iii) only the ESOP
    shares committed to be released were considered outstanding for purposes of
    the net earnings per share calculations. See "Management of the Bank--
    Benefits--Employee Stock Ownership Plan."

(3) Gives effect to the Stock Awards available for grant under the Stock-Based
    Incentive Plan expected to be adopted by Bancorp following the Offering and
    presented for approval at a meeting of stockholders. The Stock-Based
    Incentive Plan intends to acquire an amount of Common Stock equal to 4% of
    the shares of Common Stock sold in the Offering and issued to the
    Foundation, or 63,825, 75,088, 86,351 and 99,303 shares of Common Stock at
    the minimum, midpoint, maximum and 15% above the maximum of the Offering
    Range, respectively, either through open market purchases, if permissible,
    or from authorized but unissued shares of Common Stock or treasury stock of
    the Company, if any. Funds used by the Stock-Based Incentive Plan to
    purchase the shares will be contributed to the Stock-Based Incentive Plan by
    the Bank. In calculating the pro forma effect of the Stock-Based Incentive
    Plan, it is assumed that the shares were acquired by the Stock-Based
    Incentive Plan at the beginning of the period presented in open market
    purchases at the Purchase Price and that 20% of the amount contributed was
    an amortized expense during such period. The issuance of authorized but
    unissued shares of Bancorp's Common Stock to the Stock-Based Incentive Plan
    instead of open market purchases would dilute the voting interests of
    existing stockholders by approximately 1.86% and pro forma net earnings per
    share would be $0.17, $0.15, $0.13, and $0.12 at the minimum, midpoint,
    maximum, and 15% above the maximum of the range, respectively, and pro forma
    stockholders' equity per share would be $11.72, $10.52, $9.63 and $8.86 at
    the minimum, midpoint, maximum, and 15% above the maximum of the range,
    respectively. There can be no assurance that stockholder approval of the
    Stock-Based Incentive Plan will be obtained, or that the actual purchase
    price of the shares will be equal to the Purchase Price. See "Management of
    the Bank--Benefits."

(4) Historical Stockholders' Equity has been decreased by $100,000 to reflect
    the capitalization of the Mutual Company.

(5) Assumes a combined federal and state effective income tax rate of 36%.

(6) No effect has been given to the issuance of additional shares of Common
    Stock upon the exercise of options to be granted under the Stock-Based
    Incentive Plan. An amount equal to 10% of the Common Stock issued in the
    Offering, including shares issued to the Foundation, or 159,561, 187,719,
    215,877 and 248,259 shares at the minimum, midpoint, maximum and 15% above
    the maximum of the Offering Range, respectively, will be reserved for future
    issuance upon the exercise of options to be granted under the Stock-Based
    Incentive Plan. The issuance of Common Stock pursuant to the exercise of
    options under the Stock-Based Incentive Plan will result in the dilution of
    existing stockholders' interests. Assuming all options were exercised at the
    end of the period at an exercise price of $10.00 per share, the pro forma
    net earnings per share would be $0.18, $0.16, $0.14, and $0.13,
    respectively, and the pro forma stockholders' equity per share would be
    $11.85, $10.68, $9.81 and $9.06, respectively. See "Management of the Bank--
    Benefits."

(7) The retained earnings of the Bank will continue to be substantially
    restricted after the Reorganization. See "Dividend Policy," "The
    Reorganization and Stock Offering" and "Regulation and Supervision--Federal
    Savings Institution Regulation--Limitation on Capital Distributions."

(8) 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 or changes in market or general
    financial and economic conditions following the commencement of the
    Subscription and Community Offerings.

                                       37
AT OR FOR THE YEAR ENDED DECEMBER 31, 1997
                                                            -----------------------------------------------------------
                                                               1,531,445        1,801,700     2,071,955       2,382,748
                                                             SHARES SOLD      SHARES SOLD   SHARES SOLD   SHARES SOLD
                                                             AT $10.00        AT $10.00     AT $10.00     AT $10.00 PER
                                                             PER SHARE        PER SHARE     PER SHARE     SHARE (15%
                                                             (MINIMUM         (MIDPOINT     (MAXIMUM      ABOVE MAXIMUM
                                                             OF OFFERING      OF OFFERING   OF OFFERING   OF OFFERING
                                                             RANGE)(8)        RANGE)        RANGE)        RANGE)(8)
                                                           ------------     ---------     ---------     -------------- 
                                                                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Gross proceeds........................................        $   15,314       $   18,017    $   20,720      $   23,827
Plus:  Shares issued to Foundation (equal to 4.19%                                                                     
         of the stock sold in the Offering)...........               642              755           868             998
                                                              ----------       ----------    ----------      ----------
Pro forma market capitalization.......................            15,956           18,772        21,588          24,825
Gross proceeds........................................            15,314           18,017        20,720          23,827
Less:  Offering expenses and commission...............               767              805           848             884
                                                              ----------       ----------    ----------      ----------
Estimated net proceeds................................            14,547           17,212        19,872          22,943
Less:  Cash to Foundation.............................               100              100           100             100
Less:  Cash to Mutual Company.........................               100              100           100             100
Less:  Common Stock purchased by ESOP.................             1,276            1,502         1,727           1,986
       Common Stock purchased by Stock-Based                                                                               
         Incentive Plan...............................               638              751           864             993
                                                              ----------       ----------    ----------      ----------
   Estimated net proceeds, as adjusted................            12,433           14,759        17,087          19,764
Consolidated net earnings:(1)
   Historical.........................................               737              737           737             737
   Pro forma earnings on net proceeds.................               430              511           592             684
   Less:  Pro forma ESOP adjustment(2)................                82               96           111             127
          Pro forma Stock-Based Incentive Plan                                                                         
            adjustment(3).............................                82               96           111             127
                                                              ----------       ----------    ----------      ----------
          Pro forma net earnings......................             1,003            1,056         1,107           1,167
Per share net earnings:(1)
   Historical.........................................              0.21             0.18          0.16            0.14
   Pro forma earnings on net proceeds.................              0.12             0.13          0.13            0.13
   Less:  Pro forma ESOP adjustment(2)................              0.02             0.02          0.02            0.02
          Pro forma Stock-Based Incentive Plan                                                                         
            adjustment(3).............................              0.02             0.02          0.02            0.02
                                                              ----------       ----------    ----------      ----------
         Pro forma net earnings per share.............              0.29             0.27          0.25            0.23
Stockholders' equity:
   Historical (4).....................................            29,275           29,275        29,275          29,275
   Estimated net proceeds.............................            14,347           17,012        19,678          22,743
   Plus:  Shares issued to the Foundation.............               267              308           349             395
   Less:  After tax cost to Foundation (5)............
          Common Stock acquired by ESOP(2)............             1,276            1,502         1,727           1,986
          Common Stock acquired by Stock-Based                                                                         
            Incentive Plan(3).........................               638              751           864             993
                                                              ----------       ----------    ----------      ----------
       Pro forma stockholders' equity(3)(4)(5)(6)(7)..            41,975           44,342        46,711          49,434
Stockholders' equity per share:
   Historical(4)......................................              8.22             6.99          6.07            5.28
   Estimated net proceeds.............................              4.03             4.06          4.08            4.10
   Plus:  Shares issued to the Foundation.............              0.07             0.07          0.07            0.07
   Less:  After tax cost to Foundation (5)............
          Common Stock acquired by ESOP(2)............              0.36             0.36          0.36            0.36
          Common Stock acquired by Stock-Based                                                                         
            Incentive Plan(3).........................              0.18             0.18          0.18            0.18
                                                              ----------       ----------    ----------      ----------
       Pro forma stockholders' equity                                                                                  
         per share(3)(4)(5)(6)(7).....................             11.78            10.58          9.68            8.91
Offering price as a percentage of pro forma                                                                             
   stockholders' equity per share.....................             84.89%           94.52%       103.31%         112.23%
Offering price to pro forma annualized net                                                                      
  earnings per share..................................             34.48x           37.04x        40.00x          43.48x
38
_____________________
(1) Does not give effect to the non-recurring expense that is expected to be
    recognized in the fourth quarter of fiscal 1998 if the establishment of the
    Foundation is approved. In that event, Bancorp will recognize an after-tax
    expense for the amount of the contribution to the Foundation which is
    expected to be $475,000, $547,000, $619,000 and $703,000 at the minimum,
    midpoint, maximum, and maximum as adjusted, of the Estimated Price Range,
    respectively.

(2) It is assumed that 8% of the shares of Common Stock issued in the Offering,
    including shares issued to the Foundation, 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 Bancorp. The amount to be
    borrowed is reflected as a reduction of stockholders' equity. The Bank
    intends to make annual contributions to the ESOP in an amount at least equal
    to the principal and interest requirement of the debt. The Bank's total
    annual payment of the ESOP debt is based upon ten equal annual installments
    of principal, with an assumed interest rate at ___%. The pro forma net
    earnings assume: (i) that the Bank's contribution to the ESOP is equivalent
    to the debt service requirement for the year ended December 31, 1997, and
    was made at the end of the period; (ii) that 12,252, 14,414, 16,576 and
    19,861 shares at the minimum, midpoint, maximum and 15% above the maximum of
    the range, respectively, were committed to be released during the year ended
    December 31, 1997 at an average fair value of $10.00 per share in accordance
    with Statement of Position ("SOP") 93-6; and (iii) only the ESOP shares
    committed to be released were considered outstanding for purposes of the net
    earnings per share calculations. See "Management of the Bank-- Benefits--
    Employee Stock Ownership Plan."

(3) Gives effect to the Stock Awards available for grant under the Stock-Based
    Incentive Plan expected to be adopted by Bancorp following the Offering and
    presented for approval at a meeting of stockholders. The Stock-Based
    Incentive Plan intends to acquire an amount of Common Stock equal to 4% of
    the shares of Common Stock sold in the Offering and issued to the
    Foundation, or 63,825, 75,088, 86,351 and 99,303 shares of Common Stock at
    the minimum, midpoint, maximum and 15% above the maximum of the Offering
    Range, respectively, either through open market purchases, if permissible,
    or from authorized but unissued shares of Common Stock or treasury stock of
    the Company, if any. Funds used by the Stock-Based Incentive Plan to
    purchase the shares will be contributed to the Stock-Based Incentive Plan by
    the Bank. In calculating the pro forma effect of the Stock-Based Incentive
    Plan, it is assumed that the shares were acquired by the Stock-Based
    Incentive Plan at the beginning of the period presented in open market
    purchases at the Purchase Price and that 20% of the amount contributed was
    an amortized expense during such period. The issuance of authorized but
    unissued shares of Bancorp's Common Stock to the Stock-Based Incentive Plan
    instead of open market purchases would dilute the voting interests of
    existing stockholders by approximately 1.86% and pro forma net earnings per
    share would be $0.29, $0.26, $0.24, and $0.22 at the minimum, midpoint,
    maximum, and 15% above the maximum of the range, respectively, and pro forma
    stockholders' equity per share would be $11.58, $10.40, $9.52 and $8.76 at
    the minimum, midpoint, maximum, and 15% above the maximum of the range,
    respectively. There can be no assurance that stockholder approval of the
    Stock-Based Incentive Plan will be obtained, or that the actual purchase
    price of the shares will be equal to the Purchase Price. See "Management of
    the Bank--Benefits."

(4) Historical Stockholders' Equity has been decreased by $100,000 to reflect
    the capitalization of the Mutual Company.

(5) Assumes a combined federal and state effective income tax rate of 36%.

(6) No effect has been given to the issuance of additional shares of Common
    Stock upon the exercise of options to be granted under the Stock-Based
    Incentive Plan. An amount equal to 10% of the Common Stock issued in the
    Offering, including shares issued to the Foundation, or 159,561, 187,719,
    215,877 and 248,259 shares at the minimum, midpoint, maximum and 15% above
    the maximum of the Offering Range, respectively, will be reserved for future
    issuance upon the exercise of options to be granted under the Stock-Based
    Incentive Plan. The issuance of Common Stock pursuant to the exercise of
    options under the Stock-Based Incentive Plan will result in the dilution of
    existing stockholders' interests. Assuming all options were exercised at the
    end of the period at an exercise price of $10.00 per share, the pro forma
    net earnings per share would be $0.29, $0.26, $0.24, and $0.22,
    respectively, and the pro forma stockholders' equity per share would be
    $11.71, $10.56, $9.71 and $8.97, respectively. See "Management of the Bank--
    Benefits."

(7) The retained earnings of the Bank will continue to be substantially
    restricted after the Reorganization. See "Dividend Policy," "The
    Reorganization and Stock Offering" and "Regulation and Supervision--Federal
    Savings Institution Regulation--Limitation on Capital Distributions."

(8) 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 or changes in market or general
    financial and economic conditions following the commencement of the
    Subscription and Community Offerings.

                                       39
COMPARISON OF VALUATION AND
                   PRO FORMA INFORMATION WITH NO FOUNDATION

     In the event that the Foundation was not established as part of the
Reorganization, FinPro has estimated that the pro forma market capitalization of
Bancorp would be approximately $45.4 million, at the midpoint, which is
approximately $3.5 million greater than the pro forma market capitalization of
Bancorp if the Foundation is approved by members of Bancorp and would result in
approximately a $1.5 million increase, or 8.4%, in the amount of Common Stock
offered for sale in the Offering. Assuming the midpoint of the Offering Range,
pro forma stockholders' equity per share and pro forma earnings per share would
be substantially the same with the Foundation as without the Foundation. In this
regard, pro forma stockholders' equity and pro forma net income per share would
be $10.15 and $0.13 respectively, at the midpoint of the estimate, assuming no
Foundation, and $10.70 and $0.14, respectively, with the Foundation. The pro
forma price to book ratio and the pro forma price to earnings ratio are 98.52%
and 19.23x, respectively, at the midpoint of the estimate, assuming no
Foundation and are 93.46% and 17.86x, respectively, with the Foundation. This
estimate by FinPro was prepared at the request of the OTS and is solely for
purposes of providing members with sufficient information with which to make an
informed decision on the Foundation. There is no assurance that in the event the
Foundation is not approved at the Special Meeting of Members that the appraisal
prepared at that time would conclude that the pro forma market value of Bancorp
would be the same as that estimated herein. Any appraisal prepared at that time
would be based on the facts and circumstances existing at that time, including,
among other things, market and economic conditions.

     For comparative purposes only, set forth below are certain pricing ratios
and financial data and ratios, at the minimum, midpoint, maximum and maximum, as
adjusted, of the Offering Range, assuming the Offering was completed at March
31, 1998.
AT THE MAXIMUM,
                                  AT THE MINIMUM           AT THE MIDPOINT           AT THE  MAXIMUM            AS ADJUSTED
                            ------------------------- ------------------------- ------------------------- -------------------------
                                WITH          NO          WITH          NO          WITH          NO          WITH          NO
                             FOUNDATION   FOUNDATION   FOUNDATION   FOUNDATION   FOUNDATION   FOUNDATION   FOUNDATION   FOUNDATION
                            ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
                                                                     (DOLLARS IN THOUSANDS)
Estimated offering 
 amount..................      $ 15,314     $ 16,594     $ 18,017     $ 19,522     $ 20,720     $ 22,450     $ 23,827     $ 25,818
Pro forma market                                                                                                                  
 capitalization..........        15,956       16,594       18,772       19,522       21,588       22,450       24,825       25,818
Total assets.............       324,955      326,238      327,281      328,775      329,609      331,311      332,256      334,229
Total liabilities........       282,721      282,721      282,721      282,721      282,721      282,721      282,721      282,721
Pro forma stockholders'                                                                                                           
 equity..................        42,493       43,517       44,868       46,054       47,237       48,590       49,960       51,508
Pro forma consolidated 
 net earnings............           579          588          591          602          603          616          618          633
Pro forma stockholders'                                                                                                           
 equity per share........         11.93        11.28        10.70        10.15         9.79         9.31         9.01         8.58
Pro forma consolidated                                                                                                            
 net earnings per share..          0.16         0.15         0.14         0.13         0.12         0.11         0.11         0.10
Pro Forma Pricing Ratios:
 Offering Price as a                                                                                                               
  percentage of pro      
  forma stockholders'
  equity per share.......         83.82%       88.65%       93.46%       98.52%      102.15%      107.41%      110.99%      116.55%
 Offering price to pro            
  forma net earnings per 
  share..................         15.63x       16.67x       17.86x       19.23x       20.83x       22.73x       22.73x       25.00x
 Offering price to                
  assets.................         10.96%       11.83%       12.80%       13.81%       14.62%       15.76%       16.68%       17.96%
Pro Forma Financial Ratios:
 Return on Assets........          0.71%        0.72%        0.72%        0.73%        0.73%        0.74%        0.74%        0.76%
 Return on stockholders'                                                                                                           
  equity.................          5.45%        5.40%        5.27%        5.23%        5.11%        5.07%        4.95%        4.92%
 Stockholders' equity                                                                                                              
  to assets..............         13.08%       13.34%       13.71%       14.01%       14.33%       14.66%       15.04%       15.41%
40
CONSOLIDATED STATEMENTS OF INCOME FOR
                       WEST ESSEX BANK AND SUBSIDIARIES

     The following Consolidated Statements of Income of the Bank and
subsidiaries for each of the years in the three year period ended December 31,
1997 have been audited by Radics & Co., LLC, independent certified public
accountants, whose report thereon is included elsewhere in this Prospectus. With
respect to the information for the three months ended March 31, 1998 and 1997,
which is unaudited, in the opinion of management, all adjustments necessary for
a fair presentation of such interim periods have been included and are of a
normal recurring nature. Results for the three months ended March 31, 1998 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. These Statements of Income should be read in
conjunction with the Financial Statements and notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this Offering Circular.
FOR THE THREE MONTHS                        FOR THE YEARS               
                                                        ENDED MARCH 31,                          ENDED DECEMBER 31,           
                                                 -----------------------------      ----------------------------------------- 
                                                    1998             1997             1997           1996             1995    
                                                 -----------      ------------      ---------     -----------     ----------- 
                                                         (UNAUDITED)
Interest income:
   Loans.....................................   $ 2,298,412      $ 1,744,900        $ 7,908,541   $ 7,268,237     $ 7,603,186
   Mortgage-backed securities................     2,117,926        1,930,007          7,908,940     6,982,443       6,559,192
   Investment securities.....................       602,150          465,039          1,897,153     1,700,819       1,188,096
   Other interest-earning assets.............        96,925          112,324            400,842       515,475         384,395
                                                -----------      -----------        -----------   -----------     -----------
        Total interest income................     5,115,413        4,252,270         18,115,476    16,466,974      15,734,869
                                                -----------      -----------        -----------   -----------     -----------
Interest expense:
   Deposits..................................     2,433,347        1,809,177          8,089,473     7,148,794       6,551,335
   Borrowed money............................       436,628          343,500          1,566,165     1,151,419       1,066,987
                                                -----------      -----------        -----------   -----------     -----------
        Total interest expense...............     2,859,975        2,152,677          9,655,638     8,300,213       7,618,322
                                                -----------      -----------        -----------   -----------     -----------
Net interest income..........................     2,245,438        2,099,593          8,459,838     8,166,761       8,116,547
Provision for loan losses....................       (22,050)          55,000            487,015       232,103         509,729
                                                -----------      -----------        -----------   -----------     -----------
     Net interest income after...............     2,267,488        2,044,593          7,972,823     7,934,658       7,606,818
     provision for loan losses...............   -----------      -----------        -----------   -----------     -----------

Non-interest income:
   Fees and service charges..................        94,162           64,042           273,443        210,286         157,183
   (Loss) gain on sale of securities.........            --               --           (20,245)       102,752         (22,014)
     available for sale
   Income on real estate owned...............            --               --                --         20,563          58,933
   Other.....................................        45,749           49,714           120,039        141,996         138,328
                                                -----------      ------------       ----------    -----------     -----------
        Total noninterest income.............       139,911          113,756           373,237        475,597         332,430
                                                -----------      -----------        ----------    -----------     -----------
Non-interest expense:
   Salaries and employee benefits............       767,131          705,818         2,847,886      2,621,753       2,439,036
   Occupancy expense of premises.............        85,578           66,563           245,879        228,411         219,771
   Equipment.................................       162,626          113,711           495,742        426,179         385,802
   Loss on real estate owned.................        23,748          157,321           379,870             --              --
   Advertising...............................        49,956           17,202           127,732         78,395          87,621
   Federal insurance premiums................        29,079           28,219           114,755      1,478,029         381,317
   Amortization of intangible................       148,192               --         1,743,062             --              --
   Other.....................................       370,389          261,974         1,218,015      1,085,529         932,929
                                                -----------      -----------        ----------    -----------     -----------
        Total noninterest expenses...........     1,636,699        1,350,808         7,172,941      5,918,296       4,446,476
                                                -----------      -----------        ----------    -----------     -----------
Income before income taxes...................       770,700          807,541         1,173,119      2,491,959       3,492,772
Income taxes.................................       259,559          284,485           436,279        835,951       1,220,817
                                                -----------      -----------        ----------    -----------     -----------
Net income...................................    $  511,141       $  523,056        $  736,840    $ 1,656,008     $ 2,271,955
                                                ===========      ===========        ==========    ===========     ===========
See accompanying notes to Consolidated Financial Statements.

                                       41
MANAGEMENT'S DISCUSSION AND ANALYSIS
               OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

     Bancorp has not yet been formed and, accordingly, has no results of
operations. The Bank's results of operations are dependent primarily on net
interest income, which is the difference between the income earned on interest-
earning assets, primarily its loan and investment portfolios, and its cost of
funds, consisting of interest paid on deposits and borrowings. Results of
operations are also affected by the Bank's provision for loan losses and non-
interest expense. The Bank's non-interest expense principally consists of
salaries and employee benefits, office occupancy and equipment expense,
amortization of intangibles, advertising, federal deposit insurance premiums,
expenses of real estate owned and other expenses. Results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in interest rates, government policies and actions of
regulatory authorities.

MANAGEMENT STRATEGY

     The Bank's current strategic plan is to maintain profitability and its 
well-capitalized position to take advantage of future expansion or growth
opportunities, while managing growth, maintaining asset quality, controlling
expenses and reducing exposure to credit and interest rate risk. Management
seeks to accomplish these goals by: (1) emphasizing its retail banking services
through its network of branch offices, which includes the origination of one- to
four-family mortgage loans, as well as commercial real estate, home equity,
multi-family, construction and development and consumer loans, in the
communities it serves as market conditions permit; (2) enhancing earnings and
offsetting the effects of the extreme competition for real estate loans in the
Bank's market area through the purchase of primarily adjustable rate mortgage-
backed securities, which provide a source of liquidity, low credit risk and low
administrative cost as well as helping to manage interest rate risk; and (3)
continuing to monitor interest rate risk. Management has aggressively sought to
increase loan originations in recent years and was successful in increasing
total loans receivable, net, from $82.1 million at December 31, 1996 to $112.7
million and $114.3 million at December 31, 1997 and March 31, 1998,
respectively. Competition, however, has remained intense in the Bank's market
area, which has resulted in the Bank's total securities portfolio representing a
greater percentage of total assets than its loan portfolio in each of the last
five years. Management believes that continuing to seek lending opportunities,
as well as investing in mortgage-backed securities, the majority of which are
adjustable rate, enables the Bank to effectively control its interest rate risk
while at the same time enabling it to maintain a balance of high quality,
diversified investments, provide for collateral for short and long-term
borrowings and lessen exposure to credit risk.

MANAGEMENT OF INTEREST RATE RISK

     The Bank continues to seek opportunities to originate for its portfolio 
one- to four-family residential mortgage loans, as well as other loans, in its
primary market area of Essex, Morris and Bergen Counties, New Jersey. The Bank's
total loan portfolio had decreased as a percent of the Bank's total assets from
1993 through 1996 when loan origination began to increase. The decrease in loan
originations occurred primarily due to intense competition in the Bank's market
area for loan originations. Further, due to the relatively low interest rate
environment that has existed in recent years, the Bank has originated primarily
fixed-rate one- to four-family mortgage loans. The Bank's purchase of primarily
adjustable rate mortgage-backed securities, as well as various debt obligations
of federal, state and local governments, has enabled the Bank to effectively
manage its interest rate risk. At March 31, 1998, the Bank had $122.6 million or
39.2% of total assets in mortgage-backed securities classified as held-to-
maturity, and $35.9 million or 11.5% of total assets

                                       42
in investment securities, of which $7.1 million or 2.3% of total assets were
classified as available for sale. At the same date, the Bank's total loans
receivable, net, totalled $114.3 million or 36.6% of total assets.

     NET PORTFOLIO VALUE. The Bank's interest rate sensitivity is monitored by
management through the use of the OTS model which estimates the change in the
Bank's NPV over a range of interest rate scenarios. NPV is the present value of
expected cash flows from assets, liabilities, and off-balance sheet contracts.
The NPV ratio, under any interest rate scenario, is defined as the NPV in that
scenario divided by the market value of assets in the same scenario. The OTS
produces its analysis based upon data submitted on the Bank's quarterly Thrift
Financial Reports. See "Regulation and Supervision -- Federal Savings
Institution Regulation." The following table sets forth the Bank's NPV as of
March 31, 1998, as calculated by the OTS.
NPV AS % OF PORTFOLIO
                  CHANGE IN             NET PORTFOLIO VALUE         VALUE OF ASSETS
                INTEREST RATES     --------------------------- -------------------------
               IN BASIS POINTS                   $         %      NPV
                 (RATE SHOCK)       AMOUNT    CHANGE    CHANGE   RATIO     CHANGE (1)
               ----------------    --------  --------  -------- --------  --------------    
                                             (DOLLARS IN THOUSANDS)
400         $17,365   $(17,782)     (51)    5.98       (512)  
                       300          22,615    (12,533)     (36)    7.60       (350)  
                       200          27,535     (7,613)     (22)    9.04       (206)  
                       100          31,846     (3,301)      (9)   10.24        (86)  
                    Static          35,147         --       --    11.10         --   
                     (100)          37,179      2,032        6    11.57         47  
                     (200)          38,104      2,956        8    11.71         61  
                     (300)          38,911      3,764       11    11.81         71  
                     (400)          40,920      5,773       16    12.21        111
________________
(1)  Expressed in basis points.

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

ANALYSIS OF NET INTEREST INCOME

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

                                       43
AVERAGE BALANCE SHEET. The following table sets forth certain information
relating to the Bank at March 31, 1998, for the three months ended March 31,
1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995. The
average yields and costs are derived by dividing income or expense by the
average balance of interest-earning assets or interest-bearing liabilities,
respectively, for the periods shown except where noted otherwise and reflect
annualized yields and costs. Average balances are derived from average month-end
balances except for the average balances of Other interest-earning assets and
Borrowed money, which are derived from average daily balances. Management does
not believe that the use of average monthly balances instead of average daily
balances has caused any material differences in the information presented. The
yields and costs include fees which are considered adjustments to yields.
FOR THE THREE MONTHS ENDED MARCH 31,
                                                     ---------------------------------------------------------------------
                               AT MARCH 31, 1998                   1998                              1997
                            ----------------------- --------------------------------- ----------------------------------
                                                                             AVERAGE                            AVERAGE
                                          YIELD/     AVERAGE                 YIELD/     AVERAGE                 YIELD/  
                              BALANCE      COST      BALANCE     INTEREST     COST      BALANCE     INTEREST     COST 
                            ----------   -------   ----------  -----------  --------  ----------  -----------  --------
                                                               (DOLLARS IN THOUSANDS)
ASSETS:
 Interest-earning assets:
   Loans receivable.........  $116,165       7.96%   $115,308    $  2,298       7.97%   $ 84,353    $  1,745       8.27%
   Mortgage-backed                                                                                                      
    securities..............   122,633       6.75     126,510       2,118       6.70     111,406       1,930       6.93 
   Investment securities....    35,874       6.98      32,889         602       7.32      25,851         465       7.20
   Other interest-earning                                                                                               
    assets..................    22,771       5.69       8,156          97       4.76       8,093         112       5.54 
                              --------               --------    --------               --------    --------            
     Total interest-
      earning assets........   297,443       7.17     282,863       5,115       7.23     229,703       4,252       7.40
                                                                 --------                           --------            
   Allowance for loan                                                                                        
    losses..................    (1,863)                (1,880)                            (1,518)
   Non-interest-earning                                                                                      
    assets..................    16,942                 18,240                              8,089 
                              --------               --------                           --------             
     Total assets...........  $312,522               $299,223                           $236,274
                              ========               ========                           ========
LIABILITIES AND RETAINED
 EARNINGS:
 Interest-bearing
  liabilities:
   Interest-bearing
    deposits:
     Demand deposits........  $ 22,256       1.69    $ 21,560          94       1.74    $ 15,171          67       1.77
     Savings and club                                                                                                   
      accounts..............    61,840       2.58      62,849         407       2.59      50,260         314       2.50 
     Certificates of                                                                                                    
      deposit...............   143,591       5.49     142,728       1,932       5.41     108,699       1,428       5.25 
                              --------               --------    --------               --------    --------            
       Total interest-
       bearing deposits.....   227,687       4.33     227,137       2,433       4.28     174,130       1,809       4.16 
   Borrowed money...........    42,300       5.86      30,144         437       5.80      22,650         343       6.06
                              --------               --------    --------               --------    --------
     Total interest-
      bearing liabilities...   269,987       4.57     257,281       2,870       4.46     196,780       2,152       4.37
                                                                 --------                           --------            
 Non-interest bearing                                                                                        
  deposits..................    11,433                 11,471                              7,106 
 Other non-interest-                                                                                         
  bearing liabilities.......     1,301                    921                              3,674 
                              --------               --------                           -------- 
     Total liabilities......   282,721                269,673                            207,560
 Retained earnings..........    29,801                 29,550                             28,714
                              --------               --------                           --------
   Total liabilities and      $312,522               $299,223                           $236,274
    retained earnings.......  ========               ========                           ========
 Net interest income/                                                                                                   
  interest rate spread .....                 2.60%               $  2,245       2.77%               $  2,100       3.03%
                                          =======                ========    =======                ========    ======= 
 Net interest-earning                                                                                                   
  assets/net yield on                                                                                                   
  interest-earning
  assets....................  $ 27,456               $ 25,582                   3.17%   $ 32,923                   3.66%
                              ========               ========                =======    ========                ======= 
   Ratio of average          
    interest-earning         
    assets to average
    interest-bearing
    liabilities                   1.10x                  1.10x                              1.17x     
                              ========               ========                           ========
44
FOR THE YEARS ENDED DECEMBER 31,                
                                                              ---------------------------------------------------------------------
                                                                            1997                                 1996              
                                                              ------------------------------------  -------------------------------
                                                                                      AVERAGE                             AVERAGE  
                                                                  AVERAGE               YIELD/       AVERAGE                YIELD/ 
                                                                  BALANCE   INTEREST     COST        BALANCE   INTEREST      COST  
                                                              ------------ ---------- ------------  --------- ---------- ----------
                                                                                       (DOLLARS IN THOUSANDS)
ASSETS:                                                                              
   Interest-earning assets:                                   
       Loans receivable.....................................  $ 97,277     $ 7,908     8.13%        $ 85,973  $ 7,268      8.45%
       Investment securities................................   114,996       7,909     6.88          101,196    6,983      6.90
       Mortgage-backed securities...........................    26,774       1,897     7.09           23,035    1,701      7.38
       Other interest-earning assets........................     7,019         401     5.71            8,130      515      6.33
                                                              --------     -------                  --------  -------
          Total interest-earning assets.....................   246,016      18,115     7.36          218,334   16,467      7.54
                                                                           -------                            -------
       Allowance for loan losses............................    (1,739)                               (1,354)
       Other non-interest earning assets....................    10,422                                 8,126
                                                              --------                              --------
          Total assets......................................  $254,699                              $225,106
                                                              ========                              ========
LIABILITIES AND RETAINED EARNINGS:
   Interest-bearing liabilities:
       Interest-bearing deposits:
          Demand............................................  $ 16,360         293     1.79%        $ 14,736      269      1.83%
          Savings and club..................................    53,221       1,357     2.55           51,138    1,278      2.50
          Certificates of deposit...........................   119,272       6,439     5.40          105,141    5,602      5.33
                                                              --------     -------                  --------  -------
             Total interest-bearing deposits................   188,853       8,089     4.28          171,015    7,149      4.18
       Borrowed money.......................................    26,223       1,566     5.97           18,092    1,151      6.36
                                                              --------    --------                  --------  -------
          Total interest-bearing liabilities................   215,076       9,655     4.49          189,107    8,300      4.39
                                                                          --------                   -------  -------
   Non-interest-bearing deposits............................     8,503                                 6,943
   Other non-interest bearing liabilities...................     1,711                                 1,203
                                                              --------                              --------
          Total liabilities.................................   225,290                               197,253
   Retained earnings........................................    29,409                                27,853
                                                              --------                              --------
          Total liabilities and retained earnings...........  $254,699                              $225,106
                                                              ========                              ========
   Net interest income/interest rate spread.................              $  8,460     2.87%                  $ 8,167      3.15%
                                                                          ========     ====                   =======      =====
   Net interest-earning assets/net yield on interest-earning
     assets.................................................  $ 30,940                 3.44%        $ 29,227               3.74%
                                                              ========                 ====         ========               =====
   Ratio of interest-earning assets to interest-bearing
     liabilities............................................      1.14x                                 1.15x
                                                                  ====                                  ====
-----------------------------------
                                                                            1995                       
                                                              -----------------------------------
                                                                                      AVERAGE      
                                                                 AVERAGE               YIELD/      
                                                                 BALANCE  INTEREST      COST       
                                                              -----------------------------------
ASSETS:                                                                                                    
   Interest-earning assets:
       Loans receivable.....................................  $ 86,379    $ 7,603      8.80%
       Investment securities................................    96,865      6,559      6.77
       Mortgage-backed securities...........................    15,926      1,188      7.46
       Other interest-earning assets........................     7,251        385      5.31
                                                              --------    -------
          Total interest-earning assets.....................   206,421     15,735      7.62
                                                                          -------
       Allowance for loan losses............................    (1,161)
       Other non-interest earning assets....................     7,342
                                                              ---------
          Total assets......................................  $ 212,602
                                                              =========
LIABILITIES AND RETAINED EARNINGS:
   Interest-bearing liabilities:
       Interest-bearing deposits:
          Demand............................................  $  13,601       311      2.29%
          Savings and club..................................     55,888     1,397      2.50
          Certificates of deposit...........................     92,938     4,843      5.21
                                                              ---------   -------
             Total interest-bearing deposits................    162,427     6,551      4.03
       Borrowed money.......................................     15,615     1,067      6.83
                                                              ---------   -------
          Total interest-bearing liabilities................    178,042     7,618      4.28
                                                                          -------
   Non-interest-bearing deposits............................      7,937
   Other non-interest bearing liabilities...................        916
                                                              ---------
          Total liabilities.................................    186,895
   Retained earnings........................................     25,707
                                                              ---------
          Total liabilities and retained earnings...........  $ 212,602
                                                              =========
   Net interest income/interest rate spread.................              $ 8,117      3.34%
                                                                          =======      ====
   Net interest-earning assets/net yield on interest-earning
     assets.................................................  $ 28,379                 3.93%
                                                              ========                 ====
   Ratio of interest-earning assets to interest-bearing
     liabilities............................................      1.16x
45
RATE/VOLUME ANALYSIS.  The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected the Bank's interest income and
interest expense during the periods indicated. Information is provided in each
category with respect to: (i) changes attributable to changes in volume (changes
in volume multiplied by prior rate); (ii) changes attributable to changes in
rate (changes in rate multiplied by prior volume); and (iii) the net change. The
changes attributable to the combined impact of volume and rate have been
allocated on a proportional basis between changes in rate and volume.
THREE MONTHS ENDED            YEAR ENDED                   YEAR ENDED                        
                                  MARCH 31, 1998           DECEMBER 31, 1997            DECEMBER 31, 1996                    
                                   COMPARED TO                COMPARED TO                  COMPARED TO                      
                                THREE MONTHS ENDED            YEAR ENDED                   YEAR ENDED                       
                                  MARCH 31, 1997           DECEMBER 31, 1996            DECEMBER 31, 1995         
                              -----------------------   -------------------------   -------------------------        
                              INCREASE (DECREASE)       INCREASE (DECREASE)         INCREASE (DECREASE)      
                                     DUE TO                  DUE TO                       DUE TO          
                              ------------------        ------------------          --------------------
                               VOLUME     RATE   NET     VOLUME    RATE      NET     VOLUME     RATE     NET   
                              -------    ------- ----   --------  --------   ----   ------     -------   ---- 
                                                             (IN THOUSANDS)
Interest income:
   Loans receivable..........  $  618    $ (65)  $553    $  923   $(283)   $  640    $ (35)   $(300)   $(335)
   Mortgage-backed...........     254      (66)   188       946     (20)      926      296      128      424
    securities
   Investment securities.....     129        8    137       265     (69)      196      526      (13)     513
   Other interest-earning....       1      (16)   (15)      (66)    (48)     (114)      50       80      130
    assets...................  ------    -----   ----    ------   -----    ------    -----    -----    -----
Total........................   1,002     (139)   863     2,068    (420)    1,648      837     (105)     732
                               ------    -----   ----    ------   -----    ------    -----    -----    -----
Interest expense:
   Demand deposits(1)........      28       (1)    27        30      (6)       24       24      (66)     (42)
   Savings and club..........      81       12     93        53      26        79     (119)      --     (119)
    accounts
   Certificates of deposit...     459       45    504       762      75       837      646      113      759
   Borrowed money............     109      (15)    94       489     (74)      415      161      (77)      84
                               ------    -----   ----    ------   -----    ------    -----    -----    -----
Total........................     678       40    718     1,334      21     1,355      712      (30)     682
                               ------    -----   ----    ------   -----    ------    -----    -----    -----

Net change in net interest
 income......................  $  324    $(179)  $145    $  734   $(441)   $  293    $ 125    $ (75)   $  50
                               ======    =====   ====    ======   =====    ======    =====    =====    =====
______________________
(1)  Includes NOW and Money Market accounts.

                                       46
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1998 AND DECEMBER 31, 1997

     Total assets were $312.5 million at March 31, 1998, compared to $299.0
million at December 31, 1997, an increase of $13.5 million, or 4.5%. The
increase in assets was funded primarily by an increase in FHLB borrowings of
$12.0 million.

     Cash and cash equivalents, primarily interest-bearing deposits with the
FHLB, increased $8.6 million to $17.3 million at March 31, 1998 from $8.7
million at December 31, 1997. Additionally, the Bank invested in term deposits
with the FHLB totalling $5.0 million during the first quarter of 1998. These
term deposits have initial periods to maturity of between three and seven
months. The overall increase of $13.6 million in cash and cash equivalents and
term deposits was funded primarily by the $12.0 million increase in borrowed
money and serves to increase the Bank's liquidity position.

     In the aggregate, mortgage-backed securities and investment securities,
including available for sale and held to maturity issues, totalled $158.5
million at March 31, 1998, a decrease of $1.7 million from $160.2 million at
December 31, 1997. Such decrease was used to fund an increase of $1.6 million in
the loan portfolio. Mortgage-backed securities, all of which are held to
maturity, decreased $7.5 million due to repayments. Investment securities held
to maturity increased $5.8 million, primarily due to security purchases and
investment securities available for sale remained unchanged at $7.1 million. At
March 31, 1998, 99.6% of the Bank's investment securities, including available
for sale and held to maturity, consisted of U.S. Government and Agency
obligations, while virtually all of the mortgage-backed securities portfolio
consisted of GNMA, FNMA and FHLMC issues.

     Loans receivable increased $1.6 million to $114.3 million at March 31, 1998
from $112.7 million at December 31, 1997. The increase was primarily in the one-
to four-family mortgage loan category, which increased $2.0 million. At March
31, 1998, 88.0% of the outstanding balance of loans in the Bank's portfolio
consisted of one- to four-family loans, compared to 87.3% at December 31, 1997.

     Deposits totaled $239.1 million at March 31, 1998, an increase of $928,000,
or 0.4%, over the $238.2 million balance at December 31, 1997.

     Borrowed money increased $12.0 million to $42.3 million at March 31, 1998,
as compared to $30.3 million at December 31, 1997. Based on the lower cost of
wholesale funds as compared to comparable maturity retail deposits, management
chose to fund the asset growth discussed above with additional FHLB borrowings.
During the quarter ended March 31, 1998, short-term borrowings totalling $18.0
million were repaid, while $30.0 million in borrowings with five to ten year
maturities and an average interest rate of 5.62% were incurred.

     Retained earnings increased $526,000, or 1.8%, to $29.8 million, primarily
due to the retention of net income.

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

     Total assets were $299.0 million at December 31, 1997, as compared to
$236.0 million at December 31, 1996, an increase of $63.0 million, or 26.7%. The
increase in assets was funded primarily by deposit growth of $58.2 million and
an increase in FHLB borrowings of $6.6 million. The $58.2 million increase in
deposits was primarily due to the Bank's purchase of three branch offices from
Summit Bank ("Summit") in October 1997, with total deposits of $51.0 million. 

                                       47
Securities available for sale increased to $7.1 million at December 31,
1997 from $1.6 million at December 31, 1996. The securities owned at December
31, 1996 consisted of a municipal bond which was called and mutual fund shares
which were sold during the year ended December 31, 1997. The complete
liquidation of the December 31, 1996 portfolio resulted in a loss of $20,000.
The Bank purchased $7.0 million in U.S. government obligations for the available
for sale portfolio during 1997, all of which remain at December 31, 1997.

     Investment securities held to maturity increased to $22.9 million at
December 31, 1997 from $22.5 million at December 31, 1996 as $10.0 million of
securities that matured during the period were replaced with $10.4 million in
new securities. The investment securities held to maturity portfolio consists
solely of U.S. Government and Agency securities.

     Mortgage-backed securities held to maturity increased to $130.2 million at
December 31, 1997 from $113.3 million at December 31, 1996. The Bank purchased
$37.0 million in mortgage-backed securities during 1997, which more than offset
$20.1 million in repayments received. The bulk of the issues purchased during
1997 were adjustable rate issues, increasing the level of adjustable-rate
mortgage-backed securities to 63.7% of the portfolio at December 31, 1997 from
55.5% at December 31, 1996. Virtually the entire mortgage-backed securities
portfolio consists of securities issued by GNMA, FNMA and FHLMC.

     Loans receivable increased $30.6 million, or 14.9%, to $112.7 million at
December 31, 1997 from $82.1 million at the prior year end. This increase was
consistent with the Bank's strategy of increasing assets in anticipation of the
deposit purchase consummated in late 1997. To this end, the Bank utilized
mortgage brokers during 1997 to significantly increase the volume of
originations, while continuing to adhere to prudent underwriting standards. The
following significant increases by loan category were experienced: one- to four-
family mortgage loans -- $26.7 million; home equity lines of credit and loans --
$1.9 million; and construction and land loans (net of loans in process) -- $3.4
million. Commercial real estate loans decreased $1.6 million. The Bank remains
predominantly a one- to four-family residential lender. At December 31, 1997,
87.3% of the balance of outstanding loans relates to one- to four-family
lending, up from 81.1% at December 31, 1996.

     Premises and equipment increased to $3.1 million at December 31, 1997 from
$1.6 million at December 31, 1996. Of this increase, $1.4 million is due to the
acquisition of the three branch offices from Summit Bank.

     In conjunction with the branch offices and deposits acquired from Summit, a
premium of $7.6 million was recorded as the excess of cost over assets acquired.
Such amount was based upon the amount of deposits the Bank had agreed to
acquire. However, during the period between the purchase agreement date and the
October 17, 1997 consummation date, the deposits subject to purchase declined
over 18%. By December 31, 1997, the balance of deposits at the three branch
offices had stabilized. Management performed a reassessment of the
recoverability of this asset and, as a result, an impairment loss of $1.6
million was recorded, leaving a balance of $5.8 million at December 31, 1997.

     Deposits totaled $238.2 million at December 31, 1997, an increase of $58.3
million, or 32.4%, over the balance of $179.9 million at December 31, 1996. The
increase resulted primarily from the purchase of the three Summit branches and
the crediting of $8.1 million in interest on deposits.

                                       48
Borrowings increased $6.6 million to $30.3 million at December 31, 1997, as
compared to $23.7 million at December 31, 1996. The increase was due to the
Bank's increased usage of short-term sales of mortgage-backed securities under
repurchase agreements. All outstanding borrowings are with the FHLB.

     Retained earnings increased $822,000, or 2.9%, to $29.3 million, due
largely to the retention of net income.

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1997

     NET INCOME.  Net income decreased $12,000 or 2.3% to $511,000 for the three
months ended March 31, 1998 compared with $523,000 for the same 1997 period. The
decrease in net income during the 1998 period resulted from an increase in non-
interest expenses, which was partially offset by increases in net interest
income and non-interest income and decreases in provision for loan losses and
income taxes.

     INTEREST INCOME. Total interest income increased $863,000 or 20.3% to $5.1
million for the three months ended March 31, 1998 from $4.3 million for the same
1997 period. The increase was the result of a 23.1 % increase in average
interest-earning assets between the periods, which more than offset a 17 basis
point decline in yield. The increase in the average balance was the result of
increased loan originations and securities purchased during the last three
quarters of 1997 funded by cash received in connection with the deposits
purchased from Summit. The decrease in yield was the result of lower rates
obtained on loans originated and mortgage-backed securities purchased since
March 31, 1997.

     Interest income on loans increased by $553,000 or 31.7% to $2.3 million
during the three months ended March 31, 1998 when compared with $1.7 million for
the same 1997 period. The increase during the 1998 period resulted from an
increase of $31.0 million in the average balance of loans outstanding, which was
sufficient to offset a 30 basis point decrease in the yield earned on the loan
portfolio. The increased average balance was the result of increased lending
volume during the last nine months of 1997. The decreased yield is the result of
lower rates obtained on originations as well as downward interest rate
adjustments on the Bank's adjustable-rate mortgage loans.

     Interest on mortgage-backed securities, all of which are held to maturity,
increased $188,000 or 9.7% to $2.1 million during the three months ended March
31, 1998 when compared with $1.9 million for the same 1997 period. The increase
during the 1998 period resulted from a $15.1 million or 13.6% increase in the
average balance of mortgage-backed securities, which was more than sufficient to
offset a 23 basis point decline in yield. The increased average balance is the
result of purchases of mortgage-backed securities exceeding repayments. The
decrease in yield is the result of lower interest rates obtained on securities
purchased since March 31, 1997, many of which were adjustable rate issues with
customarily low initial interest rates.

     Interest earned on investment securities, including both available for sale
and held to maturity issues, increased by $137,000 or 29.5% to $602,000 during
the three months ended March 31, 1998, when compared to $465,000 during the same
1997 period, primarily due to an increase of $7.0 million in the average balance
of such assets along with a twelve basis point increase in the yield earned. The
increase in average balance was the result of purchases of U.S. Government and
Agency securities exceeding maturities thereof.

     Interest on other interest-earning assets decreased $15,000 or 13.4% to
$97,000 during the three months ended March 31, 1998 as compared to $112,000 for
the same 1997 period. The decrease was

                                       49
primarily due to a 78 basis point decline in yield as the average balance of
such assets increased by $63,000 or 0.8%.

     INTEREST EXPENSE.  Interest expense on deposits increased $624,000 or 34.5%
to $2.4 million during the three months ended March 31, 1998 when compared to
$1.8 million during the same 1997 period. Such increase was primarily
attributable to increases of $53.0 million in the average balance of interest-
bearing deposits and twelve basis points in the cost of interest-bearing
deposits. The increased average balance is the result of the purchase of $51.0
million in deposits from Summit in October 1997. The increase in cost is due to
higher interest rates paid on certificates of deposit, which averaged 5.41 % for
the three months ended March 31, 1998 as compared to 5.25% for the same 1997
period. The cost of non-certificate deposits increased to a lesser degree, to
2.37% for the three months ended March 31, 1998 as compared to 2.33% for the
same prior year period.

     Interest expense on borrowed money increased by $94,000 or 27.4% to
$437,000 during the three months ended March 31, 1998 when compared with
$343,000 during the same 1997 period, primarily due to an increase of $7.5
million in the average balance of borrowings outstanding from the FHLB, which
was sufficient to offset a twenty-six basis point decrease in the cost of
borrowed money. During the three months ended March 31, 1998, the Bank repaid
$18.0 million in short-term borrowings under repurchase agreements having an
average interest rate of 5.82% and obtained $30.0 million in borrowings with
five to ten year maturities with an average interest rate of 5.62%.

     NET INTEREST INCOME.  Net interest income increased $145,000 or 6.9% during
the three months ended March 31, 1998 when compared with the same 1997 period.
Such increase was due to an increase in total interest income of $863,000, which
was sufficient to offset an increase in total interest expense of $718,000. The
Bank's net interest rate spread decreased to 2.77% in 1998 from 3.03% in 1997.
The decrease in the interest rate spread resulted from a decrease of 17 basis
points in the yield earned on interest-earning assets along with a 9 basis point
increase in the cost of interest-bearing liabilities. Despite the decline in
interest rate spread, the Bank improved net interest income due to the
additional income generated by the $53.2 million increase in average interest-
earning assets, which more than offset the additional cost incurred by the $60.5
million increase in average interest-bearing liabilities.

     PROVISION FOR LOAN LOSSES.  During the three months ended March 31, 1998,
the Bank recorded a recapture of the provision for loan losses of $22,000.
During the three months ended March 31, 1997, the Bank provided $55,000 as a
provision for loan losses. The allowance for loan losses is based on
management's evaluation of the risk inherent in its loan portfolio and gives due
consideration to the changes in general market conditions and in the nature and
volume of the Bank's loan activity. The Bank intends to continue to provide for
loan losses based on its periodic review of the loan portfolio and general
market conditions. At March 31, 1998 and 1997, loans delinquent ninety days or
more totalled $2.3 million and $2.7 million, respectively, representing 1.93%
and 3.22%, respectively, of total loans. At March 31, 1998, the allowance for
loan losses stood at $1.9 million, representing 1.58% of total loans and 82.4%
of loans delinquent ninety days or more. At March 31, 1997, the allowance for
loan losses stood at $1.6 million, representing 1.90% of total loans and 59.2%
of loans delinquent ninety days or more. No loans were charged off during the
three month periods ended March 31, 1998 and 1997. The Bank monitors its loan
portfolio on a continuing basis and intends to continue to provide for loan
losses based on its ongoing review of the loan portfolio and general market
conditions.

                                       50
NON-INTEREST INCOME.  Non-interest income increased $26,000 or 22.8% to
$140,000 during the three months ended March 31, 1998 from $114,000 during the
same 1997 period. The increase resulted from increased fees and service charges.

     NON-INTEREST EXPENSES.  Non-interest expenses increased by $286,000 or
21.2% to $1.64 million during the three months ended March 31, 1998 when
compared with $1.35 million during the same 1997 period. Salaries and employee
benefits, net occupancy expense, equipment, advertising, and miscellaneous
expense increased in the aggregate by $270,000, or 23.2%, to $1.44 million
during the three months ended March 31, 1998 from $1.17 million during the same
prior year period due primarily to the purchase of three branches from Summit.
Such purchase in October 1997 increased the Bank's number of office locations
from 5 to 8 and resulted in increases in the aforementioned expenses. Loss on
REO decreased $133,000 to $24,000 during the three months ended March 31, 1998
from $157,000 during the same prior year period due primarily to a $148,000
reduction in loss provisions recorded during the two periods. During the three
month period ended March 31, 1998, amortization expense of $148,000 was recorded
in connection with the acquisition of deposits from Summit in October 1997. No
comparable expense was recorded during the same 1997 period.

     INCOME TAXES.  Income tax expense totalled $260,000, or 33.7% of income
before income taxes, during the three months ended March 31, 1998 as compared to
$284,000, or 35.2% of income before income taxes, during the comparable 1997
period.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

     NET INCOME.  Net income for 1997 was $737,000, a decrease of $919,000 from
$1.7 million in 1996. The primary factors in the decrease of net income were a
$1.74 million amortization expense, which primarily related to a $1.6 million
impairment loss, on the excess of the cost over assets acquired in connection
with the purchase of deposits from Summit in 1997, the $1.1 million one-time
special assessment in 1996 to recapitalize the SAIF, and a $380,000 loss on REO
in 1997 versus income of $21,000 on REO in 1996. The combined effect of these
three factors was to decrease income before income taxes and net income by $1.05
million and $670,000, respectively. The remaining $249,000 decrease in net
income was the result of increases in provisions for loan losses and non-
interest expense, along with a decrease in non-interest income, which more than
offset an increase in net interest income and a decrease in income taxes.

     INTEREST INCOME. Total interest income increased 10.0% to $18.1 million for
1997 as compared to $16.5 million for 1996. The increase was due to a $27.7
million or 12.7% increase in average interest-earning assets during 1997, which
more than offset a drop of 18 basis points in the yield earned thereon to 7.36%
in 1997 from 7.54% in 1996. Increased average balances and decreased yield were
experienced in all categories of interest-earning assets. The increased average
balances of earning assets were the result of increased loan originations and
securities purchases funded by the Summit deposit purchase and increased FHLB
borrowings.

     Interest income on loans during 1997 increased by $640,000, or 8.8%, to
$7.9 million when compared to $7.3 million during 1996. During the years ended
December 31, 1997 and 1996, the yield earned on the loan portfolio was 8.13% and
8.45%, respectively. The average balance of loans outstanding during the years
ended December 31, 1997 and 1996, totalled $97.2 million and $86.0 million,
respectively. The decreased yield is the result of the lower market interest
rates prevailing during 1997. The increased average balance during 1997 is the
result of increased loan origination efforts, including the use of outside
mortgage brokers. Originations rose to $47.1 million in 1997 from $15.1 million
in 1996.

                                       51
Interest on mortgage-backed securities, all of which are held to maturity,
increased $926,000 or 13.3%, during 1997 to $7.9 million compared to $7.0
million for 1996. During the year ended December 31, 1997, the average balance
of mortgage-backed securities outstanding increased $13.8 million, or 13.6%, to
$115.0 million when compared to $101.2 million for 1996. The yield earned on the
mortgage-backed securities portfolio decreased marginally to 6.88% in 1997 from
6.90% in 1996. The increase in the average balance of mortgage-backed securities
during 1997 resulted primarily from purchases of mortgage-backed securities
which more than offset principal repayments.

     Interest earned on investment securities, including both available for sale
and held to maturity issues, increased by $196,000, or 11.5%, to $1.9 million
for 1997, when compared to $1.7 million for 1996. The increase resulted from an
increase of $3.7 million, or 16.2%, in the average balance of the investment
securities portfolio, which more than offset a decrease of 29 basis points in
the yield earned on the investment securities portfolio to 7.09% in 1997 from
7.38% in 1996. The increased average balance and decreased yield were both the
result of the purchase during 1997 of $7.0 million in U.S. Government securities
available for sale yielding 6.08%.

     Interest on other interest-earning assets totalled $401,000 and $515,000
during 1997 and 1996, respectively. The yield earned on other interest-earning
assets decreased to 5.71% in 1997 from 6.33% in 1996, which augmented a decrease
of $1.1 million, or 13.7%, in the average balance of other interest-earning
assets outstanding.

     INTEREST EXPENSE. Interest expense on deposits increased $940,000, or 13.1
% to $8.1 million during 1997 compared to $7.1 million for 1996. The increase
during 1997 was attributable to an increase of ten basis points in the Bank's
average cost of interest-bearing deposits to 4.28% for 1997 from 4.18% for 1996,
along with an increase of $17.8 million, or 10.4 %, in the average balance of
interest-bearing deposits outstanding. The increased cost reflects a seven basis
point increase in the cost of certificates of deposit as well as the increase of
such certificates to 63.2% of average interest-bearing deposits in 1997 from
61.5% during 1996. The increased average balance of interest-bearing deposits
primarily reflects the purchase of deposits from Summit during 1997.

     Interest expense on borrowed money increased $415,000, or 36.1%, to $1.6
million during 1997 compared to $1.2 million for 1996. The increase during 1997
was attributable to an increase of $8.1 million in the average balance of
borrowings outstanding, partially offset by a decrease of 39 basis points in the
Bank's cost of borrowings to 5.97% for 1997 from 6.36% for 1996. The increased
average balance reflects management's increased use of borrowed funds to
leverage the balance sheet. The decreased interest rate on borrowings resulted
from the paydown of older debt having higher interest rates as well as the lower
interest rates available on new borrowings obtained in 1997.

     NET INTEREST INCOME.  Net interest income for 1997 increased $293,000, or
3.6%, to $8.5 million in 1997 from $8.2 million in 1996. The Bank's net interest
rate spread decreased to 2.87% in 1997 from 3.15% in 1996 and its interest rate
margin decreased to 3.44% in 1997 from 3.74% in 1996. These decreases primarily
resulted from an 18 basis point decrease in the yield earned on interest earning
assets to 7.36% in 1997 from 7.54% in 1996 coupled with a ten basis point
increase in the cost of average interest-bearing liabilities to 4.49% in 1997
from 4.39% in 1996. Despite the decreases in interest rate spread and margin,
the Bank was able to improve net income by increasing net interest-earning
assets by $1.7 million and by leveraging the balance sheet through a deposit
purchase and increased borrowings.

                                       52
PROVISION FOR LOAN LOSSES.  During 1997 and 1996, the Bank provided
$487,000 and $232,000, respectively, for loan losses. At December 31, 1997 and
1996, the Bank's loan portfolio included loans totalling $2.5 million and $2.9
million, respectively, which were delinquent ninety days or more. The Bank
maintains an allowance for loan losses based on management's evaluation of the
risks inherent in its loan portfolio which gives due consideration to changes in
general market conditions and in the nature and volume of the Bank's loan
activity. The allowance for loan losses amounted to $1.9 million at December 31,
1997, representing 1.62% of total loans and 75.7% of loans delinquent ninety
days or more compared to an allowance of $1.6 million at December 31, 1996,
representing 1.85% of total loans and 54.5% of loans delinquent ninety days or
more. During 1997, the Bank charged off loans aggregating $166,000. During 1996,
no loans were charged off. The Bank monitors its loan portfolio and intends to
continue to provide for loan losses based on its ongoing periodic review of the
loan portfolio and general market conditions.

     NON-INTEREST INCOME.  Non-interest income decreased by $103,000, or 21.6%,
to $373,000 during 1997 as compared to $476,000 for 1996. The decrease in non-
interest income during 1997 resulted primarily from a $20,000 loss on sales of
securities available for sale during 1997 as compared to a $103,000 gain in
1996, $21,000 in income on REO recorded in 1996 compared to none in 1997, and a
decrease in miscellaneous income of $22,000, which was partially offset by
increases in fees and service charges of $63,000. The increase during the 1997
period in the fees and service charges resulted from a revised service fee
schedule on various depository services.

     NON-INTEREST EXPENSES.  Non-interest expenses increased $1.3 million, or
21.2%, to $7.2 million during 1997 compared to $5.9 million for 1996. During
1997, in conjunction with the purchase of three branches and related deposit
liabilities from Summit, the Bank recorded $7.6 million in excess of cost over
assets acquired. Amortization expense of $1.7 million, including an impairment
loss of $1.6 million, as previously noted, was recorded during 1997 on this
asset. Additionally, on September 30, 1996, legislation was enacted which, among
other things, imposed a one-time special assessment on SAIF member institutions,
including the Bank. The special assessment levied amounted to 65.7 basis points
on SAIF assessable deposits held as of March 31, 1995. The Bank, during the 1996
period, took a charge of $1.1 million as a result of such assessment. Non-
interest expenses, excluding the above-mentioned amortization expense on excess
of cost over assets acquired and the one-time SAIF assessment, increased
$610,000, or 12.7%, to $5.4 million during 1997 compared to $4.8 million for
1996.

     Salaries and employee benefits increased $226,000 or 8.6%, occupancy and
equipment expenses increased $87,000 or 13.2% and miscellaneous expenses
increased $132,000 or 12.2%. The combined $445,000 increase in these areas is
largely attributable to the three branches acquired from Summit during 1997 and
the related increase in operating costs.

     Loss on REO totalled $380,000 in 1997 compared to income of $21,000
recorded in 1996, which resulted primarily from an increase of $328,000 in loss
provisions recorded on properties in the REO portfolio, to $373,000 in 1997 from
$45,000 in 1996, and an $87,000 decrease in gain on sales of properties to
$30,000 in 1997 from $117,000 in 1996. $264,000 of the $373,000 in loss
provisions recorded in 1997 relates to one commercial property and was based
upon a market price opinion given in October 1997 by a major realtor.

     Partially offsetting the increases in salaries and employee benefits,
occupancy and equipment expenses, miscellaneous expenses and loss on real estate
owned was a $265,000 decrease in federal deposit insurance premium related to
the reduction of the deposit insurance assessment rate.

                                       53
INCOME TAXES. Income tax expense totalled $436,000 and $836,000 during 1997
and 1996, respectively. The increase in 1997 resulted primarily from an increase
in pre-tax income of $1.3 million and from the utilization, in 1996, of a
$103,000 capital loss carryforward. The Bank's effective income tax rate was
37.2% in 1997 and 33.5% in 1996.

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

     NET INCOME.  Net income decreased by $616,000, or 27.1% to $1.7 million
during 1996 compared to $2.3 million for 1995. The decrease in net income during
the 1996 period resulted primarily from a charge of $1.1 million to recapitalize
the SAIF. During the year ended December 31 1996, a one-time special assessment
was levied amounting to 65.7 basis points on SAIF assessable deposits held as of
March 31, 1995. The after-tax effect of this charge was to reduce net income for
1996 by $703,000. Exclusive of the effect of the one-time special assessment,
net income increased $87,000 or 3.8% as increases of $50,000 in net interest
income and $143,000 in non-interest income, along a $278,000 decrease in
provision for loan losses more than offset increases of $374,000 in noninterest
expenses and $10,000 in income taxes.

     INTEREST INCOME. Total interest income increased 4.7% to $16.5 million for
1996 as compared to $15.7 million in 1995. The increase was due to an $11.9
million or 5.8% increase in average interest-earning assets, which more than
offset an 8 basis point decline in the yield earned on such assets to 7.54% in
1996 from 7.62% in 1995.

     Interest income on loans during 1996 decreased $335,000, or 4.4%, to $7.3
million when compared to $7.6 million during 1995, primarily due to a decrease
in yield. During the years ended December 31, 1996 and 1995, the yield earned on
the loan portfolio was 8.45% and 8.80%, respectively. The 35 basis point yield
decline reflects lower interest rates on originated loans as well as downward
rate adjustments on adjustable rate loans. The average balance of loans
outstanding, during the years ended December 31, 1996 and 1995, totalled $86.0
million and $86.4 million, respectively.

     Interest on mortgage-backed securities, all of which were held to maturity,
increased $424,000, or 6.5%, during 1996 to $7.0 million compared to $6.6
million for 1995. During the year ended December 31, 1996, the average balance
of mortgage-backed securities outstanding increased $4.3 million, or 4.5%. The
yield earned on the mortgage-backed securities portfolio increased 13 basis
points to 6.90% in 1996 from 6.77% in 1995. The increase in the average balance
of mortgage-backed securities during 1996 resulted primarily from purchases of
mortgage-backed securities exceeding repayments thereon.

     Interest earned on investment securities, both available for sale and held
to maturity, increased by $513,000, or 43.2%, to $1.7 million for 1996, when
compared to $1.2 million for 1995. The increase resulted primarily from an
increase of $7.1 million or 44.6%, in the average balance of the investment
securities portfolio, which primarily included U.S. Government and agencies
obligations, which more than offset an 8 basis point decrease in the yield
earned on the investment securities portfolio to 7.38% in 1996 from 7.46% in
1995. The increase in average balance reflects purchases of investment
securities exceeding maturities.

     Interest on other interest-earning assets increased $130,000, or 33.8%, to
$515,000 during 1996, compared to $385,000 for 1995. Such increase was
attributable to increases of 102 basis points in the yield earned on other
interest-earning assets to 6.33% in 1996 from 5.31% in 1995, along with an
increase of $829,000 or 12.1%, in the average balance of other interest-earning
assets outstanding. Such increase in the

                                       54
average balance of other interest-earning assets outstanding was primarily a
result of increased levels of interest-earning deposits in other banks.

     INTEREST EXPENSE. Interest on deposits increased $598,000, or 9.1% to $7.15
million during 1996 compared to $6.55 million for 1995. The increase during 1996
was attributable to an increase of 15 basis points in the Bank's average cost of
interest-bearing deposits to 4.18% for 1996 from 4.03% for 1995, along with an
increase of $8.6 million, or 5.3%, in the average balance of interest-bearing
deposits outstanding. The increase in the Bank's cost of interest-bearing
deposits reflected both higher interest rates paid on certificates of deposit,
which averaged 5.33% in 1996, up from 5.1% in 1995, and a trend toward higher-
cost certificates of deposit, which represented 61.5% of average interest-
bearing deposits in 1996, up from 57.2% in 1995.

     Interest on borrowed money increased $84,000, or 7.9%, to $1.2 million
during 1996 compared to $1.1 million for 1995. The increase during 1996 was
attributable to an increase of $2.5 million or 15.9% in the average balance of
borrowings outstanding, partially offset by a decrease of 47 basis points in the
Bank's cost of borrowings to 6.36% for 1996 from 6.83% for 1995. The increased
average balance and decreased cost in 1996 were both due to an increased use of
short-term, lower cost FHLB advances.

     NET INTEREST INCOME. Net interest income for 1996 increased $50,000 or 0.6%
to $8.2 million for 1996 from $8.1 million for 1995. The Bank's net interest
rate spread decreased to 3.15% in 1996 from 3.34% in 1995 and its interest rate
margin decreased to 3.74% in 1996 from 3.93% in 1995. These decreases primarily
resulted from an eleven basis point increase in the cost of average interest-
bearing liabilities to 4.39% in 1996 from 4.28% in 1995, along with an eight
basis point decrease in the yield on interest-earning assets to 7.54% in 1996
from 7.62% in 1995. Despite the decreases in interest rate spread and margin,
the Bank was able to increase net interest income by increasing net interest-
earning assets by $848,000 and by leveraging the balance sheet through increased
deposits and borrowings.

     PROVISION FOR LOAN LOSSES.  During 1996 and 1995, the Bank provided
$232,000 and $510,000, respectively, for loan losses. At December 31, 1996 and
1995, the Bank's loan portfolio included loans totalling $2.9 million and $2.2
million, respectively, which were delinquent ninety days or more. The Bank
maintains an allowance for loan losses based on management's evaluation of the
risks inherent in its loan portfolio which gives due consideration to changes in
general market conditions and in the nature and volume of the Bank's loan
activity. The allowance for loan losses amounted to $1.6 million at December 31,
1996, representing 1.85% of total loans and 54.5% of loans delinquent ninety
days or more compared to an allowance of $1.2 million at December 31, 1995,
representing 1.37% of total loans and 55.0% of loans delinquent ninety days or
more. During the years ended December 31, 1996 and 1995, the Bank charged off
loans aggregating $ - 0 - and $546,000, respectively.

     NON-INTEREST INCOME. Non-interest income increased by $144,000, or 43.4%,
to $476,000 during 1996 as compared to $332,000 for 1995. The increase in non-
interest income during 1996 resulted primarily from a $103,000 gain on sale of
securities available for sale in 1996 as compared to a $22,000 loss in 1995.

     NON-INTEREST EXPENSES. Non-interest expenses increased $1.5 million, or
33.1%, to $5.9 million during 1996 compared to $4.4 million for 1995. The
increase during 1996 was primarily attributable to the one-time SAIF assessment
of $1.1 million. Non-interest expenses other than the one-time SAIF assessment
increased $374,000, or 8.4%, in 1996 over 1995 levels. Salaries and employee
benefits, the major component of non-interest expenses, increased $183,000, or
7.5%, during 1996. The remaining elements of non-interest expenses, exclusive of
the one-time SAIF assessment, increased $192,000 or 9.6% to $2.2

                                       55
million in 1996 from $2.0 million in 1995. The increases, exclusive of the one-
time SAIF assessment, are indicative of the growth of the Bank as well as
general price increases.

     INCOME TAXES. Income tax expense totalled $836,000 and $1.2 million during
1996 and 1995, respectively. The decrease in 1996 resulted primarily from a
decrease in pre-tax income of $1.0 million. The Bank's effective income tax rate
was 33.5% in 1996 and 35.0% in 1995. The 1996 effective tax rate reflects a 1.5%
reduction related to the utilization of a capital loss carryforward.

LIQUIDITY AND CAPITAL RESOURCES

     The Bank's primary sources of funds on a long-term and short-term basis are
deposits, principal and interest payments on loans, mortgage-backed and
investment securities and FHLB borrowings. The Bank uses the funds generated to
support its lending and investment activities as well as any other demands for
liquidity such as deposit outflows. While maturities and scheduled amortization
of loans are predictable sources of funds, deposit flows, mortgage prepayments
and the exercise of call features are greatly influenced by general interest
rates, economic conditions and competition. The Bank has continued to maintain
the required levels of liquid assets as defined by OTS regulations. This
requirement of the OTS, which may be varied at the direction of the OTS
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short-term borrowings. The Bank's currently required liquidity
ratio is 4.0%. At March 31, 1998 and December 31, 1997, 1996, 1995, 1994, and
1993, the Bank's regulatory liquidity ratios were 9.44%, 9.44%, 10.96%, 13.04%,
11.89% and 24.81%, respectively.

     At March 31, 1998, the Bank exceeded all of its regulatory capital
requirements with a tangible capital level of $24.0 million, or 7.84%, of total
adjusted assets, which is above the required level of $4.6 million, or 1.5%;
core capital of $24.0 million, or 7.84%, of total adjusted assets, which is
above the required level of $12.3 million, or 4%; and risk-based capital of
$25.3 million, or 19.95%, of risk-weighted assets, which is above the required
level of $10.1 million, or 8%. See "Regulatory Capital Compliance."

     The Bank's most liquid assets are cash and cash equivalents and its
investment securities available for sale. The levels of these assets are
dependent on the Bank's operating, financing, lending and investing activities
during any given period. At March 31, 1998, cash and cash equivalents and
investment securities available for sale totalled $24.4 million, or 7.8% of
total assets.

     The Bank has other sources of liquidity if a need for additional funds
arises, including FHLB borrowings. At March 31, 1998, the Bank had $42.3 million
in borrowings outstanding from the FHLB. Depending on market conditions, the
pricing of deposit products and FHLB borrowings, the Bank may continue to rely
on FHLB borrowing to fund asset growth.

     At March 31, 1998, the Bank had commitments to originate and purchase loans
and fund unused outstanding lines of credit and undisbursed proceeds of
construction mortgages totaling $19.3 million. The Bank anticipates that it will
have sufficient funds available to meet its current loan origination
commitments. Certificate accounts, including Individual Retirement Account
("IRA") accounts, which are scheduled to mature in less than one year from March
31, 1998, totalled $115.2 million. The Bank expects that substantially all of
the maturing certificate accounts will be retained by the Bank at maturity.

     The initial impact of the Reorganization and the Offering on the liquidity
and capital resources of Bancorp will be significant as it will substantially
increase the liquid assets of Bancorp and the capital base on which Bancorp
operates. Additionally, Bancorp expects the substantial majority of the Offering
proceeds

                                       56
will initially be invested in readily marketable investment grade securities
which, if liquidity needs developed, could be sold by Bancorp to provide
additional liquidity. Further, the additional capital resulting from the
offerings is expected to increase the capital base of Bancorp. At March 31,
1998, the Bank had total equity, determined in accordance with GAAP, of $29.8
million, or 9.5% of total assets. The Bank's regulatory tangible capital at that
date, which excludes intangible assets of $5.7 million and unrealized securities
gains of $80,000, was 7.8%. An institution with a ratio of tangible capital to
total assets of greater than or equal to 5.0% is considered to be "well-
capitalized" pursuant to OTS regulations. Assuming that Bancorp uses 50% of the
net proceeds at the maximum of the Offering Range to purchase the stock of the
Bank, the Bank's GAAP capital will increase to $____ million or a ratio of GAAP
capital to adjusted assets, on a pro forma basis, of ____% after the Offering.
The investment of the net proceeds from the sale of the Common Stock is expected
to provide the Bank with additional income to increase further its capital
position. The additional capital may also assist the Bank in offering new
programs and expanded services to its customers. See "Use of Proceeds."

YEAR 2000 COMPLIANCE

     As the year 2000 approaches, an important business issue has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. Many existing application software products were
designed to accommodate only two-digits. For example, "98" is stored on the
system and represents 1998. Bancorp has been identifying potential problems
associated with the "Year 2000" issue and has implemented a plan designated to
ensure that all software used in connection with Bancorp's business will manage
and manipulate data involving the transition with data from 1999 to 2000 without
functional or data abnormality and without inaccurate results related to such
data. The Bank has prepared a critical issues schedule with a timeline and
assigned responsibilities. In addition, the Bank recognizes that its ability to
be Year 2000 compliant is dependent upon the cooperation of its vendors. The
Bank is requiring its computer systems and software vendors to represent that
the products provided are or will be Year 2000 compliant and has planned a
program of testing for compliance. The Bank has received representations from
its primary third party vendors that they will have resolved any Year 2000
problems in their software by December 31, 1998 and anticipates that all of its
vendors also will have resolved any Year 2000 problems in their software by that
same date. All Year 2000 issues for the Bank, including testing, are expected to
be addressed by December 31, 1998 and any problems would be remedied by March
31, 1999. The Bank will also prepare contingency plans in the event there are
any system interruptions. The Bank believes that its costs related to Year 2000
will be approximately $135,000. There can be no assurances, however, that such
plan or the performance by the Bank's vendors will be effective to remedy all
potential problems. To the extent Bancorp's systems are not fully Year 2000
compliant, there can be no assurance that potential systems interruptions or the
cost necessary to update software would not have a materially adverse effect on
Bancorp's business, financial condition, results of operations and business
prospects. Further, any Year 2000 failure on the part of the Bank's customers
could result in additional expense or loss to the Bank. The Bank plans also to
work with its customers to address any potential Year 2000 problems.

IMPACT OF INFLATION AND CHANGING PRICES

     The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with GAAP, which require the measurement of
financial position and operating results generally in terms of historical dollar
amounts without considering the changes in the relative purchasing power of
money over time due to inflation. The impact of inflation is reflected in the
increased cost of the Bank's operations. Unlike industrial companies, nearly all
of the assets and liabilities of the Bank are monetary in

                                       57
nature. As a result, interest rates have a greater impact on the Bank's
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the
prices of goods and services.

IMPACT OF NEW ACCOUNTING STANDARDS

     ACCOUNTING FOR EARNINGS PER SHARE.  In February 1997, the FASB issued SFAS
No. 128, "Earnings Per Share." This statement establishes standards for
computing and presenting earnings per share ("EPS") and applies to entities with
publicly-held common stock or potential common stock. This statement simplifies
the standards for computing earnings per share previously found in APB Opinion
15, "Earnings per Share," and makes them comparable to international EPS
standards. It replaces the presentation of primary EPS with a presentation of
basic EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures
and requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
This statement is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods; earlier application is not
permitted.

     REPORTING COMPREHENSIVE INCOME. In September 1997, the FASB issued SFAS
No. 130, "Reporting Comprehensive Income." This statement establishes standards
for the reporting and display of comprehensive income and its components in a
full set of general purpose financial statements. SFAS No. 130 requires that all
items that are required to be recognized as components of comprehensive income
be reported in a financial statement that is displayed with the same prominence
as other financial statements. The statement does not require a specific format
for that financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. The Bank implemented SFAS No. 130 in conjunction with the presentation
of its consolidated financial statements at and as of the three months ended
March 31, 1998 and has made the appropriate disclosures in the applicable
consolidated financial statements, as required. The implementation of SFAS No.
130 had no impact on consolidated financial conditions or operations.

     DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. In
September 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. SFAS No. 131
is effective for financial statements for periods beginning after December 15,
1997. Management has determined that this statement does not currently have any
impact on the Bank's information reporting.

     EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS. In
February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement supersedes the
disclosure requirements in FASB statements No. 87, "Employers' Accounting for
Pensions," No. 88, "Employers' accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits," and No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." This
statement addresses disclosures only. It does not address measurement or
recognition and, as such, will not have any impact on consolidated financial
condition or operations. The disclosure requirements of SFAS No. 132 are
effective for fiscal years beginning after December 15, 1997.

                                       58
BUSINESS OF BANCORP

     Bancorp will be reorganized, at the direction of the Board of Directors of
the Bank and subject to the approval of the OTS, for the purpose of becoming a
stock holding company to own all of the outstanding capital stock of the Bank.
Upon consummation of the Reorganization, the Bank will be a wholly owned
subsidiary of Bancorp, the majority of whose shares will be held by the Mutual
Company.

     Bancorp is currently not an operating company. Following the
Reorganization, in addition to directing, planning and coordinating the business
activities of the Bank, Bancorp will initially invest net proceeds it retains
from the Offering primarily in mortgage-backed and mortgage-related securities
and other investment-grade marketable securities. In addition, Bancorp intends
to fund the loan to the ESOP to enable the ESOP to subscribe for 8% of the
Common Stock issued in the Offering, including shares issued to the Foundation;
however, a third-party lender may be utilized to lend funds to the ESOP. See
"Use of Proceeds." In the future, Bancorp may acquire or organize other
operating subsidiaries, including other financial institutions and financial
services companies. The Mutual Company will not be an operating company. In
connection with the Reorganization, the Mutual Company will have initial
capitalization of $100,000 Immediately after consummation of the Reorganization,
it is expected that the Mutual Company will not engage in any business activity
other than to hold a majority of the Common Stock of Bancorp and to invest the
funds retained at the Mutual Company level. There can be no assurance that the
Mutual Company will not convert to stock form in the future.

     Presently, there are no agreements or understandings for an expansion of
Bancorp's operations. The Company is not expected to own or lease real or
personal property initially, 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 officers of the Bank, but will utilize the
support staff of the Bank from time to time. Additional employees may be hired
as appropriate to the extent the Company expands its business in the future.

                             BUSINESS OF THE BANK
GENERAL

     The Bank was originally organized in 1915 as a New Jersey chartered
building and loan association and, in 1995, became a federally chartered savings
bank. The Bank conducts business from its administrative/branch office located
in Caldwell, New Jersey and its seven other full service banking branch offices
located in the municipalities of West Orange, Franklin Lakes, River Vale, Pine
Brook, Old Tappan and Northvale, New Jersey, all of which are located in the
Northern New Jersey Counties of Bergen, Essex and Morris. See " -- Market Area
and Competition." At March 31, 1998, the Bank had total assets of $312.5
million, total deposit accounts of $239.1 million and retained earnings of $29.8
million. The Bank's deposits are insured up to the maximum allowable amount by
FDIC.

     The Bank is a community-oriented savings institution whose business
primarily consists of accepting deposits from customers and investing those
funds primarily in mortgage-backed securities and mortgage loans secured by one-
to four-family residences located in the Bank's primary market area. To a
significantly lesser extent, the Bank's invests in commercial real estate loans,
construction and land development loans and home equity loans as well as
consumer loans and obligations of the federal government and federal agencies as
well as states and municipalities. The Bank generally retains for its portfolio
all one- to four-family mortgage loans which it originates. At March 31, 1998
the Bank's securities portfolio totalled $158.5

                                       59
million, or 50.7% of total assets, and its gross loan portfolio totalled $118.2
million, or 37.8% of total assets, of which $89.5 million were one-to four
family mortgage loans, $10.3 million were commercial real estate loans, $8.4
million were home equity loans and lines of credit, $7.1 million were
construction and development loans, $2.1 million were multi-family mortgage
loans, and $801,000 were consumer loans. Of the Bank's total mortgage-backed
securities portfolio, 36.1% are secured by fixed-rate loans and 63.9% are
secured by adjustable-rate loans. Of the Bank's total loan portfolio, 47.6%
carry adjustable rates of interest and 52.4% carry fixed-rates of interest. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Management Strategy."

     The Bank's investment activities primarily consist of investments in
mortgage-backed securities and various federal government and agency obligations
as well as obligations of certain states and municipal subdivisions. At March
31, 1998, the Bank had $122.6 million in mortgage-backed and mortgage-related
securities, or 39.2% of total assets substantially all of which were issued and
guaranteed by the following governmental-sponsored agencies: Fannie Mae
("FNMA"), Freddie Mac ("FHLMC") and Ginnie Mae ("GNMA"). All of the Bank's
mortgage-backed securities are classified as held-to-maturity. The debt
obligations owned by the Bank generally consist of U.S. Government and agency
obligations and obligations of states and municipalities consisting of $7.1
million classified as available-for-sale and $28.8 million classified as 
held-to-maturity. At March 31, 1998, the Bank's deposit accounts totalled $239.1
million, or 84.6% of total liabilities, of which $95.9 million, or 40.3%, were
core deposits. From time to time, the Bank has utilized borrowings from the 
FHLB-NY as a source of funds, and may utilize such borrowings to a greater
extent in the future. At March 31, 1998, such borrowings totalled $42.3 million,
or 15.0% of total liabilities. See "Business of the Bank."

     The Bank's executive offices are located at 417 Bloomfield Avenue,
Caldwell, New Jersey 07006 and its telephone number is (973) 226-7911.

MARKET AREA AND COMPETITION

     The Bank has been, and intends to continue to be, a community-oriented
financial institution, offering a wide variety of financial services to meet the
needs of the communities it serves. The Bank conducts its business through its
administrative and branch office located in Caldwell, New Jersey, and seven
other full service branch offices located in West Orange, Franklin Lakes, River
Vale, Pine Brook, Old Tappan and Northvale, all of which are located in the
Northern New Jersey counties of Essex, Morris and Bergen. The Bank's deposit
gathering base is concentrated in the communities surrounding its offices. While
its lending area extends throughout New Jersey, most of the Bank's mortgage
loans are secured by properties located in Essex, Morris and Bergen Counties in
Northern New Jersey.

     The economy in the Bank's primary market area is based upon a mixture of
service and retail trade. Other employment is provided by a variety of wholesale
trade, manufacturing, federal, state and local government, hospitals and
utilities. The area is also home to commuters working in the greater New York
City metropolitan area. Certain communities in Bergen, Essex and Morris Counties
are among the highest per capita income in the country. Essex County contains
many older residential commuter towns which function partially as business and
service centers. Morris County was once predominantly a rural farming area. It
has experienced rapid growth in the residential, commercial and industrial
sectors. Bergen County has benefitted from its geographical proximity to New
York City. Originally an agricultural region, the county shifted toward
manufacturing and service industries and many foreign firms have set up their
American headquarters in this County.

                                       60
The Bank faces significant competition both in making loans and in
attracting deposits. The State of New Jersey has a high density of financial
institutions, many of which are branches of significantly larger institutions
which have greater financial resources than the Bank, all of which are
competitors of the Bank to varying degrees. The Bank's competition for loans
comes principally from commercial banks, savings banks, savings and loan
associations, credit unions, mortgage banking companies and insurance companies.
Its most direct competition for deposits has historically come from commercial
banks, savings banks, savings and loan associations and credit unions. The Bank
faces additional competition for deposits from short-term money market funds,
common stock, other corporate and government securities funds and from other
financial service institutions such as brokerage firms and insurance companies.

LENDING ACTIVITIES

     LOAN PORTFOLIO COMPOSITION. The Bank's loan portfolio consists primarily of
first mortgage loans secured by one- to four-family residences. At March 31,
1998, the Bank had total loans receivable of $118.2 million, of which $89.5
million were one- to four-family, residential mortgage loans, equalling 75.7% of
the Bank's total loans receivable. At such date, the remainder of the Bank's
loan portfolio consisted primarily of: $10.3 million of commercial real estate
loans or 8.7% of total loans receivable; $8.4 million of home equity loans and
lines of credit, or 7.1% of total loans receivable; $2.1 million of multi-family
residential loans, or 1.7% of total loans receivable; $7.1 million of
construction and development loans, or 6.0% of total loans receivable; and
$801,000 of consumer loans, or 0.7% of total loans receivable, consisting
primarily of loans on passbook deposit accounts and automobile loans.

     The types of loans that the Bank may originate are subject to federal and
state laws and regulations. Interest rates charged by the Bank on loans are
affected by the demand for such loans and the supply of money available for
lending purposes and the rates offered by competitors. These factors are, in
turn, affected by, among other things, economic conditions, monetary policies of
the federal government, including the Federal Reserve Board, and legislative tax
policies. In recent years, the Bank has aggressively sought to increase its
originations of mortgage loans and has sought to purchase loans and loan
participations. This has resulted in total loans increasing from $84.5 million
at December 31, 1996 to $116.1 million at December 31, 1997 and $118.2 million
at March 31, 1998.

                                       61
The following table sets forth the composition of the Bank's loan
portfolio in dollar amounts and as a percentage of the portfolio at the dates
indicated.
AT MARCH 31,                                                   AT DECEMBER 31, 
                              -------------------  -------------------------------------------------------------------------------
                                   1998                   1997                1996                1995                 1994       
                              -------------------  -------------------  ------------------  ------------------  ------------------
                                         PERCENT               PERCENT             PERCENT             PERCENT             PERCENT
                              AMOUNT    OF TOTAL    AMOUNT    OF TOTAL   AMOUNT   OF TOTAL   AMOUNT   OF TOTAL   AMOUNT   OF TOTAL
                             --------   --------   --------   --------  --------  --------  --------  --------  --------  --------
                                                           (DOLLARS IN THOUSANDS)
Mortgage Loans:
Residential:
   One- to four-family...... $ 89,451     75.70%   $ 87,489      75.34%  $60,741     71.88%  $65,002     74.50%  $61,747     70.33%
   Multi-family.............    2,050      1.73       2,004       1.73     2,068      2.45     1,115      1.28     1,400      1.59 
  Home equity lines(1)......    8,355      7.07       8,554       7.37     6,653      7.87     4,388      5.03     5,014      5.71 
Commercial real estate......   10,321      8.73      10,695       9.21    12,275     14.53    12,707     14.56    13,815     15.74 
Construction and            
      development...........    7,141      6.04       6,485       5.58     2,080      2.46     3,032      3.47     5,079      5.78 
                             --------    ------    --------     ------   -------    ------   -------    ------   -------    ------ 
 Total mortgage loans.......  117,318     99.27     115,227      99.23    83,817     99.19    86,244     98.84    87,055     99.15 
                             --------    ------    --------     ------   -------    ------   -------    ------   -------    ------ 
Commercial loans............       57      0.05          59       0.05        87      0.10       234      0.27       259      0.29 
                             --------    ------    --------     ------   -------    ------   -------    ------   -------    ------ 
Consumer Loans:             
 Passbook or certificate....      497      0.42         550       0.47       427      0.51       543      0.62       398      0.46 
   Other....................      304      0.26         291       0.25       168      0.20       234      0.27        90      0.10 
                             --------    ------    --------     ------   -------    ------   -------    ------   -------    ------ 
   Total consumer loans.....      801      0.68         841       0.72       595      0.71       777      0.89       488      0.56 
                             --------    ------    --------     ------   -------    ------   -------    ------   -------    ------ 
Total loans receivable......  118,176    100.00%    116,127     100.00%   84,499    100.00%   87,255    100.00%   87,802    100.00%
                                         ======                 ======              ======              ======              ====== 
Less:
   Construction loans in    
    process.................   (2,009)               (1,437)                (440)               (592)             (1,474)          
   Allowance for loan      
    losses..................   (1,863)               (1,885)              (1,564)             (1,200)             (1,236)  
   Deferred loan fees, net..       (2)                  (70)                (361)               (432)               (481)  
                             --------              --------              -------             -------             -------   
Loans receivable, net....... $114,302              $112,735              $82,134             $85,031             $84,611   
                             ========              ========              =======             =======             =======
----------------------- 
                                       1993
                              ----------------------- 
                                              PERCENT
                               AMOUNT        OF TOTAL
                              --------     ----------
Mortgage Loans:
Residential:
   One- to four-family......   $63,352     68.61%
   Multi-family.............     1,865      2.02
  Home equity lines(1)......     5,467      5.92
Commercial real estate......    14,462     15.66
Construction and             
      development...........     6,503      7.04
                               -------    ------
 Total mortgage loans.......    91,649     99.25
                               -------    ------
Commercial loans............       335      0.36
                               -------    ------
Consumer Loans:              
 Passbook or certificate....       309      0.34
   Other....................        46      0.05
                               -------    ------
   Total consumer loans.....       355      0.39
                               -------    ------
   Total loans receivable...    92,339    100.00%
                                          ======
Less:                        
   Construction loans in     
    process.................      (836)
     Allowance for loan      
      losses................    (1,550)
   Deferred loan fees, net..      (534)
                               -------
Loans receivable, net.......   $89,419
                               =======
_________________________
(1)  Includes second mortgage loans other than home equity loans of $60,000, 
     $63,000, $74,000, $91,000, $191,000 and $213,000 at March 31, 1998 and
     December 31, 1997, 1996, 1995, 1994 and 1993, respectively.

                                       62
LOAN MATURITY.  The following table shows the remaining contractual
maturity of the Bank's loans at March 31, 1998. The table does not include the
effect of future principal repayments or prepayments.
AT MARCH 31, 1998
                                                 ------------------------------------------------------------------------------- 
                                                    ONE- TO                                                      CONSTRUCTION    
                                                    FOUR-       MULTI-     SECOND      EQUITY     COMMERCIAL         AND         
                                                    FAMILY      FAMILY    MORTGAGES    LINES      REAL ESTATE    DEVELOPMENT     
                                                 ------------------------------------------------------------------------------- 
                                                                                   (IN THOUSANDS)
Amounts due:                                                                                                                     
   One year or less..............................  $   178      $    --    $    --     $    --      $    --         $ 3,943
                                                   -------      -------    -------     -------      -------         -------

   After one year:
       More than one year to three years.........    1,748           98         --         284          287           2,755
       More than three years to five years.......    1,903           --         60         152        1,442              12
       More than five years to ten years.........    7,551           --         --       2,168          366              36
       More than 10 years to 20 years............   22,274        1,895         --       4,516        7,911             395
       More than 20 years........................   55,797           57         --       1,175          315              --
                                                   -------      -------    -------     -------      -------         -------

   Total due after one year......................   89,273        2,050         60       8,295       10,321           3,198
                                                   -------      -------    -------     -------      -------         -------

   Total due.....................................   89,451        2,050         60       8,295       10,321           7,141
                                                   -------      -------    -------     -------      -------         -------
           Less:
              Loans in process...................       --           --         --          --           --           2,009
              Deferred loan fees.................      (25)          --         --          --           --              27
              Allowance for loan losses..........    1,085           21         --          66          107             578
                                                   -------      -------    -------     -------      -------         -------
                                                     1,060           21         --          66          107           2,614
                                                   -------      -------    -------     -------      -------         -------
     Loans receivable, net.......................  $88,391      $ 2,029    $    60     $ 8,229      $10,214         $ 4,527
                                                   =======      =======    =======     =======      =======         =======
----------------------------------
                                                                                   TOTAL
                                                      COMMERCIAL     CONSUMER      LOANS
                                                      ----------------------------------
Amounts due:                                           
   One year or less.................................  $    --        $   513    $  4,634
                                                      -------        -------    --------

   After one year:
       More than one year to three years............        9            205       5,386
       More than three years to five years..........       48             83       3,700
       More than five years to ten years............       --             --      10,121
       More than 10 years to 20 years...............       --             --      36,991
       More than 20 years...........................       --             --      57,344
                                                      -------        -------    --------

   Total due after one year.........................       57            288     113,542
                                                      -------        -------    --------

   Total due........................................       57            801     118,176
                                                      -------        -------    --------
           Less:
              Loans in process......................       --             --       2,009
              Deferred loan fees....................       --             --           2
              Allowance for loan losses.............       --              6       1,863
                                                      -------        -------    --------
                                                           --              6       3,874
                                                      -------        -------    --------
       Loans receivable, net........................  $    57        $   795    $114,302
                                                      =======        =======    ========
63
The following table sets forth, at March 31, 1998, the dollar amount of
loans contractually due after March 31, 1999, and whether such loans have fixed
interest rates or adjustable interest rates.
DUE AFTER MARCH 31, 1999
                                                  ----------------------------
                                                   FIXED   ADJUSTABLE  TOTAL
                                                  -------  ---------- --------
                                                          (IN THOUSANDS)
Mortgage loans:

       One- to four-family.....................   $44,487   $44,786   $ 89,273
                                                            
       Multi-family............................     2,050        --      2,050
                                                            
       Second mortgages........................        60        --         60
                                                            
       Equity lines............................     3,976     4,319      8,295
                                                            
       Commercial real estate..................     9,359       962     10,321
                                                            
       Construction and development............        48     3,150      3,198
                                                  -------   -------   --------
          Total mortgage loans.................    59,980    53,217    113,197
                                                            
     Commercial loans..........................        57        --         57
                                                            
     Consumer loans............................       288        --        288
                                                  -------   -------   --------
            Total loans........................   $60,325   $53,217   $113,542
                                                  =======   =======   ========
ORIGINATION, PURCHASE AND SERVICING OF LOANS. The Bank's mortgage lending
activities are conducted primarily by its loan personnel operating in all of the
Bank's branch offices. All loans originated by the Bank, either through internal
sources or through loan brokers, are underwritten by the Bank pursuant to the
Bank's policies and procedures. The Bank's underwriting policies, guidelines and
procedures are modeled after those of FNMA and FHLMC. The Bank originates both
adjustable-rate and fixed-rate loans. The Bank's ability to originate fixed- or
adjustable-rate loans is dependent upon the relative customer demand for such
loans, which It is the general policy of the Bank to retain all loans originated
in its portfolio. The Bank currently retains the servicing for all loans
originated in its portfolio. 

     During the years ended December 31, 1997 and December 31, 1996, the Bank
originated $39.3 million and $11.3 million of one- to four-family loans,
respectively, including home equity loans and lines of credit. Based upon the
Bank's investment needs and market opportunities, the Bank has, on occasion,
purchased loans, primarily one- to four-family loans, or participated in loans,
primarily multi-family loans through the Thrift Institutions Community
Investment Corporation of New Jersey ("TICIC"). At March 31, 1998, the Bank had
four loan participations through TICIC totalling $1.7 million. The Bank has in
its loan portfolio loans generated by third-party mortgage companies which were
underwritten pursuant to the Bank's policies, and closed in the name of the
Bank.

                                       64
The following table sets forth the Bank's loan originations, purchases, and
principal repayments for the periods indicated. The Bank sold no loans during
the periods indicated.
FOR THE THREE
                                                   MONTHS          FOR THE YEARS ENDED DECEMBER
                                               ENDED MARCH 31,                31,
                                             -------------------  ------------------------------
                                               1998      1997       1997       1996       1995
                                             --------  --------   --------   --------   --------
                                                                  (IN THOUSANDS)
Beginning balance.........................   $116,127   $84,499   $ 84,499   $ 87,255   $ 87,802
                                             --------   -------   --------   --------   --------
  Purchases - Multi-family mortgage loans.         61        --         --      1,621         --
                                             --------   -------   --------   --------   --------
  Loans originated:                          
   Mortgage  loans:                          
    One- to four-family...................      6,539     3,436     35,017      6,546     10,369
    Multi-family..........................         --        --         --         --         --
    Home equity lines.....................        920       503      4,330      4,726      1,715
    Commercial real estate................         --        85      1,436      2,090        425
    Construction and land development.....      1,550        --      5,610      1,015      2,570
                                             --------   -------   --------   --------   --------
      Total mortgage loans................      9,009     4,024     46,393     14,377     15,079
                                             --------   -------   --------   --------   --------
                                             
   Consumer loans:                           
    Passbook loans........................         61       107        477        660        426
    Automobile............................         46        52        222         65        241
    Credit lines(1).......................         28        --         28         --         --
    Other.................................         --        --         --         --          5
                                             --------   -------   --------   --------   --------
      Total consumer loans................        135       159        727        725        672
                                             --------   -------   --------   --------   --------
   Loans made to facilitate the sale of                                                         
     real estate owned....................         --        --         --         --         73
                                             --------   -------   --------   --------   --------
   Total originations.....................      9,144     4,183     47,120     15,102     15,824
                                             --------   -------   --------   --------   --------
  Loans transferred (to) from real                                                              
    estate owned..........................         --      (157)      (680)      (377)        83
                                             --------   -------   --------   --------   --------
 Principal repayments and other, net......     (7,156)   (3,520)   (14,812)   (19,102)   (16,454)
                                             --------   -------   --------   --------   -------- 
Ending balance............................   $118,176   $85,005   $116,127   $ 84,499   $ 87,255
                                             ========   =======   ========   ========   ========
ONE- TO FOUR-FAMILY MORTGAGE LENDING. The Bank offers both fixed-rate and
adjustable-rate mortgage loans ("ARM") secured by one- to four-family residences
with maturities of up to 30 years. In excess of ____%, such loans are secured by
property located in the Bank's primary market area. Loan originations are
generally obtained from the Bank's in-house loan representatives located at all
of the Bank's branch offices, local real estate agents, from wholesale brokers
and their contacts in the Bank's local real estate industry, from existing or
past customers, through referrals from members of the local communities and
advertising. One- to four-family mortgage loans are generally underwritten in
accordance with FHLMC/FNMA standards. At March 31, 1998, one- to four-family
mortgage loans totalled $89.5 million,

                                       65
or 75.7% of the Bank's total loans receivable. Of the Bank's mortgage loans
secured by one- to four-family residences, $44.6 million, or 49.8%, were fixed-
rate loans and $44.9 million or 50.2% were ARM loans.

     The Bank currently offers fixed-rate mortgage loans with terms from ten to
30 years. The Bank generally retains for its portfolio all loans it originates.
The Bank also offers ARM loan programs made for terms from one to 30 years and
with interest rates, which adjust every 12 months or any other term according to
the loan note. The Bank's ARM loans generally provide for periodic (not more
than 2.0% over the existing interest rate) and overall (not more than 6.0%) caps
on the increase or decrease in the interest rate at any adjustment date and over
the life of the loan. The interest rate adjustment on these loans is indexed to
the one-year U.S. Treasury CMT Index with a repricing margin of 2.75% above the
index.

     The origination of adjustable-rate residential mortgage loans, as opposed
to fixed-rate residential mortgage loans, helps reduce the Bank's exposure to
increases in interest rates. However, adjustable-rate loans generally pose
credit risks not inherent in fixed-rate loans, primarily because as interest
rates rise, the underlying payments of the borrower rise, thereby increasing the
potential for default. Periodic and lifetime caps on interest rate increases
help to reduce the credit risk associated with the Bank's adjustable-rate loans
but also limit the interest rate sensitivity of its adjustable-rate mortgage
loans.

     The Bank's policy generally is to originate one- to four-family residential
mortgage loans in amounts up to 90% of the lower of the appraised value or the
selling price of the property securing the loan, but generally requires private
mortgage insurance if the loan is in an amount in excess of 80% of the lower of
the appraised value or selling price, with the exception of certain loans
secured by condominium units, which require a 70% loan-to-value ("LTV") ratio.
Mortgage loans originated by the Bank include due-on-sale clauses which provide
the Bank with the contractual right to deem the loan immediately due and payable
in the event the borrower transfers ownership of the property without the Bank's
consent. Due-on-sale clauses are an important means of adjusting the rates on
the Bank's fixed-rate mortgage loan portfolio and the Bank has generally
exercised its rights under these clauses. The Bank requires fire, casualty,
title and, in certain cases, flood insurance on all properties securing real
estate loans made by the Bank. 
           
     In an effort to provide financing for first-time home buyers, the Bank
offers its first-time home buyers program. This program offers single-family
residential mortgage loans to qualified individuals. These loans are originated
using the Bank's standard underwriting guidelines with reduced interest rates.
With respect to loans originated under this program, the Bank typically charges
a lower rate of interest, as compared to other residential mortgage loans and
originates these loans in amounts up to 95% of the lower of the appraised value
or selling price of the property securing the loan. In addition, the Bank also
participates in the First Home Club Program through the FHLB-NY, which benefits
low income first time homebuyers.
           
     HOME EQUITY LOANS. The Bank offers fixed rate home equity loans and
floating rate home equity lines of credit in amounts of up to $100,000. Home
equity loans have fixed rates of interest with terms of up to 20 years. Interest
rates on such loans will vary depending on the amortization period chosen by the
borrowers. Home equity lines of credit have adjustable-rates of interest, which
adjust on a monthly basis. The adjustable-rate of interest charged on such loans
is indexed to the prime rate as published in The Wall Street Journal. Currently,
home equity lines of credit originated at this time bear a maximum lifetime
interest rate cap of 14.0%. The maximum combined LTV ratio on home equity loans
and equity lines of credit is 70%. At March 31, 1998, the Bank had in its loan
portfolio an aggregate of $12.6 million of home equity loans and equity lines of
credit, of which $4.0 million were fixed-rate home equity loans and $8.6
      

                                       66
million were equity lines of credit. Of the $8.6 million equity lines of credit,
$4.3 million was drawn upon such loans at March 31, 1998. The underwriting
standards employed by the Bank for home equity loans and lines of credit include
a determination of the applicant's credit history and an assessment of the
applicant's ability to meet existing obligations and payments on the proposed
loan and the value of the collateral securing the loan. The stability of the
applicant's monthly income may be determined by verification of gross monthly
income from primary employment and, additionally, from any verifiable secondary
income. Creditworthiness of the applicant is of primary consideration. The
Bank's home equity loans and lines of credit are secured by first or second
liens on one- to four-family residences located in the Bank's primary market
area.
      
     COMMERCIAL REAL ESTATE AND MULTI-FAMILY LENDING. The Bank also originates
multi-family and commercial real estate loans that are generally secured by five
or more unit apartment buildings and properties used for business purposes such
as small shopping centers located in Northern New Jersey. The Bank's multi-
family and commercial real estate underwriting policy provides that such real
estate loans may be made in amounts up to 65% of the appraised value of the
property; however, this policy provides that management has the discretion to
make such real estate loans in excess of 65% of the appraised value of the
property. The Bank's multi-family and commercial real estate lending is limited
by the regulatory loans-to-one borrower limit which at March 31, 1998 was $3.6
million. The Bank currently originates multi-family and commercial real estate
loans, generally with terms of up to 15 years and has developed a variety of
programs, primarily balloon type mortgages, indexed to the FHLB advance rate,
the Prime Rate and the U.S. Treasury Bill rate. The Bank's multi-family and
commercial real estate loans have fixed or adjustable rates of interest that
adjust periodically and are indexed to either the prime rate as published in The
Wall Street Journal or the U.S. Treasury Bill. In reaching its decision on
whether to make a multi-family or commercial real estate loan, the Bank
considers the net operating income of the property, the borrower's expertise,
credit history and profitability and the value of the underlying property. The
Bank has generally required that the properties securing these real estate loans
have debt service coverage ratios (the ratio of earnings before debt service to
debt service) of at least 1.15x. In addition, environmental impact surveys may
be required for multi-family and commercial real estate loans. Generally, multi-
family and commercial real estate loans made to corporations, partnerships and
other business entities require personal guarantees by the principals. On an
exception basis, the Bank may not require a personal guarantee on such loans
depending on the creditworthiness of the borrower and the amount of the
downpayment and other mitigating circumstances. The Bank's multi-family real
estate loan portfolio at March 31, 1998 was $2.1 million, or 1.7%, of total
loans receivable and the Bank's commercial real estate loan portfolio at such
date was $10.3 million, or 8.7%, of total loans receivable. The largest
commercial real estate loan in the Bank's portfolio at March 31, 1998 was a
$1.12 million loan secured by a commercial warehouse located in Fairfield, New
Jersey.
      
     Loans secured by multi-family and commercial real estate properties are
generally larger and involve a greater degree of risk than one- to four-family
residential mortgage loans. Because payments on loans secured by multi-family
and commercial real estate properties are often dependent on successful
operation or management of the properties, repayment of such loans may be
subject to a greater extent to the then prevailing conditions in the real estate
market or the economy. The Bank seeks to minimize these risks through its
underwriting standards.

     CONSTRUCTION AND DEVELOPMENT LENDING. The Bank originates construction and
development loans exclusively for the development of one-to four-family
residences. Such loans are made principally to licensed and experienced
developers known to the Bank in its primary market area for the construction of
single-family developments. The Bank generally does not originate loans secured
by undeveloped land. Construction loans are originated in amounts up to 70% of
the lesser of the appraised value of the property,
          

                                       67
as improved, or the sales price. Such loans are offered with one year terms and
adjustable interest rates which adjust monthly and float at margins which are
generally 1% to 2% above the Prime Rate of interest as reported in The Wall
Street Journal. Proceeds of construction loans are dispersed as phases of the
construction are completed. Generally, if the borrower is a corporation,
partnership or other business entity, personal guarantees by the principals are
required. The Bank's largest construction loan at March 31,1998 was a $1.6
million performing loan with a carrying balance, net of loans in process, of
$854,000 secured by a 4.54 acre, six lot residential development tract located
in Millburn, New Jersey. At March 31, 1998, the Bank had $7.1 million of
construction loans which amounted to 6.0% of the Bank's total loans receivable.
      
     Construction and development financing is generally considered to involve a
higher degree of credit risk than long-term financing on improved, owner-
occupied real estate. Risk of loss on a construction loan is dependent largely
upon the accuracy of the initial estimate of the property's value at completion
of construction or development compared to the estimated cost (including
interest) of construction and other assumptions, including the estimated time to
sell residential properties. If the estimate of value proves to be inaccurate,
the Bank may be confronted with a project, when completed, having a value which
is insufficient to assure full repayment.
      
     CONSUMER LENDING. Consumer loans at March 31, 1998 amounted to $801,000, or
0.7% of the Bank's total loans receivable, and consisted primarily of $497,000
in loans secured by deposit accounts and $274,000 in automobile loans. Such
loans are generally originated in the Bank's primary market area. These loans
are generally shorter term and have higher interest rates than one- to four-
family mortgage loans.
      
     Loans secured by rapidly depreciable assets such as automobiles or that are
unsecured entail greater risks than one- to four-family mortgage loans. In such
cases, repossessed collateral for a defaulted loan may not provide an adequate
source of repayment of the outstanding loan balance, since there is a greater
likelihood of damage, loss or depreciation of the underlying collateral.
Further, consumer loan collections on these loans are dependent on the
borrower's continuing financial stability and, therefore, are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
Finally, the application of various federal and state laws, including federal
and state bankruptcy and insolvency laws, may limit the amount which can be
recovered on such loans in the event of a default.
      
     COMMERCIAL LENDING. At March 31, 1998, the Bank had $57,000 in commercial
loans, which the Bank originated through a FHLB program over ten years ago. The
Bank does not currently anticipate that commercial lending activity will
increase in the immediate future.
      
     LOAN APPROVAL PROCEDURES AND AUTHORITY. The Board of Directors establishes
the lending policies and loan approval limits of the Bank. All loans originated
by the Bank with principal amounts in excess of $1.0 million require the
approval of the Board of Directors. All loans originated by the Bank with
principal amounts between $350,000 and $1.0 million require the approval of the
Lending Committee. All other loans may be approved by the Bank's Chief Lending
Officer. Pursuant to OTS regulations, loans to one borrower cannot exceed 15% of
the Bank's unimpaired capital and surplus. The Bank will not make loans to one
borrower that are in excess of the regulatory limits.
      
     UNDERWRITING. With respect to all loans originated by the Bank, it is the
general policy of the Bank to retain all such loans in its portfolio. The Bank
has a policy of underwriting its loans in conformance with FNMA or FHLMC
guidelines. Upon receipt of a completed loan application from a prospective
borrower, a credit report is ordered and certain other information is verified
by an independent credit agency. If necessary, additional financial information
may be required. An appraisal of real estate intended to secure
      

                                       68
a proposed loan generally is required to be performed by outside appraisers
approved by the Bank. The Board annually approves independent appraisers used by
the Bank and approves the Bank's appraisal policy. The Bank's policy is to
obtain title and hazard insurance on all mortgage loans and flood insurance when
necessary and the Bank generally requires borrowers to make payments to a
mortgage escrow account for the payment of property taxes. No title or flood
insurance is required, however, for home equity loans.
      
DELINQUENT LOANS, CLASSIFIED ASSETS AND REAL ESTATE OWNED

     DELINQUENCIES AND CLASSIFIED ASSETS. Reports listing all delinquent
accounts are generated and reviewed by management at least twice a month and the
Board of Directors performs a monthly review of all loans or lending
relationships delinquent 60 days or more and all real estate owned ("REO"). The
procedures taken by the Bank with respect to delinquencies vary depending on the
nature of the loan, period and cause of delinquency and whether the borrower is
habitually delinquent. When a borrower fails to make a required payment on a
loan, the Bank takes a number of steps to have the borrower cure the delinquency
and restore the loan to current status. The Bank generally sends the borrower a
written notice of non-payment after the loan is first past due. The Bank's
guidelines provide that telephone, written correspondence and/or face-to-face
contact will be attempted to ascertain the reasons for delinquency and the
prospects of repayment. When contact is made with the borrower at any time prior
to foreclosure, the Bank will attempt to obtain full payment, offer to work out
a repayment schedule with the borrower to avoid foreclosure or, in some
instances, accept a deed in lieu of foreclosure. In the event payment is not
then received or the loan not otherwise satisfied, additional letters and
telephone calls generally are made. If the loan is still not brought current or
satisfied and it becomes necessary for the Bank to take legal action, which
typically occurs after a loan is 90 days or more delinquent, the Bank will
commence foreclosure proceedings against any real property that secures the
loan. If a foreclosure action is instituted and the loan is not brought current,
paid in full, or refinanced before the foreclosure sale, the property securing
the loan generally is sold at foreclosure and, if purchased by the Bank, becomes
real estate owned.
      
     Federal regulations and the Bank's Asset Classification Policy require that
the Bank utilize an internal asset classification system as a means of reporting
problem and potential problem assets. The Bank has incorporated the OTS internal
asset classifications as a part of its credit monitoring system. The Bank
currently classifies problem and potential problem assets 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 insured 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 without the establishment of a specific loss reserve is not warranted.
      
     Management of the Bank, in determining the allowance for loan losses,
considers the risks inherent in its loan portfolio and changes in the nature and
volume of its loan activities, along with the general economic and real estate
market conditions. The Bank utilizes a two tier approach: (i) identification of
impaired loans and the establishment of specific loss allowances on such loans;
and (2) establishment of general valuation allowances on the remainder of its
loan portfolio. The Bank maintains a loan review system which allows for a
periodic review of its loan portfolio and the early identification of potential
impaired loans. Such system takes into consideration, among other things,
delinquency status, size of loans, type and estimated fair value of collateral
and financial condition of the borrowers. Specific loan loss
      

                                       69
allowances are established for identified loans based on a review of such
information. General loan loss allowances are based upon a combination of
factors including, but not limited to, actual loan loss experience, composition
of the loan portfolio, current economic conditions and management's judgment.
Although management believes that adequate loan loss allowances are established,
actual losses are dependent upon future events and, as such, further additions
to the level of the allowance for loan losses may be necessary.
      
     A savings institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
OTS which can order the establishment of additional general or specific loss
allowances. The OTS, in conjunction with the other federal banking agencies, has
adopted an interagency policy statement on the allowance for loan and lease
losses. The policy statement provides guidance for financial institutions on
both the responsibilities of management for the assessment and establishment of
adequate allowances and guidance for banking agency examiners to use in
determining the adequacy of general valuation guidelines. Generally, the policy
statement recommends that institutions have effective systems and controls to
identify, monitor and address asset quality problems; that management has
analyzed all significant factors that affect the collectibility of the portfolio
in a reasonable manner; and that management has established acceptable allowance
evaluation processes that meet the objectives set forth in the policy statement.
Although management believes that, based on information currently available to
it at this time, its allowance for loan losses is adequate, actual losses are
dependent upon future events and, as such, further additions to the level of
allowances for loan losses may become necessary.
      
     The Board reviews classified assets reports prepared by management and
classifies its assets on a quarterly basis. The Bank classifies assets in
accordance with the management guidelines described above. At March 31, 1998,
the Bank had $3.1 million, or 0.99% of total assets, of assets designated as
"Substandard," consisting of thirteen one- to four-family mortgage loans,
totalling $1.5 million, two construction loans totalling $718,000 and real
estate owned totalling $911,000. At March 31, 1998, the largest loan designated
as "Substandard" had a carrying balance of $684,000, and was a construction loan
secured by a partially completed condominium project. At March 31, 1998, no
assets were designated as "Doubtful" or "Loss."
      
                                       70
The following table sets forth delinquencies in the Bank's loan portfolio as of
the dates indicated.
AT MARCH 31, 1998                             AT DECEMBER 31, 1997
                                --------------------------------------------  ---------------------------------------------
                                    60-89 DAYS             90 DAYS OR MORE         60-89 DAYS            90 DAYS OR MORE
                                --------------------- ----------------------  --------------------  -----------------------   
                                            PRINCIPAL              PRINCIPAL             PRINCIPAL                PRINCIPAL
                                 NUMBER      BALANCE    NUMBER      BALANCE    NUMBER     BALANCE    NUMBER        BALANCE
                                OF LOANS    OF LOANS   OF LOANS    OF LOANS   OF LOANS   OF LOANS   OF LOANS     OF LOANS  
                                --------   ---------- ---------   ----------  --------  ----------  --------    -----------
Loans:                                                           (DOLLARS IN THOUSANDS)
   Residential Mortgage......         13       $ 878        16       $1,544        10      $  528        19       $1,652
   Commercial Mortgage.......          1         116        --           --        --          --         1          119
   Construction and land              --          --         2          718        --          --         2          718
    development..............       ----       -----      ----       ------      ----      ------      ----       ------
    Total loans..............         14       $ 994        18       $2,262        10      $  528        22       $2,489
                                    ====       =====      ====       ======      ====      ======      ====       ======

Delinquent loans to total           1.03%       0.84%     1.32%        1.93%     0.72%       0.45%     1.59%        2.14%
    loans....................       ====       =====      ====       ======      ====      ======      ====       ======
AT DECEMBER 31, 1996                        AT DECEMBER 31, 1995         
                                --------------------------------------------  ---------------------------------------------
                                     60-89 DAYS          90 DAYS OR MORE            60-89 DAYS         90 DAYS OR MORE
                                --------------------- ----------------------  --------------------  -----------------------   
                                           PRINCIPAL             PRINCIPAL               PRINCIPAL             PRINCIPAL
                                  NUMBER    BALANCE     NUMBER    BALANCE       NUMBER    BALANCE     NUMBER    BALANCE
                                OF LOANS   OF LOANS    OF LOANS   OF LOANS    OF LOANS   OF LOANS   OF LOANS    OF LOANS
                                --------   ---------- ---------   ----------  --------  ----------  --------    -----------
Loans:                                                              (DOLLARS IN THOUSANDS)
   Residential Mortgage......         14       $ 904        14       $1,733        13      $  764        10       $1,069
   Commercial Mortgage.......         --          --         2          431         4         575         2          380
   Construction and land              --          --         2          705        --          --         3          734
    development..............       ----       -----      ----       ------      ----      ------      ----       ------
    Total loans..............         14       $ 904        18       $2,869        17      $1,339        15       $2,183
                                    ====       =====      ====       ======      ====      ======      ====       ======

Delinquent loans to total           1.15%       1.07%     1.48%        3.40%     1.34%       1.53%     1.18%        2.50%
  loans......................       ====       =====      ====       ======      ====      ======      ====       ======
71
NON-PERFORMING ASSETS AND IMPAIRED LOANS. The following table sets forth
information regarding nonaccrual loans and REO. At March 31, 1998, REO totalled
$1.1 million and consisted of nine properties. It is the policy of the Bank to
cease accruing interest on loans 90 days or more past due and to fully reserve
for all previously accrued interest. For the three months ended March 31, 1998
and the year ended December 31, 1997, the amount of additional interest income
that would have been recognized on non-accrual loans if such loans had continued
to perform in accordance with their contractual terms was $40,000 and $177,000,
respectively. On January 1, 1995, the Bank adopted SFAS No. 114 "Accounting by
Creditors for Impairment of a Loan," as amended by SFAS No. 118. At both March
31, 1998 and December 31, 1997, total impaired loans were $1.6 million All
impaired loans are residential real estate mortgage loans which have been
measured for impairment using the fair value of the collateral method. During
the three months ended March 31, 1998, the average recorded value of impaired
loans was $1.6 million. For these loans, no interest income was recognized.
During the year ended December 31, 1997, the average recorded value of impaired
loans was $1.9 million. For these loans, no interest income was recognized.
AT MARCH 31,                     AT DECEMBER 31,
                                                        ----------------    ----------------------------------------------
                                                         1998      1997      1997      1996      1995      1994      1993
                                                        ------    ------    ------    ------    ------    ------    ------
                                                                             (DOLLARS IN THOUSANDS)
Nonaccrual loans:
  Residential Mortgages.............................    $1,496    $1,679    $1,576    $1,733    $  931    $1,369    $1,287
  Commercial Mortgages..............................        --       352       119       431       380       263       327
  Construction and land development.................       718       705       718       705       734     1,346       737
                                                        ------    ------    ------    ------    ------    ------    ------
     Total nonaccrual loans.........................     2,214     2,736     2,413     2,869     2,045     2,978     2,351

Restructured loans:
  Residential Mortgages.............................        92        97        94        99       104       112     2,971
                                                        ------    ------    ------    ------    ------    ------    ------
     Total non-performing loans.....................     2,306     2,833     2,507     2,968     2,149     3,090     5,322
Real estate owned, net(1)...........................     1,120     1,095     1,215     1,394     1,352     1,864     3,251
                                                        ------    ------    ------    ------    ------    ------    ------
     Total non-performing assets....................    $3,426    $3,928    $3,722    $4,362    $3,501    $4,954    $8,573
                                                        ======    ======    ======    ======    ======    ======    ======

Allowance for loan losses as a
  percent of total loans............................      1.58%     1.92%     1.62%     1.85%     1.38%     1.41%     1.68%
                                                        ======    ======    ======    ======    ======    ======    ======
Allowance for loan losses as a
  percent of non-performing loans(2)................     80.79%    57.15%    75.19%    52.70%    55.84%    40.00%    29.12%
                                                        ======    ======    ======    ======    ======    ======    ======
Non-performing loans as a
  percent of total loans(2).........................      1.95%     3.36%     2.16%     3.51%     2.46%     3.52%     5.76%
                                                        ======    ======    ======    ======    ======    ======    ======
Non-performing assets as
  a percent of total assets(3)......................      1.10%     1.66%     1.24%     1.85%     1.57%     2.48%     4.38%
                                                        ======    ======    ======    ======    ======    ======    ======
___________________
(1)  REO balances are shown net of related valuation allowances. REO includes
     $209,000 of property that is not considered substandard.
(2)  Non-performing loans consist of all 90 days or more past due and other
     loans which have been identified by the Bank as presenting uncertainty with
     respect to the collectibility of interest or principal.
(3)  Non-performing assets consist of non-performing loans and REO.

                                       72
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risks inherent in its loan portfolio and the general economy. The allowance for
loan losses is maintained at an amount management considers adequate to cover
estimated losses in loans receivable which are deemed probable and estimable
based on information currently known to management. The allowance is based upon
a number of factors, including current economic conditions, actual loss
experience and industry trends. 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 make additional
provisions for estimated loan losses based upon judgments different from those
of management. As of March 31, 1998 and December 31, 1997, the Bank's allowance
for loan losses was 1.58% and 1.62%, respectively, of total loans receivable and
84.1% and 78.1%, respectively, of nonaccrual loans. The Bank had non-accrual
loans of $2.2 million and $2.4 million at March 31, 1998 and December 31, 1997,
respectively. The Bank will continue to monitor and modify its allowances for
loan losses as conditions dictate. While management believes the Bank's
allowance for loan losses is sufficient to cover losses inherent in its loan
portfolio at this time, no assurances can be given that the Bank's level of
allowance for loan losses will be sufficient to cover future loan losses
incurred by the Bank or that future adjustments to the allowance for loan losses
will not be necessary if economic and other conditions differ substantially from
the economic and other conditions used by management to determine the current
level of the allowance for loan losses.

                                       73
The following table sets forth activity in the Bank's allowance for loan
losses for the periods set forth in the following table.
AT OR FOR THE
                                                                      THREE
                                                                   MONTHS ENDED
                                                                     MARCH 31,          AT OR FOR THE YEARS ENDED DECEMBER 31,
                                                                 ----------------     ------------------------------------------
                                                                  1998      1997       1997     1996     1995     1994     1993
                                                                 ------    ------     ------   ------   ------   ------   ------
                                                                                       (DOLLARS IN THOUSANDS)
Balance at beginning of period................................   $1,885    $1,564     $1,564   $1,200   $1,236   $1,550   $1,811
                                                                 ------    ------     ------   ------   ------   ------   ------
Provision for (recapture of) loan losses......................      (22)       55        487      232      510     (247)    (200)
                                                                 ------    ------     ------   ------   ------   ------   ------
Charge-offs:

   Mortgage loans:

       One- to four-family....................................       --        --         60       --       --       57       36
       Multi-family...........................................       --        --         --       --       56       --       --
   Commercial real estate.....................................       --        --        106       --       --       --       25
   Construction and land development..........................       --        --         --       --      490       10       --
                                                                 ------    ------     ------   ------   ------   ------   ------
       Total mortgage loans...................................       --        --        166       --      546       67       61
                                                                 ------    ------     ------   ------   ------   ------   ------

Recoveries:

   Construction and land development..........................       --        --         --      132       --       --       --
                                                                 ------    ------     ------   ------   ------   ------   ------
Balance at end of period......................................   $1,863    $1,619     $1,885   $1,564   $1,200   $1,236   $1,550
                                                                 ======    ======     ======   ======   ======   ======   ======
Ratio of net charge-offs during
  the period to average gross loans
  during the period(1)........................................     0.00%     0.00%      0.17%   (0.15)%   0.63%    0.08%    0.06%
                                                                 ======    ======     ======   ======   ======   ======   ======
____________________
(1)  Annualized for the three month periods ended March 31, 1998 and 1997.

                                       74
The following tables set forth the Bank's percent of allowance for loan
losses to total allowance for loan losses and the percent of loans to total
loans in each of the categories listed at the dates indicated.
AT MARCH 31,                                
                                                     -------------------------------------------------------------------------  
                                                                     1998                                1997     
                                                     -------------------------------------------------------------------------  
                                                             PERCENT OF     PERCENT OF             PERCENT OF     PERCENT OF    
                                                              ALLOWANCE      LOANS IN               ALLOWANCE      LOANS IN     
                                                              TO TOTAL     EACH CATEGORY            TO TOTAL     EACH CATEGORY  
                                                     AMOUNT   ALLOWANCE   TO TOTAL LOANS   AMOUNT   ALLOWANCE   TO TOTAL LOANS  
                                                     ------  -----------  --------------  --------  ---------   --------------  
                                                                                (DOLLARS IN THOUSANDS)
Mortgage loans:
                           Residential.............. $  638       34.25%           84.50%  $  496       30.64%           83.11%
                           Commercial real estate...    107        5.74             8.73      194       11.98            13.81
                           Construction and land....    578       31.03             6.04      424       26.19             2.31
                             development............ ------      ------           ------   ------      ------           ------
                             Total mortgage loans...  1,323       71.02            99.27    1,114       68.81            99.23
                         Commercial loans...........     --          --             0.05       --          --             0.08
                         Consumer loans.............      6        0.32             0.68        4        0.25             0.69
                                                     ------      ------           ------   ------      ------           ------
                                                      1,329       71.34           100.00%   1,118       69.06           100.00%
                                                                                  ======                                ======
                         Unallocated................    534       28.66                       501       30.94
                                                     ------      ------                    ------      ------
                             Total allowance
                               for loan losses...... $1,863      100.00%                   $1,619      100.00%
                                                     ======      ======                    ======      ======
AT DECEMBER 31,
                             ----------------------------------------------------------------------------------------------
                                          1997                          1996                          1995
                             ------------------------------ ------------------------------- -------------------------------
                                                   PERCENT                         PERCENT                         PERCENT
                                                  OF LOANS                        OF LOANS                        OF LOANS
                                      PERCENT OF   IN EACH            PERCENT OF   IN EACH            PERCENT OF   IN EACH
                                      ALLOWANCE   CATEGORY            ALLOWANCE   CATEGORY            ALLOWANCE   CATEGORY
                                       TO TOTAL   TO TOTAL             TO TOTAL   TO TOTAL             TO TOTAL   TO TOTAL
                             AMOUNT   ALLOWANCE     LOANS    AMOUNT   ALLOWANCE     LOANS    AMOUNT   ALLOWANCE     LOANS
                             ------  ----------- ---------- -------- ----------- ---------- -------- ------------ ---------
                                                                                               (DOLLARS IN THOUSANDS)
Mortgage loans:
   Residential..............  $  621      32.94%     84.44%   $  511      32.67%     82.20%   $  413      34.42%     80.81%
   Commercial real estate...     112       5.94       9.21       184      11.77      14.53       190      15.83      14.56
   Construction and
      land development......     628      33.32       5.58       349      22.31       2.46       141      11.75       3.47
                              ------     ------     ------    ------     ------     ------    ------     ------     ------
   Total mortgage loans.....   1,361      72.20      99.23     1,044      66.75      99.19       744      62.00      98.84
Commercial loans............      --         --       0.05        --         --       0.10         1       0.08       0.27
Consumer loans..............       6       0.32       0.72         4       0.26       0.71         6       0.50       0.89
                              ------     ------     ------    ------     ------     ------    ------     ------     ------
                               1,367      72.52     100.00%    1,048      67.01     100.00%      751      62.58     100.00%
                                                    ======                          ======                          ======
Unallocated.................     518      27.48                  516      32.99                  449      37.42
                              ------     ------               ------     ------               ------     ------
   Total....................  $1,885     100.00%              $1,564     100.00%              $1,200     100.00%
                              ======     ======               ======     ======               ======     ======
-------------------------------------------------------------
                                         1994                            1993
                             ------------------------------ ------------------------------
                                                   PERCENT                         PERCENT
                                                  OF LOANS                        OF LOANS
                                      PERCENT OF   IN EACH            PERCENT OF   IN EACH
                                      ALLOWANCE   CATEGORY            ALLOWANCE   CATEGORY
                                       TO TOTAL   TO TOTAL             TO TOTAL   TO TOTAL
                             AMOUNT   ALLOWANCE     LOANS    AMOUNT   ALLOWANCE     LOANS
                             ------- ----------- --------- --------- ----------- ---------
Mortgage loans:
   Residential..............  $  383      30.99%     77.63%   $  418      26.97%     76.55%
   Commercial real estate...     171      13.84      15.74       218      14.06      15.66
   Construction and
      land development......     223      18.04       5.78       452      29.16       7.04
                              ------     ------     ------    ------     ------     ------
   Total mortgage loans.....     777      62.87      99.15     1,088      70.19      99.25
Commercial loans............       1       0.08       0.29         2       0.13       0.36
Consumer loans..............       2       0.16       0.56         1       0.07       0.39
                              ------     ------     ------    ------     ------     ------
                                 780      63.11     100.00%    1,091      70.39     100.00%
                                                    ======                          ======
Unallocated.................     456      36.89                  459      29.61
                              ------     ------               ------     ------
   Total....................  $1,236     100.00%              $1,550     100.00%
                              ======     ======               ======     ======
75
REAL ESTATE OWNED. At March 31, 1998, the Bank had $1.1 million of real
estate owned consisting of nine properties, eight of which were acquired through
foreclosure. When the Bank acquires property through foreclosure or deed in lieu
of foreclosure, it is initially recorded at the lower of the recorded investment
in the corresponding loan or the fair value of the related assets at the date of
foreclosure, less costs to sell. Thereafter, if there is a further deterioration
in value, the Bank provides for a specific valuation allowance and charges
operations for the diminution in value. It is the policy of the Bank to have
obtained an appraisal on all real estate subject to foreclosure proceedings
prior to the time of foreclosure. It is the Bank's policy to require appraisals
on a periodic basis on foreclosed properties and conduct inspections on
foreclosed properties.

INVESTMENT ACTIVITIES

     Federally chartered savings institutions have the authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certificates of deposit of insured banks
and savings institutions, bankers' acceptances, repurchase agreements and
federal funds. Subject to various restrictions, federally chartered savings
institutions may also invest their assets in commercial paper, investment-grade
corporate debt securities and mutual funds whose assets conform to the
investments that a federally chartered savings institution is otherwise
authorized to make directly. Additionally, the Bank must maintain minimum levels
of investments that qualify as liquid assets under OTS regulations. See
"Regulation and Supervision--Federal Savings Institution Regulation--Liquidity."
Historically, the Bank has maintained liquid assets above the minimum OTS
requirements and at a level considered to be adequate to meet its normal daily
activities.

     The Bank's current policies generally limit securities investments to U.S.
Government and agency securities, municipal bonds and corporate debt obligations
and corporate equities. In addition, the Bank's policies permit investments in
mortgage-backed securities, including securities issued and guaranteed by FNMA,
FHLMC and GNMA. The Bank's current securities investment strategy is to continue
to emphasize the purchase of mortgage-backed securities and U.S. Government and
agency obligations as well as state and municipal obligations for purposes of
interest rate risk management.

     At March 31, 1998, the Bank had $158.5 million in securities, consisting
primarily of mortgage-backed securities, U.S. Government and agency obligations
and one municipal obligation. SFAS No. 115 requires the Bank to designate its
securities as held-to-maturity, available-for-sale or trading depending on the
Bank's intent regarding its investments. The Bank does not currently maintain a
trading portfolio of securities. At March 31, 1998, all of the Bank's mortgage-
backed securities were classified as held-to-maturity. Also at that date, 19.8%
of the Bank's investment securities were classified as available-for-sale and
80.2% were classified as held-to-maturity. Of the Bank's total investment
securities and mortgage-backed securities portfolio, the Bank's securities
classified as held to maturity had an aggregate market value of $153.5 million
and an amortized cost of $151.4 million. The Bank's securities classified as
available-for-sale had an aggregate market value of $7.1 million and an
amortized cost of $7.0 million at March 31, 1998.

     MORTGAGE-BACKED SECURITIES. The Bank purchases mortgage-backed securities
in order to: (i) generate positive interest rate spreads with minimal
administrative expense; (ii) reduce its credit risk as a result of the guarantee
provided by FHLMC, FNMA and GNMA; (iii) utilize these securities as collateral
for borrowings; and (iv) increase the liquidity of the Bank. The Bank has
primarily invested in mortgage-backed securities issued or sponsored by FNMA,
FHLMC and GNMA and private issuers. At March 31, 1998, mortgage-backed
securities totalled $122.6 million, or 39.2% of total assets and 41.2% of total
interest earning assets, and all were classified as held-to-maturity. At March
31, 1998, 63.9% of the mortgage-

                                       76
backed securities were adjustable-rate and 36.1% were fixed-rate. The mortgage-
backed securities portfolio had coupon rates ranging from 5.41% to 15.00% and
had a weighted average yield of 6.75% at March 31, 1998. The estimated fair
value of the Bank's mortgage-backed securities held to maturity at March 31,
1998, was $124.4 million, which is $1.8 million more than the amortized cost of
$122.6 million.

     Mortgage-backed securities are created by the pooling of mortgages and
issuance of a security with an interest rate which is less than the interest
rate on the underlying mortgage. Mortgage-backed securities typically represent
a participation interest in a pool of single-family or multi-family mortgages,
although the Bank focuses its investments on mortgage-backed securities backed
by single-family mortgages. The issuers of such securities (generally U.S.
Government agencies and government sponsored enterprises, including FNMA, FHLMC
and GNMA) 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 investors. Mortgage-backed securities generally yield less than the
loans that underlie such securities because of the cost of payment guarantees
and credit enhancements. In addition, 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 differ from estimated
prepayments used in pricing the security at the time of purchase, which may
require adjustments to the amortization of any premium or accretion of any
discount relating to such instruments thereby changing the net yield on such
securities. There is also reinvestment risk associated with the cash flows from
such securities on in the event such securities are redeemed by the issuer. In
addition, the market value of such securities may be adversely affected by
changes in interest rates. The Bank estimates prepayments for its mortgage-
backed securities at purchase to ensure that prepayment assumptions are
reasonable considering the underlying collateral for the mortgage-backed
securities at issue and current mortgage interest rates and to determine the
yield and estimated maturity of its mortgage-backed security portfolio. Of the
Banks $122.6 million mortgage-backed securities portfolio at March 31, 1998,
$1.6 million with a weighted average yield of 7.82% had contractual maturities
within five years and $121.0 million with a weighted average yield of 6.74% had
contractual maturities over five years. However, the actual maturity of a
mortgage-backed security may be less than its stated 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 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 Bank's 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.

     U.S. GOVERNMENT AND AGENCY OBLIGATIONS AND OBLIGATIONS OF STATES AND
MUNICIPALITIES. At March 31, 1998, the Bank's U.S. Government and Agency
securities portfolio totalled $35.7 million, $28.6 million of which were
classified as held-to-maturity. In addition, the Bank held one $150,000
obligation of a New Jersey municipal subdivision.

                                       77
The following table sets forth certain information regarding the amortized
cost and fair value of the Bank's securities at the dates indicated.
AT MARCH 31,                                AT DECEMBER 31,
                                     -----------------------------------------------  ----------------------------------------------
                                              1998                  1997                        1996                    1995
                                     ------------------- ---------------------------  ------------------------  --------------------
                                     AMORTIZED    FAIR    AMORTIZED       FAIR         AMORTIZED      FAIR       AMORTIZED    FAIR
                                       COST      VALUE      COST          VALUE          COST         VALUE        COST       VALUE
                                     ---------  --------  ---------  ---------------  -----------  -----------  -----------  -------
                                                                          (IN THOUSANDS)
Investment securities
 available-for-sale(1):
   U.S. Government 
    obligations................        $ 6,981   $ 7,105    $ 6,980          $ 7,081  $        --  $        --  $        --  $    --
   Obligations of states and                                                                                                        
    municipal subdivisions.....             --        --         --               --          115          120          306      319
   Mutual fund.................             --        --         --               --        1,554        1,527        1,465    1,441
   Common Stock................             --        --         --               --           --           --          100      172
                                       -------   -------    -------          -------      -------      -------      -------   ------
     Total securities                    
      available-for-sale.......          6,981     7,105      6,980            7,081        1,669        1,647        1,871    1,932
                                       -------   -------    -------          -------      -------      -------      -------   ------

Investment securities
 held-to-maturity (1):
   U.S. Government and                  
    Agency obligations.........         28,618    28,932     22,929           23,339       22,476       22,766       18,482   19,022
   Obligations of states and               
    municipal subdivisions.....            150       150         --               --           --           --           --       --
                                       -------   -------    -------          -------      -------      -------      -------   ------
                                        28,768    29,082     22,929           23,339       22,476       22,766       18,482   19,022
                                       -------   -------    -------          -------      -------      -------      -------   ------

Federal Home Loan Bank of                                                                                                           
 New York stock (2)............          2,282     2,282      2,184            2,184        1,670        1,670        1,509    1,509
                                       -------   -------    -------          -------      -------      -------      -------   ------
     Total.....................        $38,031   $38,469    $32,093          $32,604      $25,815      $26,083      $21,862  $22,463
                                       =======   =======    =======          =======      =======      =======      =======   ======
________________________
(1) Available for sale securities are carried at fair value while held-to-
    maturity securities are carried at amortized cost.
(2) Investment is required by regulation.  As the security is not readily
    marketable, its cost approximates fair value.
 
                                       78
The following table sets forth the Bank's investment securities activities for 
the periods indicated.
FOR THE THREE
                                                      MONTHS
                                                  ENDED MARCH 31,   FISCAL YEAR ENDED DECEMBER 31,
                                                 -----------------  -------------------------------
                                                  1998      1997      1997       1996      1995
                                                 -------  --------  ---------  --------  ----------
                                                                  (IN THOUSANDS)
INVESTMENT SECURITIES:
Investment securities, beginning 
  of period(1)...............................    $30,009  $24,124   $ 24,124   $20,414   $ 9,355
                                                 -------  -------   --------   -------   -------
Purchases:
   Investment securities - held-to-
     maturity................................      5,790    2,997     10,400    10,998    12,989
   Investment securities - available-for-
    sale.....................................         --    2,023      7,034        88        86
Calls:
   Investment securities - held-to-
     maturity................................         --   (2,000)   (10,000)   (5,000)   (2,000)
   Investment securities - available-for-
     sale....................................         --       --         --        --        --
Maturities:
   Investment securities - held-to-
     maturity................................         --       --         --    (2,000)       --
   Investment securities - available-for-
     sale....................................         --     (105)      (105)     (192)      (94)
Sales of securities available for sale.......
Increase (decrease) in net premium...........         51      (10)        42        (2)        2
Increase (decrease) in unrealized gains......         24       (5)       122       (82)      126
                                                 -------  -------   --------   -------   -------
   Net increase in investment securities.....      5,865    2,900      5,885     3,710    11,059
                                                 -------  -------   --------   -------   -------
Investment securities, end of period.........    $35,874  $27,024   $ 30,009   $24,124   $20,414
                                                 =======  =======   ========   =======   =======
________________________
(1) Includes investment securities available-for-sale.

                                       79
The following table sets forth certain information regarding the
amortized cost and fair values of the Bank's mortgage-backed securities,
all of which are held to maturity, at the dates indicated.
AT MARCH 31,                                                     AT DECEMBER 31,        
                                -----------------------------   ------------------------------------------------------------------
                                             1998                              1997                              1996             
                                -----------------------------   ---------------------------------  -------------------------------
                                            PERCENT                          PERCENT                           PERCENT            
                                AMORTIZED      OF        FAIR    AMORTIZED      OF        FAIR     AMORTIZED      OF        FAIR  
                                  COST      TOTAL(1)    VALUE      COST      TOTAL(1)     VALUE      COST      TOTAL(1)     VALUE 
                                --------- ----------  -------   ----------   --------  --------   ----------  ---------  ---------
                                                                (DOLLARS IN THOUSANDS)
By Issuer:                                                                                                                        
  GNMA.......................   $ 73,748    60.14%    $ 74,943   $ 78,657    60.42%     $ 79,775   $ 65,996    58.27%     $ 67,095
  FHLMC......................     25,389    20.70       25,721     26,551    20.40        26,749     32,041    28.29        32,023
  FNMA.......................     23,489    19.15       23,728     24,959    19.17        25,150     15,204    13.43        15,227
  Other......................          7     0.01            7          7     0.01             7         13     0.01            13
                                --------   ------     --------   --------   ------      --------   --------   ------      --------
    Total mortgage-backed                                                                                                         
     securities (1)..........   $122,633   100.00%    $124,399   $130,174   100.00%     $131,681   $113,254   100.00%     $114,358
                                ========   ======     ========   ========   ======      ========   ========   ======      ========
By Coupon Type:                                                                                                                   
  Adjustable-rate............   $ 78,330    63.87%    $ 79,181   $ 82,938    63.71%     $ 83,740   $ 62,849    55.49%     $ 63,693
  Fixed-rate.................     44,303    36.13       45,218     47,236    36.29        47,941     50,405    44.51        50,665
                                --------   ------     --------   --------   ------      --------   --------   ------      --------
     Total mortgage-backed                                                                                                        
      securities (1).........   $122,633   100.00%    $124,399   $130,174   100.00%     $131,681   $113,254   100.00%     $114,358
                                ========   ======     ========   ========   ======      ========   ========   ======      ========
--------------------------------
                                              1995
                               --------------------------------
                                             PERCENT
                                 AMORTIZED      OF        FAIR
                                   COST      TOTAL(1)     VALUE
                               ----------- ---------- ---------
By Issuer:
  GNMA.......................    $ 67,243      67.22%   $ 68,790
  FHLMC......................      23,662      23.66      23,937
  FNMA.......................       9,112       9.11       9,188
  Other......................          15       0.01          15
                                 --------     ------    --------
    Total mortgage-backed
     securities (1)..........    $100,032     100.00%   $101,930
                                 ========     ======    ========
By Coupon Type:
  Adjustable-rate............    $ 58,615      58.60%   $ 59,624
  Fixed-rate.................      41,417      41.40      42,306
                                 --------     ------    --------
     Total mortgage-backed
      securities (1).........    $100,032     100.00%   $101,930
                                 ========     ======    ========
_________________________
(1)  Based on amortized cost.
(2)  Includes net unamortized premiums (discounts) of $236 at March 31, 1998 and
     $243, $193 and $(26) at December 31, 1997, 1996 and 1995, respectively.

                                       80
The following table sets forth the Bank's mortgage-backed securities
activities for the periods indicated.
FOR THE THREE MONTHS               FOR THE YEARS
                                                     ENDED MARCH 31,               ENDED DECEMBER 31,
                                                 ----------------------    ----------------------------------
                                                    1998       1997          1997         1996        1995
                                                 ---------  -----------    ---------  -----------  ----------
                                                                           (IN THOUSANDS)
Beginning balance...............................  $130,174   $113,254      $113,254      $100,031    $ 89,300
   Purchases....................................        --      5,244        37,026        30,570      22,443
   Principal repayments.........................    (7,534)    (5,774)      (20,084)      (17,384)    (11,751)
   Net amortization and accretion of discounts
   and premiums.................................        (7)        (1)          (22)           37          40
                                                  --------   --------      --------      --------    --------
Ending balance..................................  $122,633   $112,723      $130,174      $113,254    $100,032
                                                  ========   ========      ========      ========    ========
The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of the Bank's
investment securities available for sale and held to maturity and mortgage-
backed securities held to maturity as of March 31, 1998.
AT MARCH 31, 1998
                                                        ----------------------------------------------------------------------------
                                                                                       MORE THAN ONE             MORE THAN FIVE 
                                                           ONE YEAR OR LESS         YEAR TO FIVE YEARS         YEARS TO TEN YEARS 
                                                        -----------------------    -----------------------  ------------------------
                                                                      WEIGHTED                   WEIGHTED                   WEIGHTED
                                                         CARRYING     AVERAGE       CARRYING     AVERAGE      CARRYING      AVERAGE
                                                          VALUE        YIELD         VALUE        YIELD         VALUE        YIELD
                                                        ---------    ----------    ---------    ----------  -----------    ---------
                                                                                (DOLLARS IN THOUSANDS)
Investment securities available for sale:
    U.S. Treasury obligations........................   $      --           --%       $7,105         6.08%     $     --          --%
                                                        =========                     ======                   ========
Investment securities held to maturity:
    U.S. Government agency obligations...............      $2,000         7.13%       $4,000         7.38%     $ 17,000        7.05%

    Municipal obligations............................         150         3.55            --           --            --          --
                                                        ---------                     ------                   --------
       Total investment securities held
        to maturity..................................   $   2,150         6.88%       $4,000         7.38%     $ 17,000        7.05%
                                                        =========                     ======                   ========
Mortgage-backed securities held to maturity:

    Adjustable-rate:
       GNMA..........................................   $      --           --%       $   --           --%     $     --          --%

       FHLMC.........................................          --           --            --           --            --          --
       FNMA..........................................          --           --            --           --            --          --
                                                        ---------                    -------                   --------
                Total................................          --           --            --           --            --          --
                                                        ---------                    -------                   --------       -----
    Fixed-rate:
       GNMA..........................................           6        12.00            15        10.46         2,929        7.81
       FHLMC.........................................          --           --         1,108         8.13         2,652        6.74
       FNMA..........................................          --           --           507         7.00           916        7.00
       Other.........................................          --           --            --           --            --          --
                                                        ---------                     ------                   --------
                Total................................           6        12.00         1,630         7.80         6,497        7.26
                                                        ---------                     ------                   --------
Total mortgage-backed securities
   held to maturity..................................   $       6        12.00%       $1,630         7.80%     $  6,497        7.26%
                                                        =========                     ======                   ========
AT MARCH 31, 1998
                                                                   -------------------------------------------------
                                                                     MORE THAN TEN YEARS              TOTAL
                                                                   -----------------------    ----------------------
                                                                                 WEIGHTED      WEIGHTED
                                                                   CARRYING       AVERAGE       CARRYING    AVERAGE
                                                                     VALUE         YIELD         VALUE       YIELD
                                                                   ---------    ----------    ----------   ---------
Investment securities available for sale:
    U.S. Treasury obligations...................................   $     --           --%       $  7,105      6.08%
                                                                   ========                     ========
Investment securities held to maturity:
    U.S. Government agency obligations..........................   $  5,618         7.66%       $ 28,618      7.22%

    Municipal obligations.......................................         --           --             150      3.55
                                                                   --------                     --------
       Total investment securities held
        to maturity.............................................   $  5,618         7.66%       $ 28,768      7.20%
                                                                   ========                     ========
Mortgage-backed securities held to maturity:

    Adjustable-rate:
       GNMA.....................................................   $ 61,245         6.50%       $ 61,245      6.50%
       FHLMC....................................................      2,878         7.75           2,878      7.75
       FNMA.....................................................     14,207         6.34          14,207      6.34
                                                                   --------                     --------
                Total...........................................     78,330         6.52          78,330      6.52
                                                                   --------                     --------
    Fixed-rate:
       GNMA.....................................................      9,553         7.40          12,503      7.50
       FHLMC....................................................     18,751         7.02          22,511      7.04
       FNMA.....................................................      7,859         7.01           9,282      7.01
       Other....................................................          7        11.00               7     11.00
                                                                   --------                     --------
                Total...........................................     36,170         7.12          44,303      7.17
                                                                   --------                     --------
Total mortgage-backed securities
   held to maturity.............................................   $114,500         6.71%       $122,633      6.75%
                                                                   ========                     ========
81
SOURCES OF FUNDS

     GENERAL. Deposits, loan repayments and prepayments, security maturities,
cash flows generated from operations and FHLB borrowings are the primary sources
of the Bank's funds for use in lending, investing and for other general
purposes.

     DEPOSITS. The Bank offers a variety of deposit accounts with a range of
interest rates and terms. The Bank's deposits consist of savings, checking
accounts, NOW accounts, money market club accounts, certificate of deposit
accounts and Individual Retirement Accounts. For the three months ended March
31, 1998, average core deposits represented 40.2% of total average deposits. 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. The Bank has historically relied primarily on 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 through print media and generally does not solicit deposits from
outside its market area. The Bank does not actively solicit certificate accounts
in excess of $100,000 or use brokers to obtain deposits. At March 31, 1998,
80.2% of the Bank's certificate of deposit accounts had terms of less than
twelve months.

                                       82
The following table presents the deposit activity of the Bank for the
periods indicated.
FOR THE THREE
                                                              MONTHS
                                                           ENDED MARCH 31,        FOR THE YEARS ENDED DECEMBER 31,
                                                        --------------------     ----------------------------------
                                                          1998        1997         1997         1996         1995
                                                        --------    --------     --------     --------     --------
                                                                              (IN THOUSANDS)
Beginning balance....................................   $238,192    $179,946     $179,946     $178,392     $164,181
                                                        --------    --------     --------     --------     --------
  Purchase of deposits from another..................        --           --       51,007           --           --
    institution
  Net deposits (withdrawals).........................     (1,505)       (337)        (850)      (5,595)       7,660
  Interest credited..................................      2,433       1,809        8,089        7,149        6,551
                                                        --------    --------     --------     --------     --------
Increase in deposit accounts.........................        928       1,472       58,246        1,554       14,211
                                                        --------    --------     --------     --------     --------
Ending balance.......................................   $239,120    $181,418     $238,192     $179,946     $178,392
                                                        ========    ========     ========     ========     ========
At March 31, 1998, the Bank had $17.6 million in certificate accounts in
amounts of $100,000 or more maturing as follows.
WEIGHTED
                              MATURITY PERIOD                                 AMOUNT           AVERAGE RATE
          -------------------------------------------------------          ------------     ------------------
                                                                                 (DOLLARS IN THOUSANDS)
Three months or less...................................             $ 5,076               5.40%

          Over 3 through 6 months................................               3,878               5.80

          Over 6 through 12 months...............................               5,877               5.66

          Over 12 months.........................................               2,765               6.43
                                                                              -------

          Total..................................................             $17,596               5.74%
                                                                              =======
83
The following table sets forth the distribution of the Bank's average
deposit accounts for the periods indicated and the weighted average interest
rates on each category of deposits presented. Averages for the periods presented
utilize month-end balances.
FOR THE THREE MONTHS                                                                     
                                            ENDED MARCH 31,                                         FOR THE YEARS ENDED DECEMBER 31
                                  ----------------------------------  ------------------------------------------------------------
                                                 1998                            1997                              1996           
                                  ----------------------------------  ------------------------------   -------------------        
                                                PERCENT                          PERCENT                          PERCENT         
                                               OF TOTAL   WEIGHTED              OF TOTAL   WEIGHTED              OF TOTAL         
                                     AVERAGE    AVERAGE    AVERAGE    AVERAGE    AVERAGE    AVERAGE    AVERAGE    AVERAGE         
                                     BALANCE   DEPOSITS     RATE      BALANCE   DEPOSITS     RATE      BALANCE   DEPOSITS         
                                  -----------  ---------  ---------   --------  ---------  ---------   --------  ----------        
                                                                    (DOLLARS IN THOUSANDS)
Demand accounts...................   $ 33,031     13.84%      1.14%   $ 24,863     12.60%      1.18%   $ 21,679     12.18%
Savings and Club accounts.........     62,849     26.34       2.59      53,221     26.97       2.50      51,138     28.74
Certificates of deposit...........    142,728     59.82       5.41     119,272     60.43       5.42     105,141     59.08
                                     --------    ------               --------    ------               --------    ------
         Total....................   $238,608    100.00%      4.08%   $197,356    100.00%      4.10%   $177,958    100.00%
                                     ========    ======               ========    ======               ========    ======

Certificate accounts(1):
   Less than six months...........   $ 66,315     46.19%      5.26%   $ 70,186     49.32%      5.24%   $ 51,854     48.17%
   Over six through 12
    months........................     48,853     34.02       5.56      44,047     30.95       5.59      34,720     32.25
   Over 12 months through
    36 months.....................     25,387     17.68       5.92      25,309     17.78       5.96      16,417     15.25
   Over 36 months.................      3,036      2.11       5.83       2,782      1.95       6.96       4,656      4.33
                                     --------    ------               --------    ------               --------    ------
         Total certificate........   $143,591    100.00%      5.49%   $142,324    100.00%      5.51%   $107,647    100.00%
    accounts......................   ========    ======               ========    ======               ========    ======
-------------------------------------------------
                                                  1995
                            -------------------------------------------------
                                                    PERCENT
                              WEIGHTED             OF TOTAL       WEIGHTED
                              AVERAGE    AVERAGE    AVERAGE        AVERAGE
                               RATE      BALANCE   DEPOSITS         RATE
                            -------------------------------------------------
Demand accounts..............    1.24%   $ 21,538     12.64%          1.45%
Savings and Club accounts....    2.50      55,888     32.81           2.50
Certificates of deposit......    5.33      92,938     54.55           5.21
                                         --------    ------
         Total...............    4.02%   $170,364    100.00%          3.85%
                                         ========    ======

Certificate accounts(1):
   Less than six months......    5.08%   $ 44,548     43.27%          5.07%
   Over six through 12
    months...................    5.45      34,100     33.13           5.54
   Over 12 months through
    36 months................    5.54      18,793     18.26           5.71
   Over 36 months............    6.48       5,497      5.34           6.33
                                         --------    ------
         Total certificate...    5.33%   $102,938    100.00%          5.41%
    accounts.................            ========    ======
________________________________________
(1) Based on remaining maturity of certificates calculated as of the end of the
    period.
                                       84
The following table presents, by various rate categories, the amount of
certificate accounts outstanding at the dates indicated and the periods to
maturity of the certificate accounts outstanding at March 31, 1998.
AT     
                                            PERIOD TO MATURITY FROM MARCH 31, 1998                      MARCH 31, 
                              -----------------------------------------------------------------------   ---------  
                              LESS THAN     ONE TO      TWO TO      THREE TO     FOUR TO     AFTER                
                              ONE YEAR    TWO YEARS   THREE YEARS  FOUR YEARS  FIVE YEARS  FIVE YEARS      1998   
                              ---------   ---------   -----------  ----------  ----------  ----------   ---------   
                                                                 (IN THOUSANDS)
Certificate accounts:                                                                                           
   0 to 4.00% .............    $  2,018     $     4   $      --    $      --   $     --     $    --     $  2,022 
   4.01 to 5.00% ..........      30,316       2,594         138           --         --          --       33,048 
   5.01 to 6.00% ..........      77,081      11,679       1,504          621      1,271         497       92,653 
   6.01 to 7.00% ..........       5,473       4,016       3,367          418        229          --       13,503 
   7.01 to 8.00% ..........          20       1,859         226           --         --          --        2,105 
   Over 9.00% .............          --          --          --           --         --          --           -- 
                               --------     -------     -------       ------     ------     -------     --------    
                               $114,908     $20,152     $ 5,235       $1,039     $1,500     $   497      143,331  
                               ========     =======     =======       ======     ======     =======      
Accrued interest payable ...........................................................................         260   
                                                                                                        --------   
                                               
   Total ...........................................................................................    $143,591   
                                                                                                        ========
AT DECEMBER 31, 
                                           ---------------------------------- 
                                              1997        1996        1995   
                                           ----------   ---------   ---------
Certificate accounts:                                                          
   0 to 4.00% .............                 $  2,538    $ 11,101    $ 11,846   
   4.01 to 5.00% ..........                   33,593      21,836      20,049   
   5.01 to 6.00% ..........                   88,877      60,352      41,260   
   6.01 to 7.00% ..........                   14,451      11,851      26,627   
   7.01 to 8.00% ..........                    2,069       1,486       2,255   
   Over 9.00% .............                      536        847          749   
                                            --------    --------    -------- 
                                              14,064     107,473     102,786    
Accrued interest payable .................       260         174         152    
                                            --------    --------    --------    
   
   Total .................................  $142,324    $107,647    $102,938    
                                            ========    ========    ========
85
BORROWINGS. The Bank utilizes borrowings from the FHLB as an alternative to
retail deposits to fund its operations as part of its operating strategy. These
FHLB borrowings are collateralized primarily by certain of the Bank's mortgage-
related securities and secondarily by the Bank's investment in capital stock of
the FHLB. FHLB borrowings are made pursuant to several different credit
programs, each of which has its own interest rate and range of maturities. The
maximum amount that the FHLB will advance to member institutions, including the
Bank, fluctuates from time to time in accordance with the policies of the FHLB.
See "Regulation and Supervision -- Federal Home Loan Bank System." At March 31,
1998, the Bank had $42.3 million in outstanding FHLB borrowings, compared to
$21.7 million at March 31, 1997.

     The following table sets forth certain information regarding the Bank's
borrowed funds at or for the periods ended on the dates indicated.
AT OR FOR THE
                                                         THREE MONTHS ENDED          AT OR FOR THE YEARS
                                                             MARCH 31,                ENDED DECEMBER 31,
                                                        -------------------     ------------------------------
                                                          1998       1997         1997       1996       1995
                                                        --------   --------     --------   --------   --------
                                                                 (DOLLARS IN THOUSANDS)
Average balance outstanding.........................     $30,144    $22,650      $26,223    $18,092    $15,615

Maximum amount outstanding at any
 month-end during the period........................      42,300     23,650       43,675     23,650     19,000

Balance outstanding at end of period................      42,300     21,650       30,300     23,650     17,000

Weighted average interest rate
 during the period..................................        5.80%      6.06%        5.97%      6.36%      6.83%

Weighted average interest rate at
 end of period......................................        5.86%      6.28%        6.08%      6.20%      6.58%
SUBSIDIARY ACTIVITIES

     The Bank is the parent corporation of three wholly-owned subsidiary
corporations, West Essex Insurance Agency ("WEIA"), Wessex Service Corporation
("WSC") and First Reserve Corporation ("FRC"). WEIA was formed in December 1982
to offer insurance products and tax-deferred annuities through an agent.
Originally, these products were sold at one of the Bank's branches. Commencing
in 1993, customers have been referred to Anthony R. Davis Agency at an off-site
location. WEIA receives a fee for each customer referral resulting in the
purchase of an insurance and/or annuity product. Sales of annuity products
totalled $74,000 and $226,000 for the three months ended March 31, 1998 and for
the year ended December 31, 1997, respectively. WEIA's earnings are at a nominal
level since management decided in early 1994 to de-emphasize this activity due
to the lack of demand and controversial publicity associated with uninsured
annuity products. Both WSC and FRC are building subsidiaries and have been
inactive since October 1989 and June 1987, respectively.

                                       86
PROPERTIES

     The Bank currently conducts its business through an administrative and full
service branch office located in Caldwell, New Jersey and seven other full
service branch offices located in West Orange, Franklin Lakes, River Vale, Pine
Brook, Old Tappan and Northvale, New Jersey. Management believes that the Bank's
facilities are adequate to meet the present and immediately foreseeable needs of
the Bank and the Holding Company.
ORIGINAL         NET BOOK VALUE
                                                                 YEAR           OF PROPERTY OR
                                               LEASED           LEASED             LEASEHOLD
                                                  OR              OR            IMPROVEMENTS AT
                    LOCATION                    OWNED          ACQUIRED          MARCH 31, 1998
          -----------------------------      ----------     --------------     ------------------
                                                                                 (In thousands)
ADMINISTRATIVE/CORPORATE/
          BRANCH OFFICE:

          417 Bloomfield Avenue                 Owned            1962                 $401   
          Caldwell, NJ 07006                                               

          BRANCH OFFICES:                                                  

          216 Main Street                       Owned            1987                  150   
          West Orange, NJ 07052                                                           

          487 Pleasant Valley Way               Owned            1987                  241
          West Orange, NJ 07052                                                           

          574 Franklin Avenue                   Leased           1978                    2
          Franklin Lakes, NJ 07417                                                       

          653 Westwood Avenue                   Owned            1997                  484
          River Vale, NJ 07675                                                      

          267 Changebridge Road                 Owned            1974                  252   
          Pine Brook, NJ 07058                                                            

          207 Old Tappan Road                   Owned            1997                  494
          Old Tappan, NJ 07675                                                            

          119 Paris Avenue                      Owned            1997                  326
          Northvale, NJ 07647
LEGAL PROCEEDINGS

     The Bank is a party to various litigation which arises primarily in the
ordinary course of business. In the opinion of management the ultimate
disposition of such litigation should not have a material effect on the
consolidated financial position or operations of the Bank.

PERSONNEL

     As of March 31, 1998, the Bank had 53 full-time employees and 5 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--Benefits" for a description of certain compensation and
benefit programs offered to the Bank's employees.

                                       87
FEDERAL AND STATE TAXATION

FEDERAL TAXATION

     GENERAL. The Bank, Bancorp and the Mutual Company will report their income
on a calendar year basis using the accrual method of accounting and will be
subject to federal income taxation in the same manner as other corporations with
some exceptions, including particularly the Bank's reserve for bad debts
discussed below. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax rules
applicable to the Bank, Bancorp and the Mutual Company. The Bank was last
audited by the IRS in 1995 and has not been audited by the New Jersey Department
of Revenue ("DOR") in the past five years.

     BAD DEBT RESERVE. Historically, savings institutions such as the Bank which
met certain definitional tests primarily related to their assets and the nature
of their business ("qualifying thrifts") were permitted to establish a reserve
for bad debts and to make annual additions thereto, which may have been deducted
in arriving at their taxable income. The Bank's deductions with respect to
"qualifying real property loans," which are generally loans secured by certain
interest in real property, were computed using an amount based on the Bank's
actual loss experience, or a percentage equal to 8% of the Bank's taxable
income, computed with certain modifications and reduced by the amount of any
permitted addition to the non-qualifying reserve. Due to the Bank's loss
experience, the Bank generally recognized a bad debt deduction equal to 8% of
taxable income.

     In August 1996, the provisions repealing the above thrift bad debt rules
were passed by Congress as part of "The Small Business Job Protection Act of
1996." The new rules eliminate the 8% of taxable income method for deducting
additions to the tax bad debt reserves for all thrifts for tax years beginning
after December 31, 1995. These rules also require that all thrift institutions
recapture all or a portion of their bad debt reserves added since the base year
(last taxable year beginning before January 1, 1988). The Bank has previously
recorded a deferred tax liability equal to the bad debt recapture and as such,
the new rules will have no effect on net income or federal income tax expense.
For taxable years beginning after December 31, 1995, the Bank's bad debt
deduction will be equal to net charge-offs. The new rules allow an institution
to suspend the bad debt reserve recapture for the 1996 and 1997 tax years if the
institution's lending activity for those years is equal to or greater than the
institution's average mortgage lending activity for the six taxable years
preceding 1996. For this purpose, only home purchase and home improvement loans
are included and the institution can elect to have the tax years with the
highest and lowest lending activity removed from the average calculation. If an
institution is permitted to postpone the reserve recapture, it must begin its
six year recapture no later than the 1998 tax year. The unrecaptured base year
reserves will not be subject to recapture as long as the institution continues
to carry on the business of banking. In addition, the balance of the pre-1988
bad debt reserves continue to be subject to a provision of present law referred
to below that require recapture in the case of certain excess distributions to
shareholders.

     
     DISTRIBUTIONS. To the extent that the Bank makes "non-dividend
distributions" to Bancorp that are considered as made (i) from the reserve for
losses on qualifying real property loans, to the extent the reserve for such
losses exceeds the amount that would have been allowed under the experience
method, or (ii) from the supplemental reserve for losses on loans ("Excess
Distributions"), then an amount based on the amount distributed will be included
in the Bank's taxable income. Non-dividend distributions include distributions
in excess of the Bank's current and accumulated earnings and profits,
distributions in redemption of stock, and distributions in partial or complete
liquidation. However, dividends paid out of the Bank's current or accumulated
earnings and profits, as calculated for federal income tax purposes, will not be
considered to result in a distribution from the Bank's bad debt reserve. Thus,
any dividends to Bancorp that would reduce amounts appropriated to the Bank's
bad debt reserve and deducted for federal income tax purposes would create a tax
liability for the Bank. The amount of additional taxable income

                                       88
created from an Excess Distribution is an amount that, when reduced by the tax
attributable to the income, is equal to the amount of the distribution.

     CORPORATE ALTERNATIVE MINIMUM TAX. The Internal Revenue Code of 1986, as
amended (the "Code") imposes a tax on alternative minimum taxable income
("AMTI") at a rate of 20%. The excess of the bad debt reserve deduction using
the percentage of taxable income method over the deduction that would have been
allowable under the experience method is treated as a preference item for
purposes of computing the AMTI. Only 90% of AMTI can be offset by net operating
loss carryovers. AMTI is increased by an amount equal to 75% of the amount by
which the Bank's adjusted current earnings exceeds its AMTI (determined without
regard to this preference and prior to reduction for net operating losses).

     DIVIDENDS RECEIVED DEDUCTION AND OTHER MATTERS. Bancorp may exclude from
its income 80% of dividends received from the Bank as long as it maintains
ownership in the Bank of at least 20%.

STATE AND LOCAL TAXATION

     STATE OF NEW JERSEY. The Bank files New Jersey income tax returns. For New
Jersey income tax purposes, savings institutions are presently taxed at a rate
equal to 3% of taxable income. For this purpose, "taxable income" generally
means federal taxable income, subject to certain adjustments (including addition
of interest income on state and municipal obligations). Bancorp and the Mutual
Company will be required to file a New Jersey income tax return because they
will be doing business in New Jersey. For New Jersey tax purposes, regular
corporations are presently taxed at a rate equal to 9% of taxable income.

                          REGULATION AND SUPERVISION

GENERAL

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

     The following summary of the regulation and supervision of savings
associations and their holding companies does not purport to be a complete
description of the applicable statutes and regulations and is qualified in its
entirety by reference to such statutes and regulations.

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FEDERAL SAVINGS INSTITUTION REGULATION

     BUSINESS ACTIVITIES. The activities of federal savings institutions are
governed by the HOLA and, in certain respects, the Federal Deposit Insurance Act
("FDI Act") and the regulations issued by the agencies to implement these
statutes. These laws and regulations delineate the nature and extent of the
activities in which federal associations may engage. In particular, many types
of lending authority for federal associations, e.g., commercial, non-residential
real property loans and consumer loans, are limited to a specified percentage of
the institution's capital or assets.

     LOANS-TO-ONE BORROWER. Under the HOLA, savings institutions are generally
subject to the national bank limit on loans-to-one borrower. Generally, this
limit is 15% of the Bank's unimpaired capital and surplus, plus an additional
10% of unimpaired capital and surplus, if such loan is secured by readily-
marketable collateral, which is defined to include certain financial instruments
and bullion. At March 31, 1998, the Bank's regulatory limit on loans-to-one
borrower was $3.6 million. At March 31, 1998, the Bank's largest aggregate
amount of loans-to-one borrower consisted of a $1.6 million construction loan
secured by six lots and with one house currently under construction.

     QTL TEST. The HOLA requires savings institutions to meet a qualified thrift
lender ("QTL") test. Under the QTL test, a savings association is required to
qualify as a "domestic building and loan association" as that term is defined in
the Internal Revenue Code of 1986 or maintain at least 65% of its "portfolio
assets" (total assets less: (i) specified liquid assets up to 20% of total
assets; (ii) intangibles, including goodwill; and (iii) the value of property
used to conduct business) in certain "qualified thrift investments" (primarily
residential mortgages and related investments, including certain mortgage-backed
and related securities) in at least nine months out of each 12 month period. A
savings association that fails the QTL test must either convert to a bank
charter or operate under certain restrictions. As of March 31, 1998, the Bank
maintained 82.53% of its portfolio assets in qualified thrift investments and,
therefore, met the QTL test. Recent legislation has expanded the extent to which
education loans, credit card loans and small business loans may be considered as
"qualified thrift investments."

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

     The OTS has proposed amendments to its capital distribution regulations
which could conform OTS regulations to the existing requirements of other
banking agencies, as well as simplify the existing OTS regulations. These
proposed rules would eliminate the requirement of notifying the OTS when cash
dividends of a certain amount will be paid for institutions that will remain at
least adequately capitalized. However, applications for capital distributions
will be required for all distributions over a specified amount. Notices will
still be required for

                                       90
distributions that would reduce the amount of or retire common or preferred
stock, or debt instruments included in the capital and for all capital
distributions by savings associations in a holding company structure.

     LIQUIDITY. The Bank is required to maintain an average daily balance of
specified liquid assets equal to a monthly average of not less than a specified
percentage (currently 4%) of its net withdrawable deposit accounts plus short-
term borrowings. Monetary penalties may be imposed for failure to meet these
liquidity requirements. The Bank's average liquidity ratio for the month ended
March 31, 1998 was 9.44%, which exceeded the applicable requirements. The Bank
has never been subject to monetary penalties for failure to meet its liquidity
requirements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."

     ASSESSMENTS. Savings institutions are required by regulation to pay
assessments to the OTS to fund the agency's operations. The general assessment,
paid on a semi-annual basis, is based upon the savings institution's total
assets, including consolidated subsidiaries, as reported in the Bank's latest
quarterly Thrift Financial Report. The assessments paid by the Bank for the year
ended December 31, 1997 totalled $65,000.

     BRANCHING. OTS regulations permit federally chartered savings associations
to branch nationwide under certain conditions. Generally, federal savings
associations may establish interstate networks and geographically diversify
their loan portfolios and lines of business. The OTS authority preempts any
state law purporting to regulate branching by federal savings associations. For
a discussion of the impact of possible legislation, see "Special 
Considerations--Financial Institution Regulation and Possible Legislation."

     TRANSACTIONS WITH RELATED PARTIES. The Bank's authority to engage in
transactions with related parties or "affiliates" (i.e., any company that
controls or is under common control with an institution, including the Holding
Company and any non-savings institution subsidiaries that the Holding Company
may establish) is limited by Sections 23A and 23B of the Federal Reserve Act
("FRA"). Section 23A restricts the aggregate amount of covered transactions with
any individual affiliate to 10% of the capital and surplus of the savings
institution and also limits the aggregate amount of transactions with all
affiliates to 20% of the savings institution's capital and surplus. Certain
transactions with affiliates are required to be secured by collateral in an
amount and of a type described in Section 23A and the purchase of low quality
assets from affiliates is generally prohibited. Section 23B generally requires
that certain transactions with affiliates, including loans and asset purchases,
must be on terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies. A savings association also is prohibited from extending credit to any
affiliate engaged in activities not permitted for a bank holding company and may
not purchase the securities of an affiliate (other than a subsidiary).

     Section 22(h) of the Federal Reserve Act restricts a savings association
with respect to loans to directors, executive officers, and principal
stockholders. Under Section 22(h), loans to directors, executive officers and
stockholders who control, directly or indirectly, 10% or more of voting
securities of a savings association, and certain related interests of any of the
foregoing, may not exceed, together with all other outstanding loans to such
persons and affiliated entities, the savings association's total capital and
surplus. Section 22(h) also prohibits loans above amounts prescribed by the
appropriate federal banking agency to directors, executive officers, and
shareholders who directly or indirectly control 10% or more of voting securities
of a stock savings association, and their respective related interests, unless
such loan is approved in advance by a majority of the board of directors of the
savings association. Any "interested" director may not participate in the
voting. The loan amount (which includes all other outstanding loans to such
person) as to which such prior board of director approval is required, is the
greater of $25,000 or 5% of capital and surplus or any loans over $500,000.
Further, pursuant to Section 22(h), loans to directors, executive officers and
principal shareholders must be made on terms substantially the same as offered
in

                                       91
comparable transactions to other persons except for extensions of credit made
pursuant to a benefit or compensation program that is widely available to the
institution's employees and does not give preference to insiders over other
employees. Section 22(g) of the Federal Reserve Act places additional
limitations on loans to executive officers.

     ENFORCEMENT. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring action
against all "institution-affiliated parties," including stockholders, and any
attorneys, appraisers and accountants who knowingly or recklessly participate in
wrongful action likely to have an adverse effect on an insured institution.
Formal enforcement action may range from the issuance of a capital directive or
cease and desist order to removal of officers or directors, receivership,
conservatorship or termination of deposit insurance. Civil penalties cover a
wide range of violations and can amount to $25,000 per day, or $1.0 million per
day in especially egregious cases. Under the FDI Act, the FDIC has the authority
to recommend to the Director of the OTS that enforcement action be taken with
respect to a particular savings institution. If action is not taken by the
Director, the FDIC has authority to take such action under certain
circumstances. Federal and state law also establishes criminal penalties for
certain violations.

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

     CAPITAL REQUIREMENTS. The OTS capital regulations require savings
institutions to meet three capital standards: a 1.5% tangible capital standard,
a 3% leverage (core capital) ratio and an 8% risk based capital standard. Core
capital is defined as common stockholder's equity (including retained earnings),
certain non-cumulative perpetual preferred stock and related surplus, minority
interests in equity accounts of consolidated subsidiaries less intangibles other
than certain mortgage servicing rights ("MSRs") and credit card relationships.
The OTS regulations require that, in meeting the leverage ratio, tangible and
risk-based capital standards institutions generally must deduct investments in
and loans to subsidiaries engaged in activities not permissible for a national
bank. In addition, the OTS prompt corrective action regulation provides that a
savings institution that has a leverage capital ratio of less than 4% (3% for
institutions receiving the highest examination rating) will be deemed to be
"undercapitalized" and may be subject to certain restrictions. See "--Prompt
Corrective Regulatory Action." The OTS has proposed to amend its capital
regulation so that the leverage requirement is identical to the above prompt
corrective standard to avoid "undercapitalized" status.

     The risk-based capital standard for savings institutions requires the
maintenance of total capital (which is defined as core capital and supplementary
capital) to risk-weighted assets of 8%. In determining the amount of risk-
weighted assets, all assets, including certain off-balance sheet assets, are
multiplied by a risk-weight of 0% to 100%, as assigned by the OTS capital
regulation based on the risks OTS believes are inherent in the type of asset.
The components of core capital are equivalent to those discussed earlier under
the 3% leverage standard. The components of supplementary capital currently
include cumulative preferred stock, long-term perpetual preferred stock,
mandatory convertible securities, subordinated debt and intermediate preferred
stock and, within specified

                                       92
limits, the allowance for loan and lease losses. Overall, the amount of
supplementary capital included as part of total capital cannot exceed 100% of
core capital.

     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 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. A
savings association with assets of less than $300 million and risk-based capital
ratios in excess of 12% is not subject to the interest rate risk component,
unless the OTS determines otherwise. 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 indefinitely the date that the
component will first be deducted from an institution's total capital.

     At March 31, 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 the OTS tangible, leverage
and risk-based capital requirements, the Bank's historical amounts and
percentages at March 31, 1998, and 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 Holding 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 a total risk-based capital of less
than 8% or a leverage ratio or a Tier 1 capital ratio that is less than 4% is
considered to be undercapitalized. A savings institution that has a total risk-
based capital less than 6%, a Tier 1 risk-based capital ratio of less than 3% or
a leverage ratio that is less than 3% is considered to be "significantly
undercapitalized" and a savings institution that has a tangible capital to
assets ratio equal to or less than 2% 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
association receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." Compliance with the plan
must be guaranteed by any parent holding company. In addition, numerous
mandatory supervisory actions may become immediately applicable to the
institution depending upon its category, including, but not limited to,
increased monitoring by regulators, restrictions on growth, and capital
distributions and limitations on expansion. The OTS could also take any one of a
number of discretionary supervisory actions, including the issuance of a capital
directive and the replacement of senior executive officers and directors.

INSURANCE OF DEPOSIT ACCOUNTS

     Deposits of the Bank are presently insured by the Savings Association
Insurance Fund ("SAIF"). Both the SAIF and the Bank Insurance Fund ("BIF") (the
deposit insurance fund that covers most commercial bank deposits)

                                       93
are statutorily required to be recapitalized to a 1.25% of insured reserve
deposits ratio. Until recently, members of the SAIF and BIF were paying average
deposit insurance premiums of between 24 and 25 basis points. The BIF met the
required reserve in 1995, whereas the SAIF was not expected to meet or exceed
the required level until 2002 at the earliest. This situation was primarily due
to the statutory requirement that SAIF members make payments on bonds issued in
the late 1980s by the Financing Corporation ("FICO") to recapitalize the
predecessor to the SAIF.

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

     On September 30, 1996, the President signed into law the Deposit Insurance
Funds Act of 1996 (the "Funds Act") which, among other things, imposed a special
one-time assessment on SAIF member institutions, including the Bank, to
recapitalize the SAIF. As required by the Funds Act, the FDIC imposed a special
assessment of 65.7 basis points on SAIF assessable deposits held as of March 31,
1995, payable November 27, 1996 (the "SAIF Special Assessment"). The SAIF
Special Assessment was recognized by the Bank as an expense in the quarter ended
September 30, 1996 and is generally tax deductible. The SAIF Special Assessment
recorded by the Bank amounted to $1.1 million on a pre-tax basis and $703,000 on
an after-tax basis.

     The Funds Act also spreads the obligations for payment of the FICO bonds
across all SAIF and BIF members. Beginning on January 1, 1997, BIF deposits were
assessed for FICO payment at a rate of 1.3 basis points, while SAIF deposits
paid 6.48 basis points. Full pro rata sharing of the FICO payments between BIF
and SAIF members will occur on the earlier of January 1, 2000 or the date the
BIF and SAIF are merged. The Funds Act specifies that the BIF and SAIF will be
merged on January 1, 1999, provided no savings associations remain as of that
time.

     As a result of the Funds Act, the FDIC voted to lower SAIF assessments to 0
to 27 basis points as of January 1, 1997, a range comparable to that of BIF
members and recently voted to maintain the same rate range for the second half
of 1998. However, SAIF members will continue to make the FICO payments described
above. Management cannot predict the level of FDIC insurance assessments on an
on-going basis, whether the savings association charter will be eliminated or
whether the BIF and SAIF will eventually be merged.

     The Bank's assessment of assessable deposits rate for the years ended
December 31, 1997, 1996 and 1995 was .06%, 0.19% and 0.23%, respectively, and
the premium paid for these periods was $_____, $_____ and $_____ (including the
SAIF Special Assessment), respectively. The FDIC has authority to have
assessment rates under certain circumstances and a material increase in SAIF
insurance premiums would likely have an adverse effect on the operating expenses
and results of operations of the Bank.

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

                                       94
COMMUNITY REINVESTMENT ACT

     Federal Regulation. Under the Community Reinvestment Act, as
amended("CRA"), as implemented by OTS regulations, a savings association has a
continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including low
and moderate income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The CRA requires the OTS, in connection with its examination of a savings
institution, to assess the institution's record of meeting the credit needs of
its community and to take such record into account in its evaluation of certain
applications by such institution. The FIRREA amended the CRA to require the OTS
to provide a written evaluation of an institution's CRA performance utilizing a
four-tiered descriptive rating system, which replaced the five-tiered numerical
rating system. The Bank's latest CRA rating received from the OTS was
"Outstanding."

FEDERAL HOME LOAN BANK SYSTEM

     The Bank is a member of the FHLB System, which consists of 12 regional
FHLBs. The FHLB provides a central credit facility primarily for member
institutions. The Bank, as a member of the FHLB of New York, is required to
acquire and hold shares of capital stock in the FHLB in an amount at least equal
to 1% of the aggregate principal amount of its unpaid residential mortgage loans
and similar obligations at the beginning of each year, or 1/20 of its advances
(borrowings) from the FHLB, whichever is greater. The Bank was in compliance
with this requirement with an investment in FHLB stock at March 31, 1998 of $2.3
million. FHLB borrowings must be secured by specified types of collateral and
all long-term borrowings may only be obtained for the purpose of providing funds
for residential housing finance. At March 31, 1998, the Bank had $42.3 million
in FHLB borrowings.

     The FHLBs are required to provide funds for the resolution of insolvent
thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest on
advances to their members. For the years ended December 31, 1997, 1996 and 1995,
dividends from the FHLB to the Bank amounted to approximately $126,000, $107,000
and $113,000, respectively. If dividends were reduced, the Bank's net interest
income would likely also be reduced. Further, there can be no assurance that the
impact of recent or future legislation on the FHLBs will not also cause a
decrease in the value of FHLB stock held by the Bank, if any.

FEDERAL RESERVE SYSTEM

     The Federal Reserve Board regulations require savings institutions to
maintain non-interest-earning reserves against their transaction accounts. The
Federal Reserve Board regulations generally require that reserves be maintained
against aggregate transaction accounts as follows: for accounts aggregating
$47.8 million or less (subject to adjustment by the Federal Reserve Board) the
reserve requirement is 3%; and for accounts greater than $47.8 million, the
reserve requirement is $1.4 million plus 10% (subject to adjustment by the
Federal Reserve Board between 8% and 14%) against that portion of total
transaction accounts in excess of $47.8 million. The first $4.7 million of
otherwise reservable balances (subject to adjustment by the Federal Reserve
Board) are exempted from the reserve requirements. The Bank is in compliance
with the foregoing requirements. Because required reserves must be maintained in
the form of either vault cash, a non-interest-bearing account at a Federal
Reserve Bank or a pass-through account as defined by the Federal Reserve Board,
the effect of this reserve requirement is to reduce the Bank's interest-earning
assets. FHLB System members are also authorized to borrow from the Federal
Reserve "discount window," but Federal Reserve Board regulations require
institutions to exhaust all FHLB sources before borrowing from a Federal Reserve
Bank.

                                       95
HOLDING COMPANY REGULATION

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

      RESTRICTIONS APPLICABLE TO MUTUAL HOLDING COMPANIES. Pursuant to Section
10(o) of the HOLA and the Regulations, a mutual holding company, such as the
Mutual 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 (the "BHC Act"),
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; 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. See "Risk Factors --
Considerations Resulting from Mutual Holding Company Structure."

     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 it has a period of two years to cease any non-
conforming activities and divest of any nonconforming investments.

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

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

                                       96
If the savings institution subsidiary of a savings and loan holding company
fails to meet the QTL test set forth in Section 10(m) of the HOLA and the
regulations of the OTS, the holding company must register with the Federal
Reserve Board as a Bank Holding Company within one year of the savings
institution's failure to so qualify. See " -- Federal Savings Institution
Regulation -- QTL Test."

     For a description of certain restrictions on transactions between the Bank
and its affiliates, including, without limitation, Bancorp and the Mutual
Company, see " -- Federal Savings Institution Regulation -- Transactions with
Related Parties."

     STOCK HOLDING COMPANY SUBSIDIARY REGULATION. The OTS recently adopted new
regulations governing the two-tier mutual holding company form of organization
and mid-tier stock holding companies that are controlled by mutual holding
companies. Under these new rules, the stock holding company subsidiary will hold
all the shares of the mutual holding company's savings association subsidiary
and will issue the majority of its own shares to the mutual holding company
parent. In addition, the stock holding company subsidiary is permitted to engage
in activities that are permitted for its mutual holding company parent and to
have the same indemnification and employment contract restrictions imposed that
are on the mutual holding company parent. See "--Restrictions Applicable to
Mutual Holding Companies." Finally, OTS regulations maintain that the stock
holding company subsidiary must be federally chartered for supervisory controls.

THRIFT RECHARTERING

     The Funds Act provides that the BIF and the SAIF will merge on January 1,
1999, if there are no more savings associations as of that date. Several Banking
Committee would have regained federal thrifts to become national banks or state
banks within two years of enactment or they would have become national banks by
operation of law. OTS would have been abolished and its functions transferred to
the bank regulatory agencies. The bill as passed by the House of
Representatives, however, did not provide for the elimination of the federal
thrift charter or OTS, but did provide that unitary stock savings and loan
holding companies existing or applied for after March 31, 1998 would not have
the ability to engage in unlimited activities but would be subject to the
activities restrictions applicable to multiple savings and loan holding
companies. Unitary stock holding companies existing or applied for before 1998
would be grandfathered and could continue to engage in unlimited activities and
could transfer the grandfather rights to acquirors of the holding company. The
Bank is unable to predict whether the legislation will be enacted or, given such
uncertainty, determine the extent to which the legislation, if enacted, would
affect its business. The Bank is also unable to predict whether the SAIF and BIF
will eventually be merged or the federal thrift charter eliminated, and what
effect, if any, such legislation would have on the Bank

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

                             MANAGEMENT OF BANCORP

     The Board of Directors of Bancorp will consist of six members each of whom
is also a director of the Bank. The Board of Directors is divided into three
classes, each of which contains one-third of the Board. The directors shall be
elected by the stockholders of Bancorp for staggered three year terms, or until
their successors are elected and qualified. One class of directors, consisting
of Messrs. Brandley and Leonard, has a term of office expiring at the first
annual meeting of stockholders, a second class, consisting of Messrs. Foody and
Montanaro, has a term of 

                                       97
office expiring at the second annual meeting of stockholders, and a third class,
consisting of Messrs. Vreeland and Burke, has a term of office expiring at the
third annual meeting of stockholders. Their names and biographical information
are set forth under "Management of the Bank --Directors."

      The following individuals are the executive officers of Bancorp and hold
the offices set forth below opposite their names:
Executive                      Position(s) Held with Bancorp
--------------------------------------------------------------------------------
Leopold W. Montanaro... President and Chief Executive Officer

Dennis A. Petrello .... Executive Vice President and Chief Financial Officer

Charles E. Filippo..... Executive Vice President

Craig L. Montanaro..... Senior Vice President, Corporate Secretary and Treasurer
The executive officers of Bancorp are elected annually and hold office
until their respective successors have been elected or qualified or until death,
resignation or removal at the discretion of the Board of Directors.

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

                                       98
MANAGEMENT OF THE BANK

     The following tables set forth information with respect to the
directors and executive officers of the Bank, all of whom will continue to serve
as directors and/or executive officers of the Bank after the Reorganization.

DIRECTORS

     The following table sets forth certain information regarding the Board of
Directors of the Bank.
DIRECTOR   TERM
NAME                    AGE(1)      POSITION(S) HELD WITH THE BANK        SINCE    EXPIRES
--------------------  --------  ------------------------------------     --------  --------
William J. Foody         70     Chairman of the Board                        1983     1999
Leopold W. Montanaro     58     Director, President and Chief                1972     1999
                                Executive
                                Officer

David F. Brandley        71     Director                                     1959     1998

Everett N. Leonard       84     Director                                     1969     1998

James P. Vreeland        86     Director                                     1977     2000

John J. Burke            51     Director                                     1992     2000
________________
(1)   As of March 31, 1998.

EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

      The following table sets forth certain information regarding the executive
officers of the Bank who are not also directors.
NAME               AGE(1)          POSITION(S) HELD WITH THE BANK
 ------              -----   --------------------------------------------
Dennis A. Petrello    47     Executive Vice President and Chief Financial Officer

Charles E. Filippo    57     Executive Vice President and Chief Lending Officer

Craig L. Montanaro    31     Senior Vice President, Secretary and Treasurer
_________________   
(1)  As of March 31, 1998.

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

BIOGRAPHICAL INFORMATION

     DIRECTORS

     William J. Foody has served as Chairman of the Board of the Bank since
1993 and has been a director since 1983. He has over 42 years of experience as a
real estate developer and broker. Currently, he is the managing partner in the
real estate firm of Crow Family Holdings, New Jersey.

                                       99
Leopold W. Montanaro has served as President, Chief Executive Officer and
Director of West Essex Bank since 1972. He has over 38 years experience in the
banking field with various institutions. He is a former member of the Board of
Directors of the Federal Home Loan Bank of New York and is a former chairman of
the New Jersey Savings & Community Bankers. Mr. Montanaro is an active member of
the American Community Bankers, serving on the Mutual Institutions Committee,
the Community Bank Committee, and the State Regulations & Legislative Committee.
Leopold W. Montanaro is the father of Craig L. Montanaro.

     David F. Brandley is a partner in the law firm of Brandley & Kleppe and
specializes in banking and real estate law, among other areas. Mr. Brandley was
elected to the Board of Directors in 1959.

     Everett N. Leonard was elected to the Board of Directors in 1969 and serves
as Vice Chairman of the Board. He is a former manager of Beckers Dairy in
Roseland and is a retired Borough Administrator of Roseland and Verona, New
Jersey.

     James P. Vreeland is a retired New Jersey State Senator. Mr. Vreeland spent
30 years in politics serving as committeeman in the Township of Montville,
Morris Co., serving on the Board of Freeholders and serving for one year in the
New Jersey State Assembly before being elected State Senator. Mr. Vreeland was
elected to the Board of Directors in 1977.

     John J. Burke is the President of J.J. Burke & Associates, Inc., a
financial services, insurance consulting firm and has served in that capacity
since 1981. Mr. Burke was elected to the Board of Directors in 1992.

     EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

     Dennis A. Petrello has served as Executive Vice President and Chief
Financial Officer of the Bank since 1984 and has been employed by the Bank since
1978, serving in various capacities from Controller to Operations Officer. He is
an active member of the Financial Manager Society, New York -New Jersey Chapter
and the West Essex Chamber of Commerce.

     Charles E. Filippo has served as Executive Vice President and Chief Lending
Officer since 1994 and has been employed by the Bank since 1985. Prior to
joining the Bank, Mr. Filippo was President of Central Corporation, a service
corporation for financial institutions, for 17 years. Mr. Filippo serves on the
Residential Lending-Affordable Housing Committee of the New Jersey League and on
the Affordable Housing Committee of the Mortgage Bankers Association of New
Jersey.

     Craig L. Montanaro has served as Senior Vice President and Corporate
Secretary since April 1997 and has been employed by the Bank since 1988. He is a
graduate of Syracuse University with a B.S. in Finance and Marketing and holds a
graduate degree from the National School of Banking at Fairfield University. Mr.
Montanaro is a member of the Financial Manager Society, New York - New Jersey
Chapter and serves on various committees on the New Jersey Savings and Community
Bankers. Craig L. Montanaro is the son of Leopold W. Montanaro.
 
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS OF THE BANK

     The Bank's Board of Directors meets on a monthly basis and may have
additional special meetings called in the manner specified in the Bylaws. During
1997, no current Director attended less than 75% of the aggregate of the total
number of Board meetings which were held. The Board of Directors has established
a number of committees. The Salary and Pension Committee consists of Messrs.
Foody, Montanaro, Brandley, Leonard, Vreeland and Burke. This committee meets on
an as needed basis. The Audit Committee consists of Messrs. Foody, Brandley
Vreeland and Burke. This committee generally meets on a quarterly basis. The
Strategic Planning Committee meets as needed and consists of Messrs. Foody,
Montanaro and Burke. The Nominating Committee meets at least once

                                      100
a year and consists of Messrs. Foody, Montanaro and Burke. The Interest Rate
Risk and Investment Committee meets as needed and consists of Messrs. Foody,
Montanaro and Burke.

BOARD OF DIRECTORS AND COMMITTEES OF BANCORP AFTER THE REORGANIZATION

     Following the Reorganization, the Board of Directors of Bancorp is expected
to meet quarterly, or more often as may be necessary. The Board of Directors
initially is expected to have a standing Executive Committee, Audit Committee
and Compensation Committee. The Board, by resolution, may designate one or more
additional committees.

     The Executive Committee initially will consist of the following directors:
__________________ _____________________. The Executive Committee is expected to
meet when necessary when the Board is not in session to exercise general control
and supervision in all matters pertaining to the interests of Bancorp.

     The Audit Committee initially will consist of the following directors:
______________________ _______________________. The Audit Committee is expected
to meet at least quarterly to examine and approve the audit report prepared by
the independent auditors of the Bank, to review and recommend the internal
auditors to be engaged by Bancorp, to review the internal audit function and
internal accounting policies of Bancorp and review and approve such policies.

     The Compensation Committee initially will consist of the following
directors: ________________________. The Compensation Committee is expected to
meet on an as needed basis to evaluate the compensation and benefits of the
directors, officers and employees, recovered charges and monitor and evaluate
employee performances.

DIRECTOR COMPENSATION

     Non-employee directors of the Bank, other than the Chairman of the Board,
currently receive a quarterly retainer fee of $3,500, paid at the first regular
board meeting of each quarter, and $500 for each remaining regular board meeting
in each quarter. The Chairman receives a quarterly retainer fee of $4,375, paid
at the first regular board meeting of each quarter, and $625 for each remaining
regular board meeting in each quarter. Directors do not receive any fees for
special board meetings or committee meetings. In addition, all directors,
including retired directors, receive medical and dental benefits. At this time,
only one retired director is receiving such benefits in addition to the active
directors. Directors of Bancorp will not receive compensation for service as
directors of Bancorp.

                                      101
EXECUTIVE COMPENSATION

     Cash Compensation. The following table sets forth the cash compensation
paid by the Bank for services rendered in all capacities during the year ended
December 31, 1997, to the chief executive officer and to executive officers of
the Bank who received cash compensation in excess of $100,000 ("Named Executive
Officers").
----------------------------------------------------------------------------------------------------------------------------------
                                                                                         LONG-TERM COMPENSATION
                                                                            ---------------------------------------
                                              ANNUAL COMPENSATION(1)                    AWARDS             PAYOUTS
                                       ------------------------------------ ----------------------------- ---------
                                                                 OTHER       RESTRICTED     SECURITIES       
                                                                 ANNUAL        STOCK        UNDERLYING       LTIP     ALL OTHER
  NAME AND PRINCIPAL          FISCAL                          COMPENSATION     AWARDS      OPTIONS/SARS    PAYOUTS   COMPENSATION
     POSITIONS                 YEAR    SALARY($)  BONUS($)       ($)(2)        ($)(3)         (#)(4)       ($)(5)       ($)(6)
----------------------------------------------------------------------------------------------------------------------------------
Leopold W. Montanaro........   1997    $275,000   $75,000           --           --             --           --        $68,993
 President and Chief
  Executive Officer
 
Dennis A. Petrello..........   1997     140,000    35,000           --           --             --           --             --
 Executive Vice President
  and Chief Financial
  Officer

Charles E. Filippo..........   1997     140,000    35,000           --           --             --           --         25,697
 Executive Vice President
  and Chief Lending Officer
___________________
(1)  Under Annual Compensation, the column titled "Salary" includes base salary
     and amounts deferred by the Named Executive Officer under the Bank's 401(k)
     plan. See "401(k) Plan."
(2)  For 1997, there were no: (a) perquisites over the lesser of $50,000 or 10%
     of the individual's total salary and bonus for the year; (b) payments of
     above-market preferential earnings on deferred compensation; (c) payments
     of earnings with respect to long-term incentive plans prior to settlement
     or maturation; (d) tax payment reimbursements; or (e) preferential
     discounts on stock.
(3)  Does not include restricted stock awards pursuant to a stock-based
     incentive plan, which may be granted in conjunction with a meeting of
     stockholders of the Bank, subject to OTS and stockholder approval, as such
     awards were not earned, vested or granted in 1997. For a discussion of the
     terms of the Stock-Based Incentive Plan, see "--Benefits-- Stock-Based
     Incentive Plans." For 1997, the Bank had no restricted stock plans in
     existence.
(4)  Does not include options, which may be granted in conjunction with a
     meeting of stockholders of the Bank, subject to OTS and stockholder
     approval. For a discussion of stock options, see "-- Benefits--Stock-Based
     Incentive Plans." For 1997, the Bank had no stock option plans in
     existence.
(5)  For 1997 there were no payouts or awards under any long-term incentive
     plan.
(6)  Includes employer contributions pursuant to the Bank's supplemental income
     agreements. These payments are made to pay premiums on split-dollar life
     insurance policies the Bank has purchased on the lives of Messrs. Montanaro
     and Filippo in connection with the supplemental income agreements. Upon the
     death of Messrs. Montanaro and Filippo, the Bank expects to retain proceeds
     from the insurance policies sufficient to cover all prior contributions
     made to the supplemental income agreements. See "-- Benefits-- Supplemental
     Income Agreements." 

                                      102
EMPLOYMENT AGREEMENTS

     The Bank currently has an employment agreement (the "Employment
Agreement")with Mr. Montanaro. The Employment Agreement provides for a three-
year term. The Employment Agreement also provides that, commencing on the first
anniversary date and continuing each anniversary date thereafter, the Board of
Directors may extend the Employment Agreement for an additional year so that the
remaining term shall be three years, unless written notice of non-renewal is
given by the Board of Directors after conducting a performance evaluation of the
Executive. In addition to the base salary, the Employment Agreement provides
for, among other things, participation in benefit plans and other fringe
benefits applicable to similarly situated executive personnel, including any
such arrangement made available to senior executive officers in the future. The
Employment Agreement provides for termination by the Bank for "cause," as
described in the Employment Agreement, at any time. In the event the Bank
chooses to terminate the Executive's employment for reasons other than for
cause, or in the event of the Executive's resignation from the Bank upon: (i)
failure to re-elect or appoint the Executive to his current offices including
his board seat; (ii) a material change in the Executive's functions, duties or
responsibilities that would make them of lesser responsibility, importance or
scope (unless consented to by the Executive); (iii) a relocation of the
Executive's principal place of employment by more than 50 miles (unless
consented to by the Executive); (iv) material reduction in benefits or
perquisites (unless consented to by the Executive); (v) liquidation or
dissolution of the Bank; or (vi) a breach of the Employment Agreement by the
Bank, the Executive or, in the event of his death, the Executive's beneficiary
would be entitled to receive an amount equal to the remaining base salary
payments due to the Executive and the contributions that would have been made on
the Executive's behalf to any employee benefit plans of the Bank during the
remaining term of the employment agreement, the average of the amount of any
bonus and other compensation paid to the Executive during the term of the
Employment Agreement times the remaining number of years of the unexpired term
of the Employment Agreement, and an amount equal to the average of the annual
contributions that were made on Executive's behalf to any employee benefit plans
during the term of the agreement times the remaining term of the agreement. The
Bank would also continue and pay for the Executive's life, health and disability
coverage for the remaining term of the Employment Agreement. Upon any
termination of the Executive, the Executive is subject to a covenant not to
compete with the Bank for one year.

     Under the Employment Agreement, if the Executive's voluntary or involuntary
termination follows a change in control of the Bank, the Executive or, in the
event of his death, the Executive's beneficiary would be entitled to a severance
payment equal to the greater of: (i) the payments due for the remaining term of
the agreement; or (ii) three times the average of the five preceding taxable
years' annual compensation. The Bank would also continue the Executive's life,
health, and disability coverage for thirty-six months.

     All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to the Employment
Agreement shall be paid by the Bank if the Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement. The Employment
Agreement also provides that the Bank shall indemnify the Executive to the
fullest extent allowable under federal law. In the event the Bank terminates Mr.
Montanaro, the total payments due under the Employment Agreement based solely on
three times 1997 annual salary and bonus paid to Mr. Montanaro as set forth in
the Cash Compensation Table included herein, and excluding any other amounts
that would be included in "annual compensation" as defined in the Employment
Agreement, would be approximately $1.0 million, in addition to other cash and
noncash compensation.

                                      103
Upon consummation of the Reorganization, Bancorp and the Bank intend to
enter into employment agreements (collectively, the "Employment Agreements")
with Messrs. _______________________, (individually, the "Executive"). The
Employment Agreements are subject to the review and approval of the OTS and may
be amended as a result of such OTS review. The Employment Agreements are
intended to ensure that Bancorp and the Bank will be able to maintain a stable
and competent management base after the Reorganization. The continued success of
Bancorp and the Bank depends to a significant degree on the skills and
competence of Messrs. _______________________. Upon execution of the new
Employment Agreements between Mr. Montanaro and each of Bancorp and the Bank,
the current agreement between the Bank and Mr. Montanaro will be null and void.

     The Employment Agreements will provide for a three-year term for each of
Messrs. _____________. The Employment Agreements also provide that, commencing
on the first anniversary date and continuing each anniversary date thereafter,
the Board of Directors may extend the Employment Agreements for an additional
year so that the remaining term shall be three years, unless written notice of
non-renewal is given by the Board of Directors after conducting a performance
evaluation of the Executive. In addition to the base salary, the Employment
Agreements will provide for, among other things, participation in stock benefit
plans and other fringe benefits applicable to similarly situated executive
personnel. The Employment Agreements will provide for termination by the Bank
for "cause," as described in the Employment Agreements, at any time. In the
event Bancorp or the Bank chooses to terminate the Executive's employment for
reasons other than for cause, or in the event of the Executive's resignation
from Bancorp or the Bank upon: (i) failure to re-elect or appoint the Executive
to his current offices; (ii) a material change in the Executive's functions,
duties or responsibilities; (iii) a relocation of the Executive's principal
place of employment by more than 50 miles; (iv) liquidation or dissolution of
the Bank; or (v) a breach of the Employment Agreements by Bancorp or the Bank,
the Executive or, in the event of his death, the Executive's beneficiary would
be entitled to receive an amount equal to the remaining base salary payments due
to the Executive and the contributions that would have been made on the
Executive's behalf to any employee benefit plans of the Bank during the
remaining term of the Employment Agreements. The Bank would also continue and
pay for the Executive's life, health and disability coverage for the remaining
term of the Employment Agreements. Upon any termination of the Executive, the
Executive is subject to a covenant not to compete with the Bank for one year.

     Under the agreements, if voluntary or involuntary termination follows a
change in control of the Bank, the Executive or, in the event of his death, the
Executive's beneficiary would be entitled to a severance payment equal to the
greater of: (i) the payments due for the remaining term of the agreement; or
(ii) three times the average of the five preceding taxable years' "annual
compensation" (as defined in the agreements). The Bank would also continue the
Executive's life, health, and disability coverage for thirty-six months.

     All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to the Agreements
shall be paid by Bancorp or the Bank if the Executive is successful on the
merits pursuant to a legal judgment, arbitration or settlement. The Employment
Agreements also provide that the Bancorp or Bank shall indemnify the Executive
to the fullest extent allowable under federal law. In the event of a change in
control of Bancorp or the Bank, the total amount of payments due under the
Employment Agreements, based solely on the 1997 annual salary and bonus paid to
Messrs. _______________________ as set forth in the Cash Compensation Table
included herein, and excluding any other amounts that would be included in
"annual compensation" as defined in the agreements, would be approximately
$_______, in addition to other cash and non-cash compensation.

                                      104
CHANGE IN CONTROL AGREEMENTS

     Upon Reorganization, the Bank intends to enter into _______-year Change in
Control Agreements (the "CIC Agreements") with ____________________________.
Commencing on the first anniversary date of a CIC Agreement and continuing on
each anniversary thereafter, the Board of Directors may renew the agreement for
an additional year. Each CIC Agreement will provide that in the event voluntary
or involuntary termination follows a change in control of the Bank or Bancorp,
as the case may be, the officer covered by the agreement would receive a
severance payment equal to _____ times the officer's compensation for the twelve
months preceding his termination. The Bank would also continue and pay for the
officer's life, health and disability coverage for ____ months following
termination. In the event of a change in control of the Bank or Bancorp the Bank
estimates the total payments due under the CIC Agreements, based solely on the
1997 annual salary and bonus paid to Messrs. ________________ as set forth in
the Cash Compensation Table included herein, and excluding the amount of
benefits under any other amounts that would be included in "compensation" as
defined in the Agreement, would equal approximately $_______, in addition to
other cash and non-cash compensation.

EMPLOYEE SEVERANCE COMPENSATION PLAN

     In connection with the Reorganization, the Bank intends to establish a
severance compensation plan (the "Severance Plan") which will provide eligible
employees with severance benefits in the event of a change in control of the
Bank or Bancorp. Management personnel with Employment Agreements or CIC
Agreements are not eligible to participate in the Severance Plan. Generally,
employees are eligible to participate in the Severance Plan if they have
completed at least one year of service with the Bank. Under the Severance Plan,
in the event of a change in control of the Bank or Bancorp, eligible employees
who are terminated from or terminate their employment with the Bank (for reasons
specified under the Severance Plan) within one year of the change in control,
will be entitled to receive a severance payment. Upon such an event, the
participant will be entitled to a cash severance payment equal to one-twelfth of
his or her annual compensation for each year of service up to a maximum of 199%
of such annual compensation. Such payments may tend to discourage takeover
attempts by increasing costs to be incurred by the Bank in the event of a
takeover. In the event the provisions of the Severance Plan are triggered, the
total amount of payments that would be due thereunder, based solely upon current
salary levels, would be approximately $635,000. However, it is management's
belief that substantially all of the Bank's employees may be retained in their
current position in the event of a change in control, and that any amount
payable under the Severance Plan would be considerably less than the total
amount that could possibly be paid under the Severance Plan.

INSURANCE PLANS

     All full-time employees of the Bank are covered as a group for life,
comprehensive hospitalization, including major medical, long-term disability and
dental insurance.

BENEFITS

     401(K) PLAN. The Bank maintains the West Essex Bank, F.S.B. 401(k) Savings
Plan in RSI Retirement Trust (the "401(k) Plan"), a tax-qualified profit sharing
plan with a qualified cash or deferred arrangement under Section 401(k) of the
Code. The 401(k) Plan provides participants with savings and retirement benefits
based on employee elective, pre-tax deferrals of compensation. Although the plan
also provides for discretionary contributions by the Bank, the Bank has never
made such contributions and, currently, has no expectations of making such
contributions to the plan in the future. Eligible employees 

                                      105
(generally, those other than employees compensated solely on a daily, fee or
retainer basis) may begin participating in the 401(k) Plan upon the completion
of a "Period of Service" (as defined in the 401(k) Plan) of 182 days and
attainment of age 21. Participants may make salary reduction contributions to
the 401(k) Plan up to the lesser of 15% of their compensation or the legally
permissible limit ($10,000 for 1998). A participant is always 100% vested in his
or her salary reduction contributions to the 401(k) Plan.

     Currently, participants may invest their accounts under the 401(k) Plan in
and among seven funds. In connection with the Reorganization, the Bank intends
to amend the 401(k) Plan to add an "Employer Stock Fund," in which participants
may invest all or a portion of their accounts in Common Stock. The Bank may add
or eliminate investment options available under the 401(k) Plan in the future.

     Generally, distributions from the 401(k) Plan may commence upon a
participant's separation from service, death, or disability. However,
participants may request hardship withdrawals and loans from the 401(k) Plan
under certain circumstances. Withdrawals and distributions from the 401(k) Plan
are generally subject to federal and state income taxes and distributions made
prior to a participant attaining age 59 1/2 are also generally subject to a
federal excise tax

     PENSION PLAN. The Bank also maintains a tax-qualified defined benefit
pension plan for its employees (the "Pension Plan"). Eligible employees begin
participating in the Pension Plan following the completion of a six month
"Period of Service" (as defined in the Pension Plan) and attainment of the age
21. A participant in the Pension Plan generally becomes vested in his accrued
benefit under the plan upon completing five years of "Credited Service" (as
defined in the Pension Plan). The Pension Plan is funded solely through
contributions made by the Bank.

     The table below reflects the annual pension benefit payable to a
participant in the Pension Plan, assuming various levels of "Average Annual
Earnings" (as defined in the Pension Plan) and years of Credited Service. As of
January 1, 1998, Messrs. Montanaro, Petrello and Filippo had 25, 24 and 12
years, respectively, of Credited Service.
YEARS OF CREDITED SERVICE
                -------------------------------------------------------
   AVERAGE               
    ANNUAL
  EARNINGS(1)       15       20       25       30        35        40
--------------- --------- -------- -------- -------- --------- --------
$ 50,000      $11,250  $15,000  $18,750  $22,500  $ 26,250  $ 31,250
     75,000       18,750   25,000   31,250   37,500    43,750    51,250
    100,000       26,250   35,000   43,750   52,500    61,250    71,250
    125,000       33,750   45,000   56,250   67,500    78,750    91,250
    160,000       44,250   59,000   73,750   88,500   103,250   119,250
___________________
(1)  Code Section 401(a)(17) limits the amount of compensation the Bank may
     consider in computing benefits under the Pension Plan to $150,000,
     effective with respect to the Pension Plan for plan years beginning on or
     after May 23, 1994, as periodically adjusted by statute ($160,000 for
     1998).

     EMPLOYEE STOCK OWNERSHIP PLAN. The Bank intends to establish a tax-
qualified employee stock ownership plan (the "ESOP") in connection with the
Reorganization. Eligible employees (generally, those

                                      106
other than employees compensated solely on a daily, fee, or retainer basis),
will become participants in the ESOP upon the attainment of age 21 and the
completion of a "Period of Service" (as defined in the plan document) of 182
days (with credit for prior service). Participants will begin to vest in their
benefits under the ESOP upon the completion of two Periods of Service and will
become fully vested after completing six Periods of Service (with credit for
prior service). Participants will also become 100% vested in their benefits upon
the attainment of normal retirement age (age 65), death, disability, or upon a
change in control of the Bank or Bancorp. Benefits generally become
distributable under the ESOP upon death, retirement, disability or other
separation from service.

     The Bank expects the ESOP to purchase 8% of the Common Stock issued in the
Offering, including shares issued to the Foundation. As part of the
Reorganization and in order to fund the ESOP's purchase of the Common Stock
issued in the Offering, the ESOP will borrow 100% of the aggregate purchase
price of the Common Stock from either Bancorp or a third-party lender. The
trustee of the ESOP will repay the loan principally from the Bank's
contributions to the ESOP over an expected period of 10 years. Subject to
receipt of any necessary regulatory approvals or opinions, the Bank may make
contributions to the ESOP for repayment of the loan since participants are
employees of the Bank or the Bank may reimburse Bancorp for contributions made
by Bancorp with respect to Bank employees. The Bank expects the initial interest
rate (which may be fixed or variable) for the loan to be at or near the prime
rate on or about the date of Reorganization.

     The trustee will pledge shares of Common Stock purchased by the ESOP as
collateral for the loan and will hold the shares in a suspense account until
they are released for allocation among participants as the trustee repays the
loan. The trustee will release the pledged shares annually from the suspense
account in an amount proportional to the repayment of the ESOP loan. The trustee
will then allocate the released shares (as well as any other non-matching
contributions to the ESOP) among the accounts of eligible participants on the
basis of each participant's compensation for the year of allocation relative to
all participants' compensation for the year of allocation.

     The Bank expects a committee of the Board of Directors to administer the
ESOP (the "ESOP Committee"). The Committee will appoint an unrelated corporate
trustee for the ESOP prior to the Reorganization. The ESOP Committee may
instruct the trustee regarding investment of funds contributed to the ESOP. The
ESOP trustee will vote all allocated shares held in the ESOP in accordance with
the instructions of the plan participants. The ESOP trustee, subject to its
fiduciary duties under ERISA, will vote the unallocated shares (i.e., those held
in the suspense account) and allocated shares for which it receives no proper
voting instructions in a manner calculated to most accurately reflect the
instructions it receives from participants regarding the allocated stock. In the
event no shares have been allocated under the ESOP at the time such shares are
to be voted, each participant shall be deemed to have one share allocated to his
account for voting purposes.

     MANAGEMENT SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. In connection with the
Reorganization and implementation of the ESOP, the Bank intends to implement a
non-qualified deferred compensation arrangement known as a "Management
Supplemental Executive Retirement Plan" (the "MSERP"). The Bank intends the
MSERP to make up lost ESOP benefits to designated participants who retire or
terminate employment in connection with a change in control prior to the
complete repayment of the ESOP loan. Generally, upon the retirement of an
eligible individual (designated by the Board of Directors of the Bank or Bancorp
or upon a change in control of the Bank or Bancorp prior to complete repayment
of the ESOP Loan), the MSERP will provide the individual with a benefit
determined by first (i) projecting the number of shares that would have been
allocated to the individual under the ESOP if the individual had remained 

                                      107
employed throughout the term of the ESOP loan (measured from the individual's
first date of ESOP participation) and (ii) reducing that number by the number of
shares actually allocated to the individual's account under the ESOP; and
second, by multiplying the number of shares that represent the difference
between such figures by the average fair market value of the Common Stock over
the preceding five years. The individual's benefits become payable upon the
participant's retirement or upon the change in control of the Bank or Bancorp.
The Bank may establish a grantor trust in connection with the MSERP to satisfy
the obligations of the Bank with respect to the MSERP. The assets of the grantor
trust would remain subject to the claims of the Bank's general creditors in the
event of the Bank's insolvency until paid to the individual pursuant to the
terms of the MSERP.

     SUPPLEMENTAL INCOME AGREEMENTS. The Bank currently sponsors a non-qualified
supplemental executive retirement plans for Messrs. Montanaro and Filippo. The
plans generally provides benefits to the two executives otherwise lost under the
Pension Plan as a result of limitations imposed by the Code on the amount of
compensation the Bank can consider under the Pension Plan in determining
benefits. The non-qualified arrangements for Messrs. Montanaro and Filippo are
"funded" through the use of secular trusts and life insurance policies, under
which the Bank will recover the entire cost of its contribution to the plans
upon the deaths of Messrs. Montanaro and Filippo.

     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Code limits the amount of
compensation the Bank may consider in providing benefits under its tax-qualified
retirement plans, such as the 401(k) Plan, the Pension Plan and the ESOP. The
Code further limits the amount of contributions on benefit accruals under such
plans on behalf of any employee in any year. To provide benefits to make up for
the reduction in benefits flowing from these limits in connection with the ESOP,
the Bank intends to implement a non-qualified deferred compensation arrangement
known as a "Supplemental Executive Retirement Plan" ("SERP"). The SERP will
generally provide benefits to eligible individuals (designated by the Board of
Directors of the Bank or Bancorp) that cannot be provided under the ESOP as a
result of the limitations imposed by the Code, but that would have been provided
under the ESOP but for such limitations. The Bank may establish a grantor trust
in connection with the SERP to satisfy the obligations of the Bank with respect
to the SERP. The assets of the grantor trust would remain subject to the claims
of the Bank's general creditors in the event of the Bank's insolvency until paid
to the individual pursuant to the terms of the SERP.

     STOCK-BASED INCENTIVE PLAN. Following the Reorganization and Offering, the
Board of Directors of Bancorp intends to adopt the Stock-Based Incentive Plan
which will provide for the granting of options to purchase Common Stock ("Stock
Options"), Common Stock ("Stock Awards"), Limited Option Rights and Limited
Stock Rights to eligible officers, employees, and directors of Bancorp and the
Bank (see descriptions of the awards below). Bancorp may provide such stock
based benefits under the Stock-Based Incentive Plan or may establish one or more
separate plans which would provide for the benefits described herein.

     In the event the Stock-Based Incentive Plan (or any separate plan(s)) is
adopted within one year after the Reorganization and Offering, OTS regulations
require such plan to be approved by a majority of Bancorp's stockholders at a
meeting of stockholders to be held no earlier than six months after the
completion of the Offering. Under the Stock-Based Incentive Plan, Bancorp
intends to grant Stock Options in an amount up to 10% of the shares of Common
Stock issued in the Offering, including shares issued to the Foundation (215,877
shares based upon the maximum of the Offering Range), and intends to grant Stock
Awards in an amount up to 4% of the shares of Common Stock issued in the
Offering, including shares issued to the Foundation (86,351 shares based upon
the maximum of the Offering Range). Any Common Stock awarded under the Stock-
Based Incentive Plan (Stock Awards) will be awarded at no cost to the 

                                      108
recipients. The plan may be funded through the purchase of Common Stock by a
trust established in connection with the Stock-Based Incentive Plan (or any
separate plan(s)) or from authorized but unissued shares. The Board intends to
appoint an independent fiduciary to serve as trustee of a trust to be
established in connection with the Stock-Based Incentive Plan. In the event that
additional authorized but unissued shares are acquired by the Stock-Based
Incentive Plan after the Reorganization, the interests of existing shareholders
would be diluted. See "Pro Forma Data."

     The grants of Stock Options and Stock Awards will be designed to attract
and retain qualified personnel in key positions, provide officers and key
employees with a propriety interest in Bancorp as an incentive to contribute to
the success of Bancorp and reward key employees for outstanding performance. All
employees of Bancorp and its subsidiaries, including the Bank, will be eligible
to participate in the Stock-Based Incentive Plan. It is expected that the
committee administering the plan will determine the terms of awards granted to
officers and employees. The committee will also determine whether Stock Options
will be Incentive or Non-Statutory Stock Options, as defined below, the number
of shares subject to each Stock Option and Stock Award, the exercise price of
each Non-Statutory Stock Option, whether Stock Options may be exercised by
delivering other shares of Common Stock, and when Stock Options become
exercisable or Stock Awards vest. Only employees may receive grants of Incentive
Stock Options. Therefore, under the Stock-Based Incentive Plan, directors may
receive only grants of Non-Statutory Stock Options. If such plan is adopted
within one year after the Reorganization and Offering, OTS regulations provide
that no individual officer or employee of the Bank may receive more than 25% of
the stock options available under the Stock-Based Incentive Plan (or any
separate plan for officers and employees) and non-employee directors may not
receive more than 5% individually, or 30% in the aggregate, of the stock options
available under the Stock-Based Incentive Plan (or any separate plan for
directors). OTS regulations also provide that no individual officer or employee
of the Bank may receive more than 25% of the restricted stock awards available
under the Stock-Based Incentive Plan (or any separate plan for officers and
employees) and non-employee directors may not receive more than 5% individually,
or 30% in the aggregate, of the restricted stock awards available under the
Stock-Based Incentive Plan (or any separate plan for directors).

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

     An individual will not be deemed to have received taxable income upon the
grant or exercise of any Incentive Stock Option, provided that such shares
received through the exercise of such option are not disposed of by the employee
for at least one year after the date the stock is received in connection with
the stock option exercise and two years after the date of grant of the stock
option (a "disqualifying disposition").

                                      109
No compensation deduction will be available to Bancorp as a result of the grant
or exercise of Incentive Stock Options unless there has been a disqualifying
disposition. In the case of a Non-Statutory Stock Option and in the case of a
disqualifying disposition of an Incentive Stock Option, an individual will
realize ordinary income upon exercise of the stock option (or upon the
disqualifying disposition) in an amount equal to the amount by which the
exercise price exceeds the fair market value of the Common Stock purchased by
exercising the stock option on the date of exercise. The amount of any ordinary
income realized by an optionee upon the exercise of a Non-Statutory Stock Option
or due to a disqualifying disposition of an Incentive Stock Option will be a
deductible expense to Bancorp for tax purposes. In the case of Limited Rights,
the option holder will have to include the amount paid to him or her upon
exercise in his gross income for federal income tax purposes in the year in
which the payment is made and Bancorp will be entitled to a deduction for
federal income tax purposes of the amount paid.

     The Stock-Based Incentive Plan will provide for the granting of Stock
Awards and Limited Stock Rights. Limited Stock Rights would be exercisable by
participants upon a change in control of Bancorp or the Bank as described in the
plan. Subject to OTS regulations, upon the exercise of a Limited Stock Right,
the recipient will be entitled to receive a cash payment equal to the fair
market value of all unvested Stock Awards in exchange for any rights to such
unvested Stock Awards. Grants of Stock Awards and Limited Stock Rights to
officers and employees may be made in the form of base grants and/or performance
grants (the vesting of which would be contingent upon performance goals
established by the committee administering the plan). In establishing any
performance goals, the committee may utilize the annual financial results of the
Bank, actual performance of the Bank as compared to targeted goals such as the
ratio of the Bank's net worth to total assets, the Bank's return on average
assets, or such other performance standards as determined by the committee with
the approval of the Board of Directors.

     When a participant becomes vested with respect to Stock Awards, the
participant will realize ordinary income equal to the fair market value of the
Common Stock at the time of vesting (unless the participant made an election
pursuant to Section 83(b) of the Code). The amount of income recognized by the
participants will be a deductible expense for tax purposes for the Bank. When
restricted Stock Awards become vested and shares of Common Stock are actually
distributed to participants, the participants would receive amounts equal to any
accrued dividends with respect thereto. Prior to vesting, recipients of Stock
Awards may direct the voting of the shares awarded to them. Shares not subject
to grants and shares allocated subject to the achievement of performance goals
will be voted by the trustee in proportion to the directions provided with
respect to shares subject to grants. Vested shares will be distributed to
recipients as soon as practicable following the day on which they vest.

     The vesting periods for awards under the Stock-Based Incentive Plan will be
determined by the Committee administering the Plan. If the Stock-Based Incentive
Plan (or any separate plans for employees and directors) is adopted within one
year after the Reorganization and Offering, awards would become vested and
exercisable subject to applicable OTS regulations, which such regulations
require that any awards begin vesting no earlier than one year from the date of
shareholder approval of the plan and, thereafter, vest at a rate of no more than
20% per year and may not be accelerated except in the case of death or
disability. Stock Options could be exercisable for three months following the
date on which the employee or director ceases to perform services for the Bank
or Bancorp, except that in the event of death or disability, options accelerate
and become fully vested and could be exercisable for up to one year thereafter
or such longer period as determined by Bancorp. In the case of death or
disability, Stock Options may be exercised for a period of 12 months. However,
any Incentive Stock Options exercised more than three months following the date
the employee ceases to perform services as an employee would be treated as a 
Non-Statutory Stock Option. In the event of retirement, if the optionee
continues to perform services as a director or consultant on behalf

                                      110
of the Bank, Bancorp or an affiliate, unvested options would continue to vest in
accordance with their original vesting schedule until the optionee ceases to
serve as a consultant or director. In the event of death, disability or normal
retirement, Bancorp, if requested by the optionee, or the optionee's
beneficiary, could elect, in exchange for vested options, to pay the optionee,
or the optionee's beneficiary in the event of death, the amount by which the
fair market value of the Common Stock exceeds the exercise price of the options
on the date of the employee's termination of employment.

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

TRANSACTIONS WITH CERTAIN RELATED PERSONS

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

     The Bank offers directors, officers and full-time employees of the Bank who
satisfy certain criteria and the general underwriting standards of the Bank,
loans with interest rates which are 2% over the Bank's cost of deposits, as
reported to the Board of Directors from the previous month, rounded either up or
down to the nearest 1/8th percent, the Employee Mortgage Rate ("EMR"). The EMR
is limited to owner-occupied residential mortgage loans, owner-occupied home
improvement loans, owner-occupied home equity loans and owner-occupied
construction loans. Loan application fees, including points, are waived for all
EMR loans. The EMR remains in effect as long as the officer or employee remains
at the Bank. In the event the officer or employee leaves the Bank for any reason
other than a change in control, the interest rate reverts to the contract rate
in effect at the time that the loan was originated. All other terms and
conditions contained in the original mortgage and note continue to remain in
effect. With the exception of EMR loans, the Bank currently makes loans to its
executive officers, directors and employees on the same terms and conditions
offered to the general public. Loans made by the Bank to its directors and
executive officers are made in the ordinary course of business, on substantially
the same terms (except for EMR loans), including collateral, as those prevailing
at the time for comparable transactions with other persons and do not involve
more than the normal risk of collectibility or present other unfavorable
features. As of March 31, 1998, three of the Bank's executive officers or
directors had loans with outstanding balances totalling approximately $982,000
in the aggregate. All such loans were made by the Bank in the ordinary course of
business, with no favorable terms (except for EMR loans) and such loans do not
involve more than the normal risk of collectibility or present unfavorable
features.

     Bancorp intends that all transactions in the future between Bancorp and its
executive officers, directors, holders of 10% or more of the shares of any class
of its common stock and affiliates thereof, will contain terms no less favorable
to Bancorp than could have been obtained by it in arm's length negotiations

                                      111
with unaffiliated persons and will be approved by a majority of independent
outside directors of Bancorp not having any interest in the transaction.

OTHER TRANSACTIONS WITH AFFILIATES

     The Bank utilizes the services of the law firm of Brandley & Kleppe, of
which Mr. Brandley, a director of the Bank, is a member, for a variety of legal
work relating to the ordinary course of the Bank's business. For each of fiscal
years 1996 and 1997, the Bank paid less than $60,000 per year to such law firm.

SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS

     The following table sets forth the number of shares of Common Stock the
Bank's executive officers and directors propose to purchase, assuming shares of
Common Stock are issued at the minimum and maximum of the Offering Range, and
that sufficient shares will be available to satisfy their subscriptions. The
table also sets forth the total expected beneficial ownership of Common Stock as
to all directors and executive officers as a group.
AT THE MINIMUM                 AT THE MAXIMUM
                                             OF THE OFFERING RANGE(1)        OF THE OFFERING RANGE(1)
                                            -------------------------  ------------------------------------
                                                             AS A                            AS A
                                                          PERCENT OF                      PERCENT OF
                                              NUMBER    TOTAL SHARES     NUMBER          TOTAL SHARES
            NAME                   AMOUNT    OF SHARES    ISSUED(2)     OF SHARES          ISSUED(2)
------------------------------   ---------- ----------- -------------  -------------   --------------------
William J. Foody..............   $  700,000     70,000        1.97%        70,000              1.45%        
Leopold W. Montanaro..........      700,000     70,000        1.97         70,000              1.45         
David F. Brandley.............      100,000     10,000         .28         10,000               .21         
Everett N. Leonard............       75,000      7,500         .21          7,500               .16         
James P. Vreeland.............       70,000      7,000         .20          7,000               .15         
John J. Burke.................      700,000     70,000        1.97         70,000              1.45         
Dennis A. Petrello............      200,000     20,000         .56         20,000               .42         
Charles E. Filippo............      300,000     30,000         .84         30,000               .62         
Craig L. Montanaro............       35,000      3,500         .10          3,500               .07         
All Directors and                                                                                           
Executive Officers as a                                                                                     
 group (9 persons)............   $2,880,000    288,000        8.09%       288,000              5.98%        
                                 ==========    =======        ====        =======              ====
____________________
(1) Includes proposed subscriptions, if any, by associates. Also includes funds
    from the Bank's 401(k) Plan which may be used to purchase shares of Common
    Stock under such plan's new employer stock fund investment option. See "--
    Benefits-- 401(k) Plan." Does not include subscription orders by the ESOP.
    Intended purchases by the ESOP are expected to be 8% of the shares issued in
    the Offering.
(2) Includes shares issued to the Mutual Company.

                                      112
THE REORGANIZATION AND STOCK OFFERING

     THE BOARD OF DIRECTORS OF THE BANK HAS APPROVED THE PLAN OF REORGANIZATION
AND STOCK ISSUANCE, SUBJECT TO APPROVAL BY THE OTS AND THE MEMBERS OF THE BANK
ENTITLED TO VOTE ON THE MATTER AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS.
APPROVAL BY THE OTS DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE
PLAN BY SUCH AGENCY.

THE REORGANIZATION

     On March 18, 1998 the Bank's Board of Directors unanimously adopted the
Plan, pursuant to which, subject to approval by the OTS, the Bank will, in a
series of steps, reorganize from a federal mutual savings bank into a two-tier
mutual holding company structure in which all the Mutual Company, Bancorp and
the Stock Bank will be chartered and regulated by the OTS. It is currently
intended that up to 49.9% of the outstanding capital stock of Bancorp will be
sold to the public in a minority stock offering, and the remaining shares will
be held by the Mutual Company. The Plan must be approved by the OTS, and the
Reorganization must be approved by the Bank's depositors as of the Voting Record
Date of ___________, ____. A Special Meeting of Members has been called for this
purpose to be held on ___________, 1998.

     As long as the Mutual Company remains in the mutual form of organization,
the Mutual Company will be required to own at least a majority of the issued and
outstanding voting stock of Bancorp. Bancorp may issue any amount of non-voting
stock or debt to persons other than the Mutual Company.

REASONS FOR THE MUTUAL COMPANY REORGANIZATION

     The Board of Directors and management of the Bank are obligated to operate
the Bank in a safe and sound manner and to maximize the financial and managerial
resources of the Bank for the benefit of its Members and the communities that it
serves. In adopting the Plan, the Board of Directors of the Bank has determined
that for the reasons set forth below, the Reorganization is advisable and in the
best interests of the Bank and its depositors, and is consistent with the Bank's
business plan to operate as an independent, community-oriented savings
institution.

     The Bank, as a federally chartered mutual savings bank, does not have
stockholders and has no authority to issue capital stock. The Reorganization
will structure the Bank in the stock form of organization, which is used by
commercial banks, most major business corporations and a large number of savings
institutions. The Reorganization will permit Bancorp to issue capital stock
which will provide the Bank with greater flexibility to structure and finance
the expansion of its operations, both directly and through Bancorp, by acquiring
other financial institutions or new branch offices, diversifying into other
financial services to the extent allowable by applicable law and regulation and
otherwise improving the Bank's ability to provide services to its community.
Although there are no current arrangements, understandings or agreements
regarding any such opportunities, Bancorp will be in a position after the
Reorganization, subject to regulatory limitations and Bancorp's financial
position, to take advantage of any such opportunities that may arise. Access to
the capital markets will also make it possible for the Bank to be more
responsive to possible future changes in the regulations of the bank regulatory
agencies mandating higher capital reserves and/or capital ratios. AT THE SAME
TIME, THE MUTUAL HOLDING COMPANY STRUCTURE WILL PRESERVE THE MUTUAL FORM OF
OWNERSHIP WITHIN THE MUTUAL HOLDING COMPANY, CONSISTENT WITH THE BANK'S
COMMITMENT TO BE AN INDEPENDENT, COMMUNITY ORIENTED SAVINGS INSTITUTION. IN THIS
REGARD, SO LONG AS THE MUTUAL COMPANY

                                      113
IS IN EXISTENCE, IT WILL AT ALL TIMES OWN AT LEAST A MAJORITY INTEREST OF
BANCORP, AND THEREFORE, INDIRECTLY, THE BANK AS WELL. The Reorganization also
will enable employees, management and directors to have an equity ownership
interest in Bancorp, which management believes will enhance long-term growth and
performance of the Bank and Bancorp by enabling the Bank to attract and retain
qualified employees who have a more direct interest in the financial success of
the Bank.

     In addition, the Reorganization will provide the Bank with a more flexible
operating structure which will enhance its ability to compete with other
financial institutions in New Jersey, with other financial institutions based in
other Northeast and Mid-Atlantic states to the extent such institutions or their
affiliates conduct operations in New Jersey, and with nondepository financial
institutions operating within the Bank's market area. Finally, the
Reorganization may ease any transition to a uniform financial institution
charter should such a charter be required in the future.

     The Board of Directors believes that these advantages outweigh the
potential disadvantages of the mutual holding company structure, which include:
(i) the inability to sell Common Stock in excess of 49.9% of Bancorp's total
issued and outstanding voting stock so long as the Mutual Company remains in
existence; (ii) the more limited liquidity of the Common Stock, as compared to a
standard conversion; (iii) the inability of stockholders other than the Mutual
Company to obtain majority ownership of Bancorp and the Bank which may result in
the perpetuation of the existing management and Board of Directors of Bancorp
and the Bank; (iv) the higher cost of dividends associated with a minority
ownership interest; and (v) the added expense of conducting more than one stock
offering should the Mutual Company convert to the stock form at some future
date. A majority of the voting stock of Bancorp will be owned by the Mutual
Company, which is a mutual institution that will be controlled by the existing
Board of Directors of the Bank. While this structure will permit management to
focus on Bancorp's and the Bank's long-term business strategy` for growth and
capital redeployment without undue 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 Bancorp, and, except for certain matters, will be able to control
the outcome of all matters presented to the stockholders of Bancorp for
resolution by vote. No assurance can be given that the Mutual Company will not
take action adverse to the interests of the Minority Stockholders. For example,
the Mutual Company could revise its dividend waiver policy, prevent the sale of
control of Bancorp, or defeat a candidate for the Board of Directors of Bancorp
or other proposals put forth by the Minority Stockholders.

     The Reorganization does not preclude the conversion of the Mutual Company
from the mutual to stock form of organization following the Reorganization. NO
ASSURANCE CAN BE GIVEN THAT THE MUTUAL COMPANY WILL EVER CONVERT TO STOCK FORM
OR WHAT CONDITIONS THE OTS MAY IMPOSE ON SUCH A TRANSACTION. See "Conversion of
Mutual Holding Company to Stock Form."

DESCRIPTION OF THE REORGANIZATION

     Following receipt of all required regulatory approvals and approval of the
Plan by the Members, the Bank will reorganize into a two-tier mutual holding
company structure. The two-tier mutual holding company structure will consist
of: (1) a federally chartered mutual holding company (the Mutual Company); (2) a
federally chartered stock holding company (Bancorp) that will offer up to 49.9%
of its Common Stock in the Offering with the remaining shares of its Common
Stock owned by the Mutual Company; and (3) a federally chartered stock savings
bank (the Stock Bank) which will be the successor to the Bank in its current
mutual form and which will be wholly-owned by Bancorp.

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The Reorganization will be effected as follows, or in any manner approved
by the OTS that is consistent with the purposes of the Plan and applicable laws
and regulations. Under the two-tier mutual holding company structure: (i) the
Bank will organize an interim federal stock savings bank as a wholly-owned
subsidiary ("Interim One"); (ii) Interim One will organize a stock corporation
as a wholly-owned subsidiary (the Company); (iii) Interim One will organize an
interim federal stock savings bank as a wholly-owned subsidiary ("Interim Two");
(iv) the Bank will convert its charter to a federal stock savings bank charter
to become the Stock Bank and Interim One will exchange its charter for a federal
mutual holding company charter to become the Mutual Company; (v) sequentially
with step (iv), Interim Two will merge with and into Stock Bank with the Stock
Bank as the resulting institution; (vi) 100% of the issued Common Stock of the
Stock Bank will be transferred to the Mutual Company in exchange for membership
interests in the Savings Bank, in its mutual form, which are conveyed to the
Mutual Company; and (vii) the Mutual Company will transfer 100% of the issued
Common Stock of the Stock Bank to Bancorp in a capital distribution. The Plan
provides that, concurrently with the Reorganization, Bancorp will sell up to
49.9% of its outstanding capital stock in a minority stock offering and that the
remaining shares will be held by the Mutual Company.

     Upon consummation of the Reorganization, the legal existence of the Bank
will not terminate, but the converted Stock Bank will be a continuation of the
Bank, and all property of the Bank, including its right, title and interest in
and to all property of whatsoever kind and nature, interest and asset of every
conceivable value or benefit then existing or pertaining to the Bank, or which
would inure to the Bank immediately by operation of law and without the
necessity of any conveyance or transfer and without any further act or deed,
will vest in the Stock Bank. The Stock Bank will have, hold, and enjoy the same
in its right and fully to the same extent as the same was possessed, held, and
enjoyed by the Bank. The Stock Bank will continue to have, succeed to, and be
responsible for all the rights, liabilities and obligations of the Bank and will
maintain its headquarters operations at the Bank's present location.

     In connection with Reorganization, Bancorp will apply to the OTS to retain
up to 50% of the net proceeds of the Offering, and the Mutual Company would be
capitalized with $100,000. The Bank believes that capitalization of the Mutual
Company and Bancorp, at this level will provide the Mutual Company and Bancorp
with economic strength separate and apart from the Bank and could facilitate
future activities by the Mutual Company and Bancorp.

     The description of the two-tier mutual holding company structure is
qualified in its entirety by reference to the Plan and the charter and bylaws of
the Stock Bank, Bancorp and the Mutual Company to be effective upon consummation
of the Reorganization.

ESTABLISHMENT OF THE CHARITABLE FOUNDATION

     GENERAL. In furtherance of the Bank's long-standing commitment to its local
community, the Bank's Plan provides for the establishment of a charitable
foundation in connection with the Bank's Reorganization. The Plan provides that
the Bank, Bancorp and the Mutual Company will establish the Foundation, which
will be incorporated under Delaware law as a non-stock corporation, and will
fund the Foundation with Common Stock of Bancorp and cash, as further described
below. The Bank believes that the funding of the Foundation with Common Stock of
Bancorp is a means of establishing a common bond between the Bank and the
communities in which the Bank operates and thereby enables such communities to
share in the potential growth and success of the Mutual Company, Bancorp and the
Bank over the long term. By further enhancing the Bank's visibility and
reputation in the communities in which it operates, the Bank believes that the
Foundation will enhance the long-term value of the Bank's community banking
franchise.

                                      115
The Foundation would be dedicated to the promotion of charitable purposes
within the communities in which the Bank operates, including, but not limited
to, providing grants or donations to support housing assistance, not-for-profit
medical facilities, community groups and other types of organizations or
projects. Establishment of the Foundation is subject to the approval of a
majority of the total outstanding votes of the Bank's members eligible to be
cast at the Special Meeting. The Foundation will be considered as a separate
matter from approval of the Plan. If the Bank's members approve the Plan, but
not the Foundation, the Bank intends to complete the Reorganization and Offering
without the establishment of the Foundation. Failure to approve the
establishment of the Foundation may materially affect the pro forma market value
of the Common Stock. In such an event, the Bank may establish a new Estimated
Price Range and commence a resolicitation of subscribers. In the event of a
resolicitation, unless an affirmative response is received within a specified
period of time, all funds will be promptly returned to investors, as described
elsewhere herein. See "--Stock Pricing and Number of Shares Issued."

     PURPOSE OF THE FOUNDATION. The purpose of the Foundation is to provide
funding to support charitable purposes within the communities in which the Bank
operates. The Bank has long emphasized community lending and community
development activities and currently has an "outstanding" Community Reinvestment
Act ("CRA") rating. The Foundation is being formed as a complement to the Bank's
existing community activities, not as a replacement for such activities. Indeed,
the Bank intends to continue to emphasize community lending and community
development activities following the Reorganization. However, such activities
are not the Bank's sole corporate purpose. The Foundation, conversely, will be
completely dedicated to community activities and the promotion of charitable
causes, and may be able to support such activities in ways that are not
presently available to the Bank. Since the Bank already engages in community
development activities, the Bank believes that the Foundation will enable the
Mutual Company, Bancorp and the Bank to assist their local community in areas
beyond community development and lending. In this regard, the Board of Directors
believes the establishment of a charitable foundation is consistent with the
Bank's commitment to community service. The Board of Directors of the Bank also
believe that the funding of the Foundation with both Common Stock of Bancorp and
cash is a means of enabling the communities in which the Bank operates to share
in the potential growth and success of Bancorp long after completion of the
Reorganization. The Foundation accomplishes that goal by providing for continued
ties between the Foundation and Bank, thereby forming a partnership with the
Bank's community. The establishment of the Foundation would also enable the
Mutual Company, Bancorp and the Bank to develop a unified charitable donation
strategy and would centralize the responsibility for administration and
allocation of corporate charitable funds. The Bank, however, does not expect the
contribution to the Foundation to take the place of the Bank's traditional
community lending and charitable activities. The Bank expects in future periods
to continue making charitable contributions within its communities.

     STRUCTURE OF THE FOUNDATION. The Foundation will be incorporated under
Delaware law as a non-stock corporation. It is currently anticipated that the
Foundation's board of directors will be comprised of [FIVE] members, all of whom
will be individuals elected from existing directors and officers of the Bank. On
an on-going basis, a Nominating Committee of the board of directors of the
Foundation, will nominate individuals eligible for election to the board of
directors of the Foundation. The members of the Foundation, who are comprised of
its board members, will elect the directors at the annual meeting of the
Foundation from those nominated by the Nominating Committee. Only persons
serving as directors of the Foundation qualify as members of the Foundation with
voting authority. Directors will be divided into three classes with each class
appointed for three-year terms. The certificate of incorporation of the
Foundation will provide that the Foundation is organized exclusively for
charitable purposes as set forth in Section 501(c)(3) of the Code. The
Foundation's certificate of incorporation further will provide that no part of
the net earnings of the Foundation will inure to the benefit of, or be
distributable to, its directors, officers or members. A person

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who is a director, officer or employee of the Bank, or has the power to direct
its management or policies, or otherwise owes a fiduciary duty to the Bank, and
who will also serve as a director or employee of the Foundation would be subject
to the requirements of OTS Conflicts of Interest Regulations.

     The authority for the affairs of the Foundation will be vested in the board
of directors of the Foundation. The directors of the Foundation will be
responsible for establishing the policies of the Foundation with respect to
grants or donations by the Foundation, consistent with the stated purposes for
which the Foundation is established. Although no formal policy governing
Foundation grants exists at this time, the Foundation's board of directors will
adopt such a policy upon establishment of the Foundation. The directors will
also be responsible for directing the assets of the Foundation. Pursuant to the
terms of the contribution as mandated by the OTS, all shares of Common Stock
held by the Foundation must be voted in the same ratio as all other shares of
Bancorp's Common Stock on all proposals considered by stockholders of Bancorp;
provided, however, that the OTS will waive this voting restriction under certain
circumstances if compliance with the restriction would: (i) cause a violation of
the law of the State of Delaware and the OTS determines that federal law would
not preempt the application of the laws of the State of Delaware to the
Foundation; (ii) would cause the Foundation to lose its tax-exempt status or
otherwise have a material and adverse tax consequence on the Foundation; or
(iii) would cause the Foundation to be subject to an excise tax under Section
4941 of the Code. In order for the OTS to waive such voting restriction,
Bancorp's or the Foundation's legal counsel must render an opinion satisfactory
to OTS that compliance with the voting restriction would have the effect
described in clauses (i), (ii) or (iii) above. Under those circumstances, the
OTS will grant a waiver of the voting restriction upon submission of such legal
opinion(s) by Bancorp or the Foundation. In the event that the OTS waived the
voting restriction, the directors would direct the voting of the Common Stock
held by the Foundation. However, a condition to the OTS approval of the
Reorganization provides that in the event such voting restriction is waived or
becomes unenforceable, the Director of the OTS, or his designees, at that time
may impose conditions on the composition of the board of directors of the
Foundation or such other conditions or restrictions relating to the control of
the Common Stock held by the Foundation, any of which could limit the ability of
the board of directors of the Foundation to control the voting of the Common
Stock held by the Foundation. There will be no agreements or understandings with
directors of the Foundation regarding the exercise of control, directly or
indirectly, over the management or policies of the Mutual Company, Bancorp or
the Bank, including agreements related to voting, acquisition or disposition of
Bancorp's stock. As directors of a nonprofit corporation, directors of the
Foundation will at all times be bound by their fiduciary duty to advance the
Foundation's charitable goals, to protect the assets of the Foundation and to
act in a manner consistent with the charitable purpose for which the Foundation
is established.

     The Mutual Company or Bancorp will provide office space and administrative
support services to the Foundation. Initially, the Foundation is expected to
have no employees. The board of directors of the Foundation will appoint such
officers as may be necessary to manage the operations of the Foundation. Any
transaction between the Bank and the Foundation will comply with the affiliate
transaction restrictions set forth in Sections 23A and 23B of the Federal
Reserve Act, as amended.

     Bancorp proposes to capitalize the Foundation with Company Common Stock in
an amount equal to 4.19% of the total amount of Common Stock to be sold in
connection with the Offering and $100,000. At the minimum, midpoint and maximum
of the Offering Range, the stock contribution to the Foundation would equal
64,168, 75,491 and 86,815 shares, which would have a market value of $641,680,
$754,910 and $868,150, respectively, based on the Purchase Price. Such
contribution, once made, will not be recoverable by Bancorp or the Bank. The
Mutual Company, Bancorp and the Bank determined to fund the Foundation with
Common Stock and cash to provide the Foundation with a potentially larger
endowment than if Bancorp

                                      117
contributed only cash to the Foundation since, as a shareholder, the Foundation
will share in the potential growth and success of Bancorp. As such, the
contribution of stock and cash to the Foundation has the potential to provide a
self-sustaining funding mechanism which reduces the amount of cash that Bancorp,
if it were not making the stock contribution as well, would have to contribute
to the Foundation in future years in order to maintain a level amount of
charitable grants and donations.

     The Foundation would receive working capital from earnings on the cash
contribution, any dividends that may be paid on the Common Stock in the future,
and subject to applicable federal and state laws, loans collateralized by the
Common Stock or from the proceeds of the sale of any of the Common Stock in the
open market from time to time as may be permitted to provide the Foundation with
additional liquidity. As a private foundation under Section 501(c)(3) of the
Code, the Foundation will be required to distribute annually in grants or
donations, a minimum of 5% of the average fair market value of its net
investment assets. One of the conditions imposed on the gift of Common Stock by
Bancorp is that the amount of Common Stock that may be sold by the Foundation in
any one year shall not exceed 5% of the average market value of the assets held
by the Foundation, except where the board of directors of the Foundation
determines that the failure to sell an amount of common stock greater than such
amount would result in a long-term reduction of the value of the Foundation's
assets or would otherwise jeopardize the Foundation's capacity to carry out its
charitable purposes. While there may be a greater risk associated with a one-
stock portfolio in comparison to a diversified portfolio, Bancorp believes any
such risk is mitigated by the ability of the Foundation's directors to sell more
than 5% of its stock in such circumstances. Upon completion of the Offering and
the contribution of cash and shares to the Foundation immediately following the
Offering, Bancorp would have 3,561,500, 4,190,000 and 4,818,500 shares issued
and outstanding at the minimum, midpoint and maximum of the Offering Range.
Because Bancorp will have an increased number of shares outstanding, the voting
and ownership interests of shareholders in Bancorp's common stock would be
diluted by ____%, as compared to their interests in Bancorp if the Foundation
was not established. For additional discussion of the dilutive effect, see
"Comparison of Valuation and Pro Forma Information With No Foundation" and "Pro
Forma Data."

     COMPARISON OF VALUATION AND OTHER FACTORS ASSUMING THE FOUNDATION IS NOT
ESTABLISHED AS PART OF THE CONVERSION. Bancorp proposes to capitalize the
Foundation with Common Stock in an amount equal to 4.19% of the total amount of
Common Stock sold in connection with the Reorganization and Offering and
$100,000. At the minimum, midpoint, maximum and 15% above the maximum of the
Offering Range, the contribution to the Foundation would equal 64,168, 75,491,
86,815 and 99,837 shares, respectively, which would have a market value of
$641,680, $754,910, $868,150 and $998,370, respectively, based on the Purchase
Price. Such contribution, once made, will not be recoverable by Bancorp or the
Bank. As a result of the establishment of the Foundation, the Offering Range, as
estimated by FinPro, has decreased and the amount of stock available for sale in
the Offerings has also correspondingly decreased. The amount of the decrease is
1,170,000, 1,370,000, 1,580,000 and 1,820,000 shares, or $1.2 million, $1.4
million, $1.6 million and $1.8 million at the minimum, midpoint, maximum and 15%
above the maximum of the Offering Range, respectively. See "Pro Forma Data" and
"Comparison of Valuation and Pro Forma Data Information with No Foundation."

     TAX CONSIDERATIONS. The Mutual Company, Bancorp and the Bank have been
advised by their independent accountants that an organization created for the
above purposes will qualify as a 501(c)(3) exempt organization under the Code,
and will be classified as a private foundation rather than a public charity. A
private foundation typically receives its support from one person or one
corporation whereas a public charity receives its support from the public. Under
the Code, the Foundation may not own more than 2% of the outstanding shares of
common stock of Bancorp due to the mutual holding company owning a

                                      118
majority of the outstanding shares of common stock of Bancorp. The Foundation
will submit a request to the IRS to be recognized as an exempt organization
after approval of the Foundation by the Bank's members at the Special Meeting
being held to consider the Reorganization. As long as the Foundation files its
application for tax-exempt status within 15 months from the date of its
organization, and provided the IRS approves the application, the effective date
of the Foundation's status as a Section 501(c)(3) organization will be the date
of its organization. Bancorp's independent accountants, however, have not
rendered any advice on the condition of the gift which requires that all shares
of Common Stock of Bancorp held by the Foundation must be voted in the same
ratio as all other shares of Bancorp's Common Stock, on all proposals considered
by stockholders of Bancorp. In the event that Bancorp or the Foundation receives
an opinion of their tax counsel satisfactory to the OTS that compliance with the
voting restriction would cause the Foundation to lose its tax-exempt status,
otherwise have a material adverse tax consequence on the Foundation or subject
the Foundation to an excise tax under Section 4941 of the Code, the OTS will
waive such condition upon submission of such opinion(s) by Bancorp or the
Foundation. See "--Regulatory Conditions Imposed on the Foundation."

     A legal opinion of the OTS which addresses the establishment of charitable
foundations by savings associations opines that as a general rule funds
contributed to a charitable foundation should not exceed the deductible
limitations set forth in the Code, and if an association's contributions exceed
the deductible limit, such action must be justified by the board of directors.
Under the Code, Bancorp may deduct up to 10% of its taxable income in any one
year and any contributions made by Bancorp in excess of the deductible amount
will be deductible for federal tax purposes over each of the five succeeding
taxable years. The Mutual Holding Company, Bancorp and the Bank believe that the
Reorganization presents a unique opportunity to establish and fund a charitable
foundation given the substantial amount of additional capital being raised in
the Reorganization. In making such a determination, the Mutual Company, Bancorp
and the Bank considered the dilutive impact of the Foundation on the amount of
Common Stock available to be offered for sale in the Offering. See "Comparison
of Valuation and Pro Forma Information with No Foundation." Based on such
consideration, Bancorp and the Bank believe that the contribution to the
Foundation in excess of the 10% annual limitation is justified given the Bank's
capital position and its earnings, the substantial additional capital being
raised in the Offering and the potential benefits of the Foundation to the
Bank's community. In this regard, assuming the sale of the Common Stock at the
midpoint of the Offering Range, Bancorp would have pro forma consolidated
capital of $40.3 million, or 12.5% of consolidated assets and the Bank's pro
forma tangible, core and risk-based capital ratios would be 10.87%, 10.87% and
27.07%, respectively. See "Regulatory Capital Compliance," "Capitalization," and
"Comparison of Valuation and Pro Forma Information with No Foundation." Thus,
the amount of the cash and stock contribution will not adversely impact the
financial condition of Bancorp and the Bank and Bancorp and the Bank therefore
believe that the amount of the charitable contribution is reasonable given
Bancorp and the Bank's pro forma capital positions. As such, Bancorp and the
Bank believe that the contribution does not raise safety and soundness concerns.

     Bancorp and the Bank have received an opinion of their independent
accountants that Bancorp's contribution of its own stock to the Foundation will
not constitute an act of self-dealing, and that Bancorp will be entitled to a
deduction in the amount of the fair market value of the stock at the time of the
contribution less the nominal par value that the Foundation is required to pay
to Bancorp for such stock plus the amount of cash contributed to the Foundation
at the time of the Reorganization, subject to a limitation based on 10% of
Bancorp's annual taxable income. Bancorp, however, would be able to carry
forward any unused portion of the deduction for five years following the year in
which the contribution is made for federal tax purposes. Thus, while Bancorp
expects, based on the maximum of the Offering Range, to be able to utilize for
federal income tax purposes a charitable contribution deduction of approximately
$________

                                      119
in fiscal year 1998, Bancorp is permitted under the Code to carryover the excess
of the total contribution over such 1998 deduction over a five-year period for
federal income tax purposes. For New Jersey state income tax purposes, Bancorp
also would be able to deduct its contribution to the Foundation and to carry
forward any unused portion over a five-year period, subject to the limitation
based on 10% of Bancorp's unconsolidated annual taxable income, and provided
Bancorp generates sufficient state taxable income on an unconsolidated basis.
Assuming the close of the Offerings at the midpoint of the Offering Range,
Bancorp estimates that all of the federal tax deduction should be deductible
over the six-year period. However, no assurances can be made that Bancorp will
have sufficient pre-tax income over the five year period following the year in
which the contribution was made to fully utilize the carryover related to the
excess contribution. Neither the Mutual Company, Bancorp nor the Bank expects to
make any further contributions to the Foundation within the first five years
following the initial contribution. After that time, the Mutual Company, Bancorp
and the Bank may consider future contributions to the Foundation. Any such
decisions would be based on an assessment of, among other factors, the financial
condition of the Mutual Company, Bancorp and the Bank at that time, the
interests of shareholders and depositors of the Mutual Company, Bancorp and the
Bank, and the financial condition and operations of the Foundation.

     Although the Mutual Company, Bancorp and the Bank have received an opinion
of their independent accountants that Bancorp is entitled to a deduction for the
charitable contribution, there can be no assurances that the IRS will recognize
the Foundation as a Section 501(c)(3) exempt organization or that the deduction
will be permitted. In such event, Bancorp's contribution to the Foundation would
be expensed without tax benefit, resulting in a reduction in earnings in the
year in which the IRS makes such a determination. The Bank has agreed to a
limitation on the liability of its independent accountants to it solely as a
result of, and to indemnify its independent accountants solely in connection
with, certain claims or liabilities relating to the above-discussed federal
income tax opinion, except to the extent determined to have resulted from
professional negligence or intentional or deliberate misconduct. See "Risk
Factors--Establishment of the Charitable Foundation." In cases of willful,
flagrant or repeated acts or failures to act which result in violations of the
IRS rules governing private foundations, a private foundation's status as a
private foundation may be involuntarily terminated by the IRS. In such event,
the managers of a private foundation could be liable for excise taxes based on
such violations and the private foundation could be liable for a termination tax
under the Code. The Foundation's certificate of incorporation provides that it
shall have a perpetual existence. In the event, however, the Foundation were
subsequently dissolved as a result of a loss of its tax exempt status, the
Foundation would be required under the Code and its certificate of incorporation
to distribute any assets remaining in the Foundation at that time for one or
more exempt purposes within the meaning of Section 501(c)(3) of the Code, or to
distribute such assets to the federal government, or to a state or local
government, for a public purpose.

     As a private foundation, earnings and gains, if any, from the sale of
Common Stock or other assets are exempt from federal and state corporate
taxation. However, investment income, such as interest, dividends and capital
gains, will be subject to a federal excise tax of 2.0%. The Foundation will be
required to make an annual filing with the IRS within four and one-half months
after the close of the Foundation's fiscal year to maintain its tax-exempt
status. The Foundation will be required to publish a notice that the annual
information return will be available for public inspection for a period of 180
days after the date of such public notice. The information return for a private
foundation must include, among other things, an itemized list of all grants made
or approved, showing the amount of each grant, the recipient, any relationship
between a grant recipient and the Foundation's managers and a concise statement
of the purpose of each grant.

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REGULATORY CONDITIONS IMPOSED ON THE FOUNDATION. Establishment of the
Foundation is subject to the following conditions imposed by the OTS: (i) the
Foundation will be subject to examination by the OTS, at the Foundation's own
expense; (ii) the Foundation must comply with supervisory directives imposed by
the OTS; (iii) the Foundation will provide annual reports to the OTS describing
grants made and grant recipients; (iv) the Foundation will operate in accordance
with written policies adopted by the board of directors, including a conflict of
interest policy; (v) the Foundation will not engage in self-dealing and will
comply with all laws necessary to maintain its tax-exempt status; (vi) any
purchases of Common Stock by the Foundation following that Reorganization will
be subject to OTS regulations on stock repurchases; and (vii) any shares of
Common Stock of Bancorp held by the Foundation must be voted in the same ratio
as all other shares of Bancorp's Common Stock on all proposals considered by
stockholders of Bancorp; provided, however, that the OTS will waive this voting
restriction under certain circumstances if compliance with the voting
restriction would: (a) cause a violation of the law of the State of Delaware and
the OTS determines the federal law does not preempt the application of the laws
of the State of Delaware to the Foundation; (b) cause the Foundation to lose its
tax-exempt status or otherwise have a material and adverse tax consequence on
the Foundation; or (c) cause the Foundation to be subject to an excise tax under
Section 4941 of the Code. In order for the OTS to waive such voting restriction,
Bancorp's or the Foundation's legal counsel must render an opinion satisfactory
to OTS that compliance with the voting restriction would have the effect
described in clauses (a), (b) or (c) above. Under those circumstances, the OTS
will grant a waiver of the voting restriction upon submission of such opinion(s)
by Bancorp or the Foundation. There can be no assurances that either a legal or
tax opinion addressing these issues will be rendered, or if rendered, that the
OTS will grant an unconditional waiver of the voting restriction. In this
regard, a condition to the OTS approval of the Conversion provides that in the
event such voting restriction is waived or becomes unenforceable, the Director
of the OTS, or his designees, at that time may impose conditions on the
composition of the board of directors of the Foundation or such other conditions
or restrictions relating to the control of the Common Stock held by the
Foundation, any of which could limit the ability of the board of directors of
the Foundation to control the voting of Common Stock held by the Foundation. In
no event will the voting restriction survive the sale of shares of the Common
Stock held by the Foundation.

     In addition, establishment of the Foundation is subject to the approval of
a majority of the total outstanding votes of the Bank's members eligible to be
cast at the special meeting being held to consider the Reorganization. The
Foundation will be considered as a separate matter from approval of the Plan. If
the Bank's members approve the Plan, but not the Foundation, the Bank intends to
complete the Reorganization without the establishment of the Foundation. Failure
to approve the Foundation may materially increase the pro forma market value of
the Common Stock being offered for sale in the Offering. See "Comparison of
Valuation and Pro Forma Information With No Foundation."

EFFECTS OF THE REORGANIZATION

     GENERAL. Each depositor in a mutual savings institution has both a deposit
account in the institution and a pro rata ownership interest in the net worth of
the institution based upon the balance in his or her account, which interest may
only be realized in the event of a liquidation of the institution or in the
event the institution declares a capital distribution to depositors, subject to
applicable OTS regulations. However, this ownership interest is tied to the
depositor's account and has no tangible market value separate from such deposit
account. Any depositor who opens a deposit account obtains a pro rata ownership
interest in the net worth of the institution without any additional payment
beyond the amount of the deposit. A depositor who reduces or closes his account
receives a portion or all of the balance in the account but nothing for his
ownership interest in the net worth of the institution, which is lost to the
extent that the balance in the account is reduced.

                                      121
Consequently, mutual savings institution depositors normally have no way to
realize the value of their ownership interest, which has realizable value only
in the unlikely event that the mutual savings institution is liquidated or in
the event the institution declares a capital distribution to depositors, subject
to applicable OTS regulations. In such event, the depositors of record at that
time, as owners, would share pro rata in any residual surplus and reserves after
other claims, including claims of depositors to the amounts of their deposits,
are paid.

     Following the Reorganization, Bancorp and Minority Stockholders will
possess all voting rights in the Stock Bank and the affairs of the Stock Bank
will be directed by its board of directors.

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

     The Directors serving the Bank at the time of Reorganization will serve as
Directors of the Stock Bank after the Reorganization. The Directors of Bancorp
and the Mutual Company will consist of individuals currently serving on the
Board of Directors of the Bank. All officers of the Bank at the time of
Reorganization will retain their positions after Reorganization. Certain senior
management persons of the Bank will assume similar positions with Bancorp and
the Mutual Company.

     EFFECT ON DEPOSIT ACCOUNTS. Under the Plan, each depositor in the Bank at
the time of Reorganization will automatically become a depositor in the Stock
Bank after the Reorganization, and each such deposit account will remain the
same with respect to deposit balance, interest rate and other terms. Each such
account with the Stock Bank will be insured by the FDIC to the same extent as
with the Bank before the Reorganization. Depositors will continue to hold their
existing certificates, passbooks and other evidences of their accounts.

     EFFECT ON LOANS. All loans and other borrowings from the Bank shall retain
the same status with the Stock Bank after the Reorganization as they had with
the Bank immediately prior to the Reorganization. The amount, interest rate,
maturity and security for each loan will remain as they were contractually fixed
prior to the Reorganization.

     EFFECT ON VOTING RIGHTS OF MEMBERS. At present, all depositors of the Bank
are members of, and have voting rights in, the Bank as to all matters requiring
membership action. Upon Reorganization, all depositors who currently have voting
rights in the Bank will cease to be members of the Bank and will no longer be
entitled to vote at meetings of the Bank. Upon Reorganization, all depositors
who had membership rights entitling them to voting rights or 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 Company as long
as they continue to hold deposit accounts in the Bank. In addition, all persons
who become depositors of the Stock Bank subsequent to the Reorganization will
have such membership and liquidation rights with respect to the Mutual Company.
Borrower members of the Stock Bank who were borrower members of the Bank as of
November 16, 1995 and have borrowings outstanding at the time of the
Reorganization will have the same membership rights in the Mutual Company that
they had in the Bank immediately prior to the Reorganization as long as their
pre-Reorganization borrowings remain outstanding but will not receive membership
rights in connection with any borrowings made after the Reorganization.

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EFFECT ON LIQUIDATION RIGHTS. Following the Reorganization, all persons who
had membership or liquidation rights with respect to the Bank as of the date of
the Reorganization will continue to have such rights solely with respect to the
Mutual Company. In addition, all persons who become depositors in the Stock Bank
subsequent to the Reorganization will have membership and liquidation rights
with respect to the Mutual Company. In each case, no person who ceases to be a
depositor with the Stock Bank shall have any membership or liquidation rights
with respect to the Mutual Company.

     AMENDMENT OR TERMINATION OF PLAN OF REORGANIZATION. If deemed necessary or
desirable, the Plan may be substantively amended at any time prior to
solicitation of proxies from Members to vote on the Plan by a two-thirds vote of
the Bank's Board of Directors, and at any time thereafter by such vote of such
Board of Directors with the concurrence of the OTS. Any amendment to the Plan
made after approval by the Members with the approval of the OTS shall not
necessitate further approval by the Members unless otherwise required by the
OTS. The Plan may be terminated by majority vote of the Bank's Board of
Directors at any time prior to the Special Meeting to vote on the Plan, and at
any time thereafter with the concurrence of the OTS.

     By adoption of the Plan, the Members of the Bank authorize the Board of
Directors to amend or terminate the Plan under the circumstances set forth in
this Section.

TAX ASPECTS OF REORGANIZATION

     Pursuant to the Plan, consummation of the Reorganization is conditioned
upon, among other things, the prior receipt by the Bank of either a private
letter ruling from the IRS and from the New Jersey Department of Revenue or an
opinion of the Bank's tax advisor as to the federal and New Jersey tax
consequences of the Reorganization to the effect that consummation of the
Reorganization will not be a taxable event to the Mutual Company, Bancorp, the
Stock Bank or the Bank's members. No private letter ruling will be received from
the IRS with respect to the proposed Reorganization. Instead, Muldoon, Murphy &
Faucette will issue an opinion to the effect that for federal income tax
purposes: (1) the Bank's exchange of its charter to stock form (the "Bank
Conversion") will qualify as a tax-free reorganization under Internal Revenue
Code of 1986, as amended (the "Code"), Section 368(a)(1)(F); (2) the conversion
of the Bank's wholly owned subsidiary ("Interim I") into the Mutual Company will
qualify as a tax-free reorganization under Code 368(a)(1)(F); (3) the merger of
the wholly owned subsidiary of Interim I ("Interim II") into the Stock Bank with
the Stock Bank as the survivor will qualify as a tax-free reorganization under
Code Section 368(a)(1)(A); (4) no gain or loss will be recognized by the Bank in
the Bank Conversion; (5) neither the Stock Bank nor the Mutual Company will
recognize gain or loss upon the receipt by the Stock Bank of substantially all
of the assets of the Bank in exchange for equity interests in the Mutual Company
and the Stock Bank's assumption of the Bank's liabilities; (6) the Mutual
Company's basis in the stock of the Stock Bank will increase by an amount equal
to the Bank's net basis in the property transferred to the Stock Bank; (7) the
Stock Bank's basis in the property received from the Bank will be the same as
the basis of such property in the hands of the Bank immediately prior to the
Reorganization and Offering; (8) the Stock Bank's holding period for the
property received from the Bank will include the period during which such
property received from the Bank was held by the Bank; (9) subject to the
conditions and limitations set forth in Code Sections 381, 382, 383 and 384 and
the Treasury Regulations promulgated thereunder, the Stock Bank will succeed to
and take into account the items of the Bank described in Code Section 381(c);
(10) no gain or loss will be recognized by the depositors of the Bank on the
receipt of equity interests with respect to the Mutual Company in exchange for
their equity interests surrendered therefor; (11) the exchange of stock by
depositors in exchange for equity interests in the Mutual Company will
constitute a tax-free exchange of property solely for voting "stock" pursuant to
Code Section 351; (12) each Bank

                                      123
depositor's aggregate basis, if any, in the Mutual Company equity interest
received in the exchange will equal the aggregate basis, if any, of each
depositor's equity interest in the Bank; (13) the holding period of the Mutual
Company equity interests received by the depositors of Bank will include the
period during which the Bank equity interest surrendered in exchange therefor
were held; (14) the Mutual Company will recognize no gain or loss upon the
transfer of the Stock Bank stock to Bancorp in exchange for Common Stock
pursuant to Code Section 351; (15) Bancorp will recognize no gain or loss upon
its receipt of Stock Bank stock from the Mutual Company in exchange for Common
Stock; (16) the Mutual Company will increase its basis in its shares of the
common Stock by the Mutual Company's basis in its Stock Bank stock; (17) Bancorp
will recognize no gain or loss upon the receipt of money in exchange for shares
of Common Stock; (18) no gain or loss will be recognized by the Bank's account
holders upon the issuance to them of accounts in the Stock Bank in stock form
immediately after the Reorganization and Offering, in the same dollar amounts
and on the same terms and conditions as their accounts at the Bank immediately
prior to the Reorganization and Offering; (19) the tax basis of the Common Stock
purchased in the Reorganization and Offering will be equal to the amount paid
therefor increased, in the case of the Common Stock acquired to the exercise of
Subscription Rights, by the fair market value, if any, of the Subscription
Rights exercised; (20) the holding period for the Common Stock purchased in the
Reorganization and Offering will commence upon the exercise of such holder's
Subscription Rights and otherwise on the day following the date of such
purchase; (21) gain or loss will be recognized to account holders upon the
receipt or exercise of Subscription Rights in the Reorganization and Offering,
but only to the extent such Subscription Rights are deemed to have value, as
discussed below. Radics & Co., LLC has opined that the Reorganization will not
be a taxable transaction to the Mutual Company, Bancorp, the Bank, Eligible
Account Holders or Supplemental Eligible Account Holders for New Jersey income
tax purposes. Certain portions of both the federal and the state income tax
opinions are based upon the assumption that the subscription rights issued in
connection with the Reorganization and Offering will have no value.

     Unlike private rulings of the IRS, an opinion of a tax advisor is not
binding on the IRS and the IRS could disagree with conclusions reached therein.
In the event of such disagreement, there can be no assurance that the IRS would
not prevail in a judicial or administrative proceeding. The Bank has agreed to a
limitation on the liability of Fontanella and Babitts to it solely as a result
of, and to indemnify Fontanella and Babitts solely in connection with, certain
claims or liabilities relating to its New Jersey income tax opinion, except to
the extent determined to have resulted from professional negligence or
intentional or deliberate misconduct.

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

                                      124
THE OFFERING

     The Plan authorizes Bancorp to offer common stock in the Offering up to a
maximum of 49.9% of the issued and outstanding shares of Bancorp's Common Stock.
Bancorp is offering between $15.3 million and $20.7 million (or up to $23.8
million in the event the number of shares are increased) of Common Stock, which
represents a Minority Ownership Interest of 43%, based upon the Independent
Valuation. The Offering is being made concurrently with the Reorganization,
subject to the approval of the Members at the Special Meeting to be held on
___________, ____. The Common Stock will be offered on a priority basis to: (1)
Eligible Account Holders; (2) the ESOP; (3) Supplemental Eligible Account
Holders; and (4) Other Members. Subject to the prior rights of holders of
subscription rights, Common Stock not subscribed for in the Subscription
Offering is being concurrently offered in the Community Offering to certain
members of the general public, with preference given to natural persons residing
in Bergen, Essex and Morris Counties, New Jersey. Bancorp and Sandler O'Neill
may also agree to utilize a Syndicated Community Offering in connection with the
sale of shares of Common Stock not subscribed for in the Subscription and
Community Offering. The Bank reserves the right, in its absolute discretion, to
reject or accept, in whole or in part, any orders in the Community Offering,
either at the time of receipt of an order or as soon as practicable following
the Expiration Date. If an order is rejected, the funds submitted with such
order will be returned promptly. Subscription rights will expire if not
exercised by 12:00 noon, New Jersey time, on ___________, ____, unless extended
by Bancorp, with the approval of the OTS. Following the Offering, assuming that
2,071,955 shares are sold in the Offering, it is expected that the Mutual
Company will own 2,659,812, or 55.2%, of the total issued and outstanding shares
of voting Common Stock of Bancorp.

STOCK PRICING AND NUMBER OF SHARES ISSUED
 
     The Plan requires that the aggregate purchase price of the Common Stock
must be based on the estimated pro forma market value of the Common Stock, as
determined by an independent valuation. The Bank has retained FinPro to make
such valuation. All shares of Common Stock sold in the Offering will be sold at
the Purchase Price. The Purchase Price was determined by the Board of Directors
of the Bank, based on the Independent Valuation. For its services, FinPro will
receive a fee of $14,000 plus reasonable expenses not to exceed $2,500. The Bank
has also agreed to pay FinPro an additional $17,000 for assisting the Bank in
the preparation of a business plan. The Bank has agreed to indemnify FinPro and
its employees and affiliates under certain circumstances against certain losses
(including any losses in connection with claims under federal securities laws)
arising out of its services as an appraiser, except where FinPro's liability
results from its negligence, willful misconduct or bad faith.

     The Independent Valuation made by FinPro relied upon the information
contained in this Offering Circular, including the Financial Statements of the
Bank and Notes thereto. FinPro has advised the Bank that it also has considered
the effect of the Minority Ownership Interest represented by the Common Stock in
the Offering in terms of liquidity of the Common Stock in the after market,
marketability of the Common Stock, the possibility of conversion of the Mutual
Company to stock form, and other factors considered relevant. In addition,
FinPro has advised the Bank that it has considered and will consider the effect
of the additional capital raised by the sale of the Common Stock in the Offering
on the estimated aggregate pro forma market value of such shares. FinPro 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 market 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
publically traded subsidiaries of mutual holding companies located in the Bank's
primary market area and the Mid-Atlantic area of the United States; the
aggregate size of the Offering of the Common Stock; the impact of

                                      125
the minority stock offering on the Bank's net worth and earnings potential; the
transfer of $100,000 from the Bank to the Mutual Company; the proposed dividend
policy of Bancorp; the majority ownership of the Common Stock by the Mutual
Company; and the trading market for securities of comparable institutions and
general conditions in the market for such securities.

     On the basis of the foregoing, FinPro advised Bancorp and the Bank that, in
its Independent Valuation, dated June 12, 1998, the estimated pro forma market
value of the Common Stock ranged from a minimum of $35.6 million to a maximum of
$48.2 million, with a midpoint of $41.9 million (the "Estimated Price Range").

     Based on the estimated Price Range and the Purchase Price, the number of
shares of Common Stock that Bancorp will issue will range from between 3,561,500
shares to 4,818,500 shares, with a midpoint of 4,190,000 shares. The Board
determined to offer 43% of such shares, or between 1,531,445 shares and
2,071,955 shares with a midpoint of 1,801,700 shares (the "Offering Range") to
depositors and the public pursuant to this Prospectus. In addition, up to 86,815
shares (up to 99,837 at the adjusted maximum of the Estimated Price Range) are
being issued to the Foundation as part of the Reorganization, which will result
in Minority Stockholders owning 43% of the shares of the Common Stock
outstanding at the conclusion of the Reorganization. The 55.2% of the shares of
Bancorp's Common Stock that are not sold in the Offering or contributed to the
Foundation will be issued to the Mutual Company.

     The Board of Directors of the Bank have reviewed the Independent Valuation
of FinPro and in determining the reasonableness and adequacy of such Independent
Valuation consistent with OTS regulations and policies, have reviewed the
methodology and reasonableness of the assumptions utilized by FinPro in the
preparation of such Independent Valuation. The Offering Range may be amended
with the approval of the OTS (if required), if necessitated by subsequent
developments in the financial condition of Bancorp or the Bank or market
conditions generally.

     In the event of a change in the Independent Valuation immediately prior to
consummation of the Offering, Bancorp may adjust the Minority Ownership Interest
by increasing or decreasing the total number of shares of Common Stock to be
issued to the Mutual Company in the Reorganization and/or the number of shares
Common Stock to be issued in the Offering. Increases or decreases in the number
of shares of Common Stock to be issued in the Reorganization and Offering as a
result of a change in the Independent Valuation would be subject to applicable
limitations on purchases of Common Stock and, unless otherwise permitted by the
Bank or required by the OTS, no resolicitation of persons who ordered Common
Stock in the Offering will be made and such persons will not be permitted to
modify or cancel their orders unless the Independent Valuation changes to less
than $35.6 million or greater than $55.4 million.

     In the event of an increase in the Independent Valuation up to $55.4
million immediately prior to consummation of the Offering, Bancorp may, in its
discretion, choose to increase the number of shares of Common Stock issued in
the Offering up to 2,382,748 shares without offering persons who subscribed for
shares an opportunity to increase, decrease or rescind their orders. If the
Independent Valuation increases to $55.4 million, the total number of shares of
Common Stock issued and outstanding, including shares issued to the Mutual
Company, upon consummation of the Offering would be 5,541,275. Under such
circumstances, if Bancorp chose to increase the number of shares of Common Stock
offered in the Offering to 2,382,748 shares, the 2,382,748 shares would
represent a 43% Minority Ownership Interest. The final Minority Ownership
Interest will be determined as follows: (i) the numerator shall be the product
of (x) the number of shares of Common Stock sold in the Offering and (y) the
Purchase Price ($10 per share); and (ii)

                                      126
the denominator shall be the updated valuation of the pro forma value of the
Bank upon conclusion of the Offering as determined by FinPro.

     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. FINPRO DID NOT INDEPENDENTLY VERIFY THE FINANCIAL STATEMENTS OF THE
BANK AND NOTES THERETO AND OTHER INFORMATION PROVIDED BY THE BANK, NOR DID
FINPRO INDEPENDENTLY VALUE THE ASSETS OR LIABILITIES OF THE BANK. THE VALUATION
CONSIDERS THE BANK AS A GOING CONCERN AND SHOULD NOT BE CONSIDERED AS A
LIQUIDATION VALUE OF THE BANK. MOREOVER, BECAUSE THE VALUATION IS BASED UPON
ESTIMATES AND PROJECTIONS ON A NUMBER OF MATTERS, ALL OF WHICH ARE SUBJECT TO
CHANGE FROM TIME TO TIME, NO ASSURANCE CAN BE GIVEN THAT PERSONS PURCHASING THE
COMMON STOCK IN THE OFFERING WILL BE ABLE TO SELL SUCH SHARES AT A PRICE EQUAL
TO OR GREATER THAN THE PURCHASE PRICE. SEE "ADDITIONAL INFORMATION" FOR ADVICE
ON HOW TO OBTAIN A COPY OF THE INDEPENDENT VALUATION.

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

     In the event the Offering is either more than 15% above the maximum of the
Offering Range or less than the minimum of the Offering Range, or if the
Independent Valuation changes by more than 15%, the Bank, after consulting with
the OTS, may terminate the Offering and return all funds promptly with interest
on payments made by check, bank draft or money order, extend or hold a new
Subscription Offering and/or Community Offering, establish a new Offering Range,
commence a resolicitation of subscribers or take such other actions as permitted
by the OTS in order to complete the Reorganization and the Offering. In the
event that a resolicitation is commenced, unless an affirmative response is
received within a reasonable period of time, all funds will be promptly returned
to investors as described above. A resolicitation, if any, following the
conclusion of the Subscription and Community Offerings would not exceed 45 days
unless further extended by the OTS for a period of up to 90 days not to extend
beyond ________________, ____.

     If all shares of Common Stock are not sold through the Subscription and
Community Offerings, then Bancorp may offer the remaining shares in a Syndicated
Community Offering which may commence concurrently with the Subscription and
Community Offerings, subject to prior rights of subscribers, or as soon as
practicable following the close of the Subscription and Community Offerings. All
shares of Common Stock, whether sold in the Subscription and Community Offerings
or Syndicated Community Offering, will be sold at a fixed purchase price of $10
per share. See "--Syndicated Community Offering."

     No sale of shares of Common Stock may be consummated unless, prior to such
consummation, FinPro confirms to the Bank, Bancorp and the OTS that, to the best
of its knowledge, nothing of a material nature has occurred which, taking into
account all relevant factors, including those which would be involved in a
cancellation of the Syndicated Community Offering, would cause FinPro to
conclude that the aggregate value of the Common Stock at the Purchase Price is
incompatible with its estimate of the pro forma market value of the Common Stock
of Bancorp at the conclusion of the Offering. Any change which would result in
an aggregate purchase price which is below the minimum or more than 15% above
the maximum of the Offering Range would be subject to OTS approval. If such
confirmation is not received, Bancorp may extend the Offering, extend, reopen or
commence a new Subscription Offering, Community Offering or Syndicated Community
Offering, establish a new Offering Range and commence a resolicitation of all

                                      127
subscribers with the approval of the OTS or take such other actions as permitted
by the OTS in order to complete the Offering or terminate the Plan and cancel
the Offering. In the event that a resolicitation is commenced, unless an
affirmative response is received within a reasonable period of time, all funds
will be promptly returned to investors as described above. A resolicitation, if
any, following the conclusion of the Subscription and Community Offerings would
not exceed 45 days unless further extended by OTS for periods up to 90 days not
to extend beyond _____________, ____.

     The actual number of shares of Common Stock sold in the Offering may be
adjusted within the Offering Range at the discretion of the Board of Directors
prior to completion of the Offering, as long as the Holding Company at the close
of the Offering owns a majority of the issued and outstanding voting stock of
the Bank.

SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS

     In accordance with the Plan, rights to subscribe for the purchase of Common
Stock have been granted under the Plan to the following persons in the following
order of descending priority: (1) Eligible Account Holders; (2) the ESOP; (3)
Supplemental Eligible Account Holders; and (4) Other Members. All subscriptions
received will be subject to the availability of Common Stock after satisfaction
of all subscriptions of all persons having prior rights in the Subscription
Offering and to the maximum and minimum purchase limitations set forth in the
Plan and as described below under "--Limitations on Common Stock Purchases."

     PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS. Each Eligible Account Holder will
receive, without payment therefor, first priority, nontransferable subscription
rights to subscribe for in the Subscription Offering up to the greater of: (1)
the amount permitted to be purchased in the Community Offering, currently
$350,000 of Common Stock; (2) one-tenth of one percent (.10%) of the total
offering of shares of Common Stock; or (3) fifteen times the product (rounded
down to the next whole number) obtained by multiplying the total number of
shares of Common Stock to be issued by a fraction of which the numerator is the
amount of the Eligible Account Holder's Qualifying Deposit (defined by the Plan
as any deposit account in the Bank with a balance of $50 or more as of February
28, 1997) and the denominator is the total amount of Qualifying Deposits of all
Eligible Account Holders, in each case on the Eligibility Record Date, subject
to the overall purchase limitation and exclusive of an increase in the shares
issued pursuant to an increase in the Offering Range of up to 15%. See "--
Limitations on Common Stock Purchases."

     In the event that Eligible Account Holders exercise subscription rights for
a number of shares of Common Stock in excess of the total number of such shares
eligible for subscription, the shares of Common Stock shall be allocated among
the subscribing Eligible Account Holders so as to permit each subscribing
Eligible Account Holder, to the extent possible, to purchase a number of shares
sufficient to make his or her total allocation of Common Stock equal to the
lesser of 100 shares or the number of shares subscribed for by the Eligible
Account Holder. Any shares remaining after that allocation will be allocated
among the subscribing Eligible Account Holders whose subscriptions remain
unsatisfied in the proportion that the amount of the Qualifying Deposit of each
Eligible Account Holder whose subscription remains unsatisfied bears to the
total amount of the Qualifying Deposits of all Eligible Account Holders whose
subscriptions remain unsatisfied. If the amount so allocated exceeds the amount
subscribed for by any one or more remaining Eligible Account Holders, the excess
shall be reallocated (one or more times as necessary) among those Eligible
Account Holders whose subscriptions are still not fully satisfied on the same
principle until all available shares have been allocated or all subscriptions
satisfied.

                                      128
To ensure proper allocation of stock, each Eligible Account Holder must
list on his subscription order form all accounts in which he has an ownership
interest. Failure to list an account could result in less shares being allocated
than if all accounts had been disclosed. The subscription rights of Eligible
Account Holders who are also Directors or Officers of the Bank or their
associates will be subordinated to the subscription rights of other Eligible
Account Holders to the extent attributable to increased deposits in the year
preceding February 28, 1997.

     PRIORITY 2: EMPLOYEE STOCK OWNERSHIP PLAN. To the extent that there are
sufficient shares remaining after satisfaction of the subscriptions by Eligible
Account Holders, the ESOP will receive, without payment therefor, second
priority, nontransferable subscription rights to purchase, in the aggregate, up
to 10% of Common Stock issued in the Offering, including shares issued to the
Foundation, and any increase in the number of shares of Common Stock to be
issued in the Offering after the date hereof as a result of an increase of up to
15% in the maximum of the Offering Range. The ESOP intends to purchase 8% of the
shares to be issued in the Offering, including shares issued to the Foundation,
or ______ shares and ______ shares, based on the minimum and maximum of the
Offering Range, respectively. Subscriptions by the ESOP will not be aggregated
with shares of Common Stock purchased directly by or which are otherwise
attributable to any other participants in the Subscription and Community
Offering, including subscriptions of any of the Bank's directors, officers,
employees or associates thereof. See "Management of the Bank--Benefits--Employee
Stock Ownership Plan."

     PRIORITY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. Each Supplemental
Eligible Account Holder will receive, without payment therefor, third priority,
nontransferable subscription rights to subscribe for in the Subscription
Offering up to the greater of: (1) the amount permitted to be purchased in the
Community Offering, currently $350,000 of Common Stock; (2) one-tenth of one
percent (.10%) of the total offering of shares of Common Stock; or (3) fifteen
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Common Stock to be issued by a
fraction of which the numerator is the amount of the Supplemental Eligible
Account Holder's Qualifying Deposit and the denominator is the total amount of
Qualifying Deposits of all Supplemental Eligible Account Holders, in each case
on the Supplemental Eligibility Record Date, subject to the overall purchase
limitation and exclusive of an increase in the shares issued pursuant to an
increase in the Offering Range of up to 15%. See "-- Limitation on Common Stock
Purchase."

     In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of Common Stock in excess of the
total number of such shares eligible for subscription, the shares of Common
Stock shall be allocated among the subscribing Supplemental Eligible Account
Holders so as to permit each subscribing Supplemental Eligible Account Holder,
to the extent possible, to purchase a number of shares sufficient to make his or
her total allocation of Common Stock equal to the lesser of 100 shares or the
number of shares subscribed for by the Supplemental Eligible Account Holder. Any
shares remaining after that allocation will be allocated among the subscribing
Supplemental Eligible Account Holders whose subscriptions remain unsatisfied in
the proportion that the amount of the Qualifying Deposit of each Supplemental
Eligible Account Holder whose subscription remains unsatisfied bears to the
total amount of the Qualifying Deposits of all Supplemental Eligible Account
Holders whose subscriptions remain unsatisfied. If the amount so allocated
exceeds the amount subscribed for by any one or more remaining Supplemental
Eligible Account Holders, the excess shall be reallocated (one or more times as
necessary) among those Supplemental Eligible Account Holders whose subscriptions
are still not fully satisfied on the same principle until all available shares
have been allocated or all subscriptions satisfied.

                                      129
To ensure proper allocation of stock, each Supplemental Eligible Account
Holder must list on his subscription order form all accounts in which he has an
ownership interest. Failure to list an account could result in less shares being
allocated than if all accounts had been disclosed. The subscription rights
received by Eligible Account Holders will be applied in partial satisfaction to
the subscription rights to be received as a Supplemental Eligible Account
Holder.

     PRIORITY 4: OTHER MEMBERS. To the extent that there are sufficient shares
remaining after satisfaction of subscriptions by the Eligible Account Holders,
the ESOP and the Supplemental Eligible Account Holders, each Other Member will
receive, without payment therefor, fourth priority nontransferable subscription
rights to subscribe for Common Stock in the Subscription Offering up to the
greater of the amount permitted to be purchased in the Community Offering,
currently $350,000 of Common Stock, or one-tenth of one percent (.10%) of the
total offering of shares of Common Stock, subject to the overall purchase
limitation and exclusive of an increase in shares issued pursuant to an increase
in the Estimated Price Range of up to 15%.

     In the event that Other Members subscribe for a number of shares of Common
Stock which, when added to the shares of Common Stock subscribed for by the
Eligible Account Holders, the ESOP and the Supplemental Eligible Account Holders
is in excess of the total number of shares of Common Stock being issued, the
subscriptions of such Other Members will be allocated among the subscribing
Other Members so as to permit each subscribing Other Member, to the extent
possible, to purchase a number of shares sufficient to make his or her total
allocation of Common Stock equal to the lesser of 100 shares or the number of
shares subscribed for by the Other Member. Any shares remaining after that
allocation will be allocated among the subscribing Other Members whose
subscriptions remain unsatisfied pro rata in the same proportion that the number
of votes of a subscribing Other Member on the Voting Record Date bears to the
total votes on the Voting Record Date of all subscribing Other Members whose
subscriptions remain unsatisfied. If the amount so allocated exceeds the amount
subscribed for by any one or more remaining Other Members, the excess shall be
reallocated (one or more times as necessary) among those remaining Other Members
whose subscriptions are still not fully satisfied on the same principle until
all available shares have been allocated or all subscriptions satisfied.

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

     EXPIRATION DATE FOR THE SUBSCRIPTION OFFERING. The Subscription Offering
will expire on _______________, 1998, unless extended for up to 45 days by the
Bank or such additional periods with the approval of the OTS. Subscription
rights which have not been exercised prior to the Expiration Date will become
void.

     The Bank will not execute orders until all shares of Common Stock have been
subscribed for or otherwise sold. If all shares have not been subscribed for or
sold within 45 days after the Expiration Date, unless such period is extended
with the consent of the OTS, all funds delivered to the Bank pursuant to the
Subscription Offering will be returned promptly to the subscribers with interest
and all withdrawal authorizations will be cancelled. If an extension beyond the
45 day period following the Expiration Date is granted, the Bank will notify
subscribers of the extension of time and of any rights of subscribers to modify
or rescind their subscriptions and have their funds returned promptly with
interest, and of the time

                                      130
period within which subscribers must affirmatively notify the Bank of their
intention to confirm, modify, or rescind their subscription. If an affirmative
response to any resolicitation is not received by Bancorp from a subscriber,
such order will be rescinded and all subscription funds will be promptly
returned with interest. Such extensions may not go beyond ___________, ____.

COMMUNITY OFFERING

     To the extent that shares remain available for purchase after satisfaction
of all subscriptions of the Eligible Account Holders, the ESOP, the Supplemental
Eligible Account Holders and Other Members, the Bank has determined to offer
shares pursuant to the Plan to certain members of the general public, with
preference given to natural persons residing in Bergen, Essex and Morris
Counties, New Jersey, subject to the right of the Bank to accept or reject any
such orders, in whole or in part, in their sole discretion. Persons purchasing
stock in the Community Offering, together with associates of and persons acting
in concert with such persons, may purchase up to $350,000 of Common Stock
subject to the maximum overall purchase limitation and exclusive of shares
issued pursuant to an increase in the Offering Range by up to 15%. See "--
Limitations on Common Stock Purchases." This amount may be increased to up to a
maximum of 5% or decreased to less than $350,000 at the sole discretion of the
Bank. THE OPPORTUNITY TO SUBSCRIBE FOR SHARES OF COMMON STOCK IN THE COMMUNITY
OFFERING CATEGORY IS SUBJECT TO THE RIGHT OF THE BANK AND BANCORP, IN ITS SOLE
DISCRETION, TO ACCEPT OR REJECT ANY SUCH ORDERS IN WHOLE OR IN PART EITHER AT
THE TIME OF RECEIPT OF AN ORDER OR AS SOON AS PRACTICABLE FOLLOWING THE
EXPIRATION DATE.

     Subject to the foregoing, if the amount of stock remaining is insufficient
to fill the orders of subscribers after completion of the Subscription Offering,
such stock will be allocated first to each subscriber whose order is accepted by
the Bank, in an amount equal to the lesser of 100 shares or the number of shares
subscribed for by each such subscriber, if possible. Thereafter, unallocated
shares will be allocated among the subscribers whose order remains unsatisfied
on a 100 shares per order basis until all such orders have been filled or the
remaining shares have been allocated.

SYNDICATED COMMUNITY OFFERING

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

     The price at which Common Stock is sold in the Syndicated Community
Offering will be determined as described above under "-- Stock Pricing and
Number of Shares Issued." Subject to overall purchase limitations, no person,
together with any associate or group of persons acting in concert, will be
permitted to subscribe in the Syndicated Community Offering for more than
$350,000 of the Common Stock, exclusive of an increase in shares issued pursuant
to an increase in the Offering Range of up to 15%; provided, however, that
shares of Common Stock purchased in the Community Offering by any persons,
together with associates of or persons acting in concert with such persons, will
be aggregated with purchases in the Syndicated Community Offering and be subject
to an overall maximum purchase limitation of $700,000 of

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the shares offered, exclusive of an increase in shares issued pursuant to an
increase in the Offering Range by up to 15%.

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

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

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

     The Syndicated Community Offering will terminate no more than 45 days
following the close of the Subscription Offering, unless extended by the Bank
with the approval of the OTS. Such extensions may not be beyond. See "--Stock
Pricing and Number of Shares Issued."

PERSONS IN NONQUALIFIED STATES OR FOREIGN COUNTRIES

     The Company and the Bank will make reasonable efforts to comply with the
securities laws of all states in the United States in which persons entitled to
subscribe for stock pursuant to the Plan reside. However, the Plan provides that
the Bank is not required to offer stock in the Subscription Offering to any
person who resides in a foreign country or resides in a state of the United
States with respect to which both of the following apply: (i) a small number of
persons otherwise eligible to subscribe for shares of Common Stock reside in
such state; and (ii) Bancorp or the Bank determines that compliance with the
securities laws of such state would be impracticable for reasons of cost or
otherwise, including but not limited to a request that the Bank or its officers,
directors or trustees register as a broker, dealer, salesman or selling agent,
under the securities laws of such state, or a request to register or otherwise
qualify the subscription rights or Common Stock for sale or submit any filing
with respect thereto in such state. Where the number of persons eligible to
subscribe for shares in one state is small, the Bank will base its decision as
to whether or not to offer the Common Stock in such state on a number of
factors, including the size of accounts held by account

                                      132
holders in the state, the cost of registering or qualifying the shares or the
need to register the Bank, its officers, directors or employees as brokers,
dealers or salesmen.

MARKETING AND UNDERWRITING ARRANGEMENTS

     The Bank has engaged Sandler O'Neill as a consultant and financial advisor
in connection with the offering of the Common Stock, and Sandler O'Neill has
agreed to use its best efforts to solicit subscriptions and purchase orders for
shares of Common Stock in the Offering. Based upon negotiations concerning fee
structure, Sandler O'Neill will receive a marketing fee equal to 1.5% of the
aggregate Purchase Price of the shares sold in the Subscription and Community
Offerings, excluding shares purchased by directors, officers, employees, and any
immediate family member thereof, and any employee benefit plan of Bancorp or the
Bank, including the ESOP, for which Sandler O'Neill will not receive a fee. In
the event that a selected dealers agreement is entered into in connection with a
Syndicated Community Offering, the Bank will pay a fee (to be negotiated at such
time under such agreement) to such selected dealers, any sponsoring dealers
fees, and a management fee to Sandler O'Neill of 1.50% for shares sold by
National Association of Securities Dealers, Inc. ("NASD") member firms pursuant
to a selected dealers agreement; provided, however, that any fees payable to
Sandler O'Neill for Common Stock sold by them pursuant to such a selected
dealers' agreement shall not exceed 1.50% of the Purchase Price and provided,
further, however, that the aggregate fees payable to Sandler O'Neill and the
selected dealers will not exceed 7.0% of the aggregate purchase price of the
Common Stock sold by selected dealers. Fees to Sandler O'Neill and to any other
broker-dealer may be deemed to be underwriting fees, and Sandler O'Neill and
such broker-dealers may be deemed to be underwriters. The Bank has agreed to
indemnify Sandler O'Neill for reasonable costs and expenses in connection with
certain claims or liabilities, including certain liabilities under the
Securities Act. Sandler O'Neill has received advances towards its fees totalling
$50,000. Total marketing fees to Sandler O'Neill are expected to be $251,000 and
$326,000 at both the minimum and the maximum of the Offering Range,
respectively. See "Pro Forma Data" for the assumptions used to arrive at these
estimates.

     Sandler O'Neill will perform proxy solicitation services, offering agent
services and records management services for the Bank in the Offering and will
receive a fee for these services of $15,000. Reasonable out-of-pocket expenses
shall not exceed $60,000.

     Directors and executive officers of the Bank may participate in the
solicitation of offers to purchase Common Stock. Questions of prospective
purchasers will be directed to executive officers or registered representatives.
Other employees of the Bank may participate in the Offering in ministerial
capacities or providing clerical work in effecting a sales transaction. Such
other employees have been instructed not to solicit offers to purchase Common
Stock or provide advice regarding the purchase of Common Stock. The Bank will
rely on Rule 3a4-1 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and sales of Common Stock will be conducted within the
requirements of Rule 3a4-1, so as to permit officers, directors and employees to
participate in the sale of Common Stock. No officer, director or employee of the
Bank will be compensated in connection with his participation by the payment of
commissions or other remuneration based either directly or indirectly on the
transactions in the Common Stock.

PROCEDURE FOR PURCHASING SHARES IN THE OFFERING

     To ensure that each purchaser receives an offering circular at least 48
hours before the Expiration Date in accordance with Rule 15c2-8 of the Exchange
Act, no offering circular will be mailed any later than five days prior to such
date or hand delivered any later than two days prior to such date. Execution of
the

                                      133
stock order form and certification form will confirm receipt or delivery in
accordance with Rule 15c2-8. Stock order and certification forms will only be
distributed with an offering circular.

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

     In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the Eligibility Record Date (February 28,
1997) and/or the Supplemental Eligibility Record Date [(MARCH 31, 1998)] and/or
the Voting Record Date (_____________) must list all accounts on the stock order
form giving all names in each account and the account number.

     Payment for subscriptions may be made (i) in cash if delivered in person at
any branch office of the Bank, (ii) by check, bank draft or money order, or
(iii) by authorization of withdrawal from deposit accounts maintained with the
Bank. No wire transfers will be accepted. Interest will be paid on payments made
by cash, check, bank draft or money order at the Bank's passbook rate of
interest from the date payment is received until the completion or termination
of the Offering. Orders for Common Stock submitted by subscribers in the
Subscription Offering which aggregate $50,000 or more must be paid by official
or certified check or by withdrawal authorization from a deposit account of the
Bank. If payment is made by authorization of withdrawal from deposit accounts,
the funds authorized to be withdrawn from a deposit account will continue to
accrue interest at the contractual rates until completion or termination of the
Offering, but a hold will be placed on such funds, thereby making them
unavailable to the depositor until completion or termination of the Offering.

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

     If the ESOP subscribes for shares during the Subscription Offering, the
ESOP will not be required to pay for the shares subscribed for at the time it
subscribes, but rather, may pay for such shares of Common Stock subscribed for
at the Purchase Price upon consummation of the Subscription and Community

                                      134
Offerings, if all shares are sold, or upon consummation of the Syndicated
Community Offering if shares remain to be sold in such offering; provided, that
there is in force from the time of its subscription until such time, a loan
commitment from an unaffiliated third party to lend to the ESOP, at such time,
the aggregate Purchase Price of the shares for which it subscribed.

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

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

LIMITATIONS ON COMMON STOCK PURCHASES

     The Plan sets forth various limitations on purchases of Common Stock in the
Offering. The limitations which are applicable to tax-qualified employee stock
benefit plans relate solely to the ESOP and are referred to below in this
regard.

     (1)  A minimum of 25 shares of Common Stock must be purchased by each
Person purchasing shares in the Offering to the extent those shares are
available; provided, however, that in the event the minimum number of shares of
Common Stock purchased times the price per share exceeds $500, then such minimum
purchase requirement shall be reduced to such number of shares of Common Stock
which when multiplied by the price per share shall not exceed $500, as
determined by the Board.

     (2)  Each Eligible Account Holder may subscribe for and purchase in the
Subscription Offering up to the greater of: 1) the amount permitted to be
purchased in the Community Offering, currently $350,000 of Common Stock; 2) one-
tenth of one percent (.10%) of the total offering of shares of Common Stock; or
3) fifteen times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Common Stock to be issued by a
fraction of which the numerator is the amount of the Qualifying Deposit of the
Eligible Account Holder and the denominator is the total amount of Qualifying
Deposits of all Eligible Account Holders, in each case on the Eligibility Record
Date subject to the overall maximum purchase limitation in (2) above and
exclusive of an increase in the total number of shares issued due to an increase
in the Estimated Price Range of up to 15%.

     (3)  The ESOP is permitted to purchase in the aggregate up to 10% of the
shares of Common Stock issued in the Offering, including shares issued to the
Foundation and shares issued in the event of an increase in the Estimated Price
Range of 15%, and intends to purchase 8% of the shares of Common Stock issued in
the Offering, including shares issued to the Foundation.

                                      135
(4)  Each Supplemental Eligible Account Holder may subscribe for and
purchase in the Subscription Offering up to the greater of: 1) the amount
permitted to be purchased in the Community Offering, currently $350,000 of
Common Stock; 2) one-tenth of one percent (.10%) of the total offering of shares
of Common Stock; or 3) fifteen times the product (rounded down to the next whole
number) obtained by multiplying the total number of shares of Common Stock to be
issued by a fraction of which the numerator is the amount of the Qualifying
Deposit of the Supplemental Eligible Account Holder and the denominator is the
total amount of Qualifying Deposits of all Supplemental Eligible Account
Holders, in such case on the Supplemental Eligibility Record date subject to the
overall maximum purchase limitation in (2) above and exclusive of an increase in
the total number of shares issued due to an increase in the estimated Price
Range of up to 15%;

     (5)  Each Other Member may subscribe for and purchase in the Subscription
Offering up to the greater of: 1) the amount permitted to be purchased in the
Community Offering, currently $350,000 of Common Stock; or 2) one-tenth of one
percent (.10%) of the total offering of shares of Common Stock, in each case
subject to the overall maximum purchase limitation in (2) above and exclusive of
an increase in the total number of shares issued due to an increase in the
Estimated Price Range of up to 15%.

     (6)  Persons purchasing shares of Common Stock in the Community Offering,
together with associates of and groups of persons acting in concert with such
persons, may purchase in the Community Offering to $350,000 of Common stock,
subject to the overall maximum purchase limitation in (2) above and exclusive of
an increase in the total number of shares issued due to an increase in the
Estimated price Range of up to 15% .

     (7)  Persons purchasing shares of Common Stock in the Syndicated Community
Offering, together with associates of and persons acting in concert with such
persons, may purchase in the Syndicated Offering up to $350,000 of Common Stock,
subject to the overall maximum purchase limitation in (2) above and exclusive of
an increase in the total number of shares issued due to an increase in the
Estimated Price Range of up to 15% and, provided further that shares of Common
Stock purchased in the Community Offering by any persons, together with
associates of or persons acting in concert with such persons, will be aggregated
with purchases in the Syndicated Community Offering in applying the $350,000
purchase limitation.

     (8)  Except for the ESOP, the overall maximum number of shares of Common
Stock subscribed for or purchased in all categories of the Offering by any
person, together with associates of or persons acting in concert with such
persons, shall not exceed $700,000 of the Common Stock offered, exclusive of an
increase in the total number of shares issued due to an increase in the
Estimated Price Range of up to 15%.

     (9)  In addition to the above purchase limitations, the Plan of Stock
Issuance sets forth certain additional limitations on purchases of shares of
Common Stock in the Offering, as follows: (i) the aggregate amount of Common
Stock acquired in the Offering by any non-tax-qualified employee stock benefit
plan or any insider of the Bank and his or her associates, exclusive of any
Common Stock acquired by said plan, or such insider and his or her associates,
in the secondary market, shall not exceed 10% of (a) the outstanding shares of
Common Stock, or (b) the stockholders' equity of the Company, held by persons
other than the MHC at the close of the Offering; and (ii) the aggregate amount
of Common Stock acquired in the Offering by all non-tax-qualified employee stock
benefit plans and insiders of the Bank and their associates shall not exceed
thirty percent (30%) of the (a) outstanding shares of Common Stock, or (b)
stockholders' equity of the Company, held by persons other than the Mutual
Company at the close of the Offering.

                                      136
For purposes of the foregoing limitations (i) directors, officers and
employees shall not be deemed to be associates or a group acting in concert
solely as a result of their capacities as such and (ii) shares purchased by the
ESOP shall not be attributable to the individual officers or beneficiaries of
such plan for purposes of determining compliance with the foregoing limitations.

     For purposes of the foregoing limitations, the term "Person" means any
corporation, partnership, association, joint stock-company, trust (including
Individual Retirement Accounts and KEOGH Accounts), unincorporated organization,
government or political subdivision thereof, or any other entity. For purposes
of the foregoing limitations, the term "Associate" when used to indicate a
relationship with any person, means (i) any corporation or organization (other
than the Bank or a majority owned subsidiary of the Bank) of which such person
is an officer or partner or is, directly or indirectly, the beneficial owner of
10% or more of any class of equity securities, (ii) any trust or other estate in
which such person has a substantial beneficial interest or as to which such
person serves as trustee or in a similar fiduciary capacity except that the term
"Associate" does not include any Non-Tax-Qualified Employee Stock Benefit Plan
or any Tax-Qualified Employee Stock Benefit Plan in which a person has a
substantial beneficial interest or serves as a trustee or in a similar fiduciary
capacity, and except that, for purposes of aggregating total shares that may be
held by Officers and Directors the term "Associate" does not include any Tax-
Qualified Employee Stock Benefit Plan, and (iii) any relative or spouse of such
person, or any relative of such spouse, who has the same home as such person or
who is a Director or Officer of the Bank, Bancorp or the Mutual Company, or any
of its parents or subsidiaries. "Insider" means any officer or director of the
Bank, Bancorp, the Mutual Company or the Stock Bank or any affiliates of such
entities, and any person acting in concert with any such officer or director.

     Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the members of
the Bank, both the individual amount permitted to be subscribed for and the
overall maximum purchase limitation may be increased to up to a maximum of 5% at
the sole discretion of Bancorp and the Bank. If such amount is increased,
subscribers for the maximum amount will be, and certain other large subscribers
in the sole discretion of the Bank may be, given the opportunity to increase
their subscriptions up to the then applicable limit. In addition, the Boards of
Directors of Bancorp and the Bank may, in their sole discretion, increase the
maximum purchase limitation referred to above up to 9.99%, provided that orders
for shares exceeding 5% of the shares being offered in the Subscription and
Community Offerings shall not exceed, in the aggregate, 10% of the shares being
offering the Subscription and Community Offerings. Requests to purchase
additional shares of Common Stock under this provision will be determined by the
Boards of Directors and, if approved, allocated on a pro rata basis giving
priority in accordance with the priority rights set forth herein.

     The overall maximum purchase limitation may not be reduced to less than 1%
but the individual amount permitted to be subscribed for may be reduced by the
Bank to less than $350,000, subject to paragraphs (4), (12) and (13) above
without the further approval of members or resolicitation of subscribers. An
individual Eligible Account Holder, Supplemental Eligible Account Holder or
Other Member may not purchase individually in the Subscription Offering the
overall maximum purchase limit of 1% of the shares offering, but may make such
purchase, together with associates of and persons acting in concert with such
person, by also purchasing in other available categories of the Offering,
subject to availability of shares and the overall maximum purchase limit for
purchases in the Offering.

     In the event of an increase in the total number of shares offered due to an
increase in the Offering Range of up to 15% (the "Adjusted Maximum"), the
additional shares will be allocated in the following order of priority in
accordance with the Plan: (i) to fill the ESOP's subscription of 8% of the
Adjusted Maximum 

                                      137
number of shares including shares issued to the Foundation; (ii) in the event
that there is an oversubscription by Eligible Account Holders, to fill
unfulfilled subscriptions of Eligible Account Holders exclusive of the Adjusted
Maximum; (iii) in the event that there is an oversubscription by Supplemental
Eligible Account Holders, to fill unfulfilled subscriptions of Supplemental
Eligible Account Holders, exclusive of the Adjusted Maximum; (iv) in the event
that there is an oversubscription by Other Members, to fill unfulfilled
subscriptions of Other Members exclusive of the Adjusted Maximum; and (v) to
fill unfulfilled subscriptions in the Community Offering to the extent possible
exclusive of the Adjusted Maximum with preference given to natural persons
residing in Bergen, Essex and Morris Counties, New Jersey.

CERTAIN RESTRICTIONS ON PURCHASE OR TRANSFER OF THE COMMON STOCK

     All shares of Common Stock purchased in the Offering by a director or an
executive officer of the Bank will be subject to a restriction that the shares
not be sold for a period of one year following the Reorganization, except in the
event of the death of such director or executive officer. Each certificate for
restricted shares will bear a legend giving notice of this restriction on
transfer, and instructions will be issued to the effect that any transfer within
such time period of any certificate or record ownership of such shares other
than as provided above is a violation of the restriction. Any shares of Common
Stock issued at a later date as a stock dividend, stock split, or otherwise,
with respect to such restricted stock will be subject to the same restrictions.
The directors and executive officers of the Bank will also be subject to the
insider trading rules promulgated pursuant to the Exchange Act and any other
applicable requirements of the federal securities laws.

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

     Unless approved by the OTS, Bancorp, pursuant to OTS regulations, will be
prohibited from repurchasing any shares of the Common Stock for three years
except: (i) for an offer to all stockholders of Bancorp on a pro rata basis
(except that the Mutual Company may be excluded from the repurchase with the
OTS' approval); (ii) for the repurchase of qualifying shares of a director; or
(iii) for the purchase in the open market by a tax-qualified or non-tax-
qualified employee stock benefit plan of the Bank (but not of Bancorp) in an
amount reasonable and appropriate to fund such plan.

INTERPRETATION AND AMENDMENT OF THE PLAN

     To the extent permitted by law, all interpretations of the Plan by the Bank
will be final. The Plan provides that the Bank's Board of Directors shall have
the discretion to interpret and apply the provisions of the Plan to particular
circumstances and that such interpretation or application shall be final. This
includes any and all interpretations, applications and determinations made by
the Board of Directors on the basis of such information and assistance as was
then reasonably available for such purpose.

     The Plan provides that, if deemed necessary or desirable by the Board of
Directors, the Plan may be substantively amended at any time prior to
solicitation of proxies from members to vote on the Plan by a two-thirds vote of
the Bank's Board of Directors. After submission of the proxy materials to the
members,

                                      138
the Plan may be amended by a two-thirds vote of the Board of Directors at any
time prior to the Special Meeting with the concurrence of the OTS. The Plan may
be amended at any time after the approval of members with the approval of the
OTS and no further approval of the members will be necessary unless otherwise
required by the OTS. By adoption of the Plan, the Bank's members will be deemed
to have authorized amendment of the Plan under the circumstances described
above.

     The establishment of the Foundation will be considered as a separate matter
from approval of the Plan. If the Bank's members approve the Plan, but not the
creation of the Foundation, the Bank intends to complete the Reorganization
without the Foundation. Failure to approve the establishment of the Foundation
may materially increase the pro forma market value of the Common Stock since the
[VALUATION RANGE], as set forth herein, takes into account the dilutive impact
of the issuance of shares to the Foundation. In such an event, the Bank may
establish a new Offering Range and commence a resolicitation of subscribers. In
the event of a resolicitation, unless an affirmative response is received within
a specified period of time, all funds will be promptly returned to investors, as
described elsewhere herein. See "--Stock Pricing and Number of Shares Issued."

                CERTAIN RESTRICTIONS ON ACQUISITION OF BANCORP

     The following discussion is a general summary of OTS and other regulatory
restrictions on the acquisition of the Common Stock. In addition, the following
discussion generally summarizes certain provisions of Bancorp's Charter and
Bylaws.

MUTUAL HOLDING COMPANY STRUCTURE

     The mutual holding company structure could restrict the ability of
stockholders of Bancorp to effect a change in management of Bancorp and the Bank
and a change in control of Bancorp and the Bank because the Mutual Company, as
long as it remains in the mutual form of organization, will control a majority
of the voting stock of Bancorp. In addition, the Mutual Company is controlled by
the members of the Mutual Company (i.e., depositors of the Bank), and such
members may grant proxies in favor of the Bank's management. Thus, management of
the Mutual Company will be able to exert voting control over Bancorp. See "Risk
Factors --Considerations Resulting from Mutual Holding Company Structure."

CHANGE IN BANK CONTROL ACT

     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 association unless the OTS has been given 60 days' prior
written notice. The HOLA provides that no company may acquire "control of a
savings association 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 savings associations is conclusively deemed to have been
acquired by, among other things, the acquisition of more than 25% of any class
of voting stock of an association or the ability to control the election of a
majority of the directors of more than 10% of any class of voting stock, or of
more than 25% of any class of stock, of a savings association, 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 

                                      139
to the acquisition of Bancorp'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 Bank.

CHARTER AND BYLAWS AMENDMENT

     The Charter of Bancorp provides that it may be amended only if such
amendment is first proposed by the Board of Directors of Bancorp, approved by
the stockholders by a majority of the votes eligible to be cast at a legal
meeting of stockholders and submitted to the OTS for action as specified by law
or regulation. The Bylaws of Bancorp may be amended in a manner consistent with
the regulations of the OTS, and at any time by a majority of the Board of
Directors or by a majority of the votes cast at any legal meeting.

BOARD OF DIRECTORS

     Bancorp's Bylaws provide 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 serve for terms of three years. Each director serves
until his or her successor is elected and qualified. The Bylaws also provide
that a director may only be removed for cause by the affirmative vote of at
least a majority of the voting power of all the then outstanding shares of
capital stock of Bancorp entitled to vote in an election of directors.

LIMITATIONS ON VOTING RIGHTS

     Bancorp's Charter provides that no person, other than the Mutual Company,
may directly or indirectly offer to acquire or acquire the beneficial ownership
of more than 10% of the Common Stock, unless such offer is approved by a
majority of the Board of Directors. In addition, for a period of five years,
each share beneficially owned in violation of the foregoing limitation shall not
be 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

     Bancorp's Bylaws provide that special meetings of stockholders may be
called only by the Board of Directors.

CUMULATIVE VOTING

     Bancorp's Bylaws prohibit cumulative voting for any purpose. The absence of
cumulative voting rights effectively means that the holder of a majority of the
Common Stock to be voted at a meeting of stockholders (in this case, the Mutual
Company), may, if they so choose, elect all directors, thus precluding the
Minority Stockholders from obtaining representation on the Board of Directors
unless the Minority Stockholders are able to obtain the support of the Mutual
Company, the majority stockholder. In accordance with OTS regulations, the
Mutual Company must remain the majority stockholder of the voting stock of
Bancorp.

                                      140
PREFERRED STOCK

     Although Bancorp has no arrangements, understandings or plans at the
present time for the issuance or use of the shares of undesignated preferred
stock proposed to be authorized, the Board of Directors believes that the
availability of such shares will provide Bancorp with increased flexibility in
structuring future financings and acquisitions and in meeting other corporate
needs which may arise. In the event of a proposed merger, tender offer or other
attempt to gain control of Bancorp of which management does not approve, it may
be possible for the Board of Directors of Bancorp to authorize the issuance of
one or more series of preferred stock with rights and preferences which could
impede the completion of such a transaction.

                    DESCRIPTION OF CAPITAL STOCK OF BANCORP

GENERAL

     Bancorp is authorized to issue capital stock consisting of nine million
(9,000,000) shares of Common Stock, par value $.01 per share, and one million
(1,000,000) shares of Preferred Stock, which may be issued in series and classes
having such rights, preferences, privileges and restrictions as Bancorp's Board
of Directors may determine. Each share of Common Stock of Bancorp will have the
same relative rights as, and will be identical in all respects with, each other
share of Common Stock. Subject to the approval of the OTS, which has been
received, the Board of Directors of Bancorp is authorized to approve the
issuance of Common Stock up to the amount authorized by the Charter without the
approval of Bancorp's stockholders. Under OTS regulations, a majority of the
issued and outstanding voting stock of Bancorp must be held at all times by the
Mutual Company. THE COMMON STOCK OF BANCORP REPRESENTS NONWITHDRAWABLE CAPITAL,
IS NOT AN ACCOUNT OF AN INSURABLE TYPE, AND IS NOT INSURED BY THE FDIC OR ANY
OTHER GOVERNMENT AGENCY. Upon payment of the Purchase Price for the Common
Stock, all such shares will be fully-paid, duly issued and nonassessable.

COMMON STOCK

     VOTING RIGHTS.  The holders of the Common Stock possess exclusive voting
rights in Bancorp, except to the extent that shares of preferred stock issued in
the future may have voting rights. Each holder of the Common Stock is entitled
to one vote for each share held, except that the Charter eliminates voting
rights with respect to those shares that are beneficially owned by any person,
other than the Mutual Company, in excess of 10% of the Common Stock then
outstanding. Stockholders will not be permitted to cumulate their votes in the
election of directors.

     DIVIDENDS.  Upon consummation of the Reorganization, Bancorp's only will be
the portion of the net proceeds retained by it, the ESOP loan and the Bank's
capital stock. The payment of dividends by Bancorp is subject to limitations
that are imposed by applicable law and regulation. Bancorp's source for the
payment of cash dividends may in the future depend on receipt of dividends from
the Bank. See "Dividend Policy." The holders of the Common Stock are entitled to
receive and to share equally in such dividends as may be declared by the Board
of Directors out of funds legally available therefor. See "Risk Factors --
Considerations Resulting from Mutual Holding Company Structure," "Dividend
Policy" and "Federal and State Taxation -- Federal Taxation."

     LIQUIDATION.  In the unlikely event of any liquidation, dissolution, or
winding up of Bancorp, the holders of its Common Stock (and the holders of any
class or series of stock entitled to participate with the

                                      141
Common Stock in the distribution of assets) will be entitled to receive all
assets of Bancorp available for distribution in cash or in kind after payment of
all debts and liabilities of Bancorp (including all deposit accounts and accrued
interest thereon in the Bank and distribution of the Bank's liquidation account)
and any accrued dividend claims. If Bancorp issues preferred stock subsequent to
the Offering, the holders thereof may also have priority over the holders of
Bancorp's Common Stock in the event of liquidation or dissolution.

     PREEMPTIVE RIGHTS; REDEMPTION.  Holders of the Common Stock will not
be entitled to preemptive rights with respect to any shares which may be issued.
The Common Stock is not subject to call for redemption. If the Bank determined
to issue authorized but unissued shares in the future to persons other than, or
in addition to the existing shareholders, the interests of existing stockholders
would be diluted to the extent of the additional issuance.

PREFERRED STOCK

    None of the one million (1,000,000) authorized shares of preferred stock of
Bancorp will be issued in the Offering. The Board of Directors is authorized,
without stockholder approval, to issue preferred stock and to fix and state
voting powers, designations, preferences or other special rights of such shares.
If and when issued, the preferred stock may rank senior to the Common Stock as
to dividend rights, liquidation preferences, or both, and may have full, limited
or no voting rights. Accordingly, the issuance of preferred stock could
adversely affect the voting and other rights of holders of Common Stock.

     The authorized but unissued shares of Preferred Stock and the authorized
but unissued and unreserved shares of Common Stock will be available for
issuance in future mergers or acquisitions, in a future underwritten public
offering or private placement or for other general corporate purposes. Except as
otherwise required to approve the transaction in which the additional authorized
shares of Preferred Stock would be issued, no stockholder approval generally
would be required for the issuance of these shares. Depending on the
circumstances, however, stockholder approval may be required pursuant to
requirements for continued trading of the Common Stock on the Nasdaq or the
requirements of any exchange on which the Common Stock may then be listed.

                         TRANSFER AGENT AND REGISTRAR

     The transfer agent and registrar for the Common Stock is__________________,
________________, __________________.

                                    EXPERTS

     The consolidated financial statements of the Bank as of December 31, 1997
and 1996 and for each of the years in the three-year period ended December 31,
1997, have been included in this Prospectus, in reliance upon the report of
Radics & Co., LLC, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.

     FinPro has consented to the publication herein of the summary of its report
to the Bank 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.

                                      142
LEGAL AND TAX OPINIONS

 
     The legality of the Common Stock and the federal income tax consequences of
the Reorganization will be passed upon for the Bank by Muldoon, Murphy &
Faucette, Washington, D.C., special counsel to the Bank. New Jersey state tax
consequences of the Reorganization and the Offering will be passed upon for the
Bank by Fontanella and Babitts. Certain legal matters will be passed upon for
Sandler O'Neill by Luse Lehman Gorman Pomerenk.

                            ADDITIONAL INFORMATION

     Bancorp has filed with the SEC a registration statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information, including
the Independent Valuation, which is an exhibit to the Registration Statement,
can be examined without charge at the public reference facilities of the SEC
located at 450 Fifth Street, NW, Washington, DC 20549, and copies of such
material can be obtained from the SEC at prescribed rates. In addition, the SEC
maintains a web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC, including Bancorp. The Independent Valuation may
also be inspected by Eligible Account Holders and Supplemental Eligible Account
Holders at the offices of the Bank during normal business hours. The statements
contained in this Prospectus as to the contents of any contract or other
document filed as an exhibit to the registration statement are, of necessity,
brief descriptions thereof and are not necessarily complete; each such statement
is qualified by reference to such contract or document.

     The Bank has filed with the OTS a Notice of Mutual Holding Company
Reorganization on Form MHC-1 (the "Notice") and an Application for Approval of a
Minority Stock Issuance on Form MHC-2 (the "Application"). Pursuant to the rules
and regulations of the OTS, this Prospectus omits certain information contained
in the Notice and Application. The Notice and Application, including the
Independent Valuation, which is an exhibit to the Application, may be examined
at the principal office of the OTS, 1700 G Street, NW, Washington, DC 20552 and
the office of the Northeast Regional Director of the OTS located at 10 Exchange
Place, Jersey City, New Jersey 07302.

     In connection with the Offering, Bancorp will register its Common Stock
with the SEC under Section 12(g) of the Exchange Act, and upon such
registration, Bancorp and the holders of its stock will become subject to the
proxy solicitation rules, reporting requirements and restrictions on stock
purchases and sales by Directors, officers and greater than 10% stockholders,
the annual and periodic reporting and certain other requirements of the Exchange
Act. Under the Plan, Bancorp has undertaken that it will not terminate such
registration for a period of at least three years following the Reorganization.

     A copy of the Certificate of Incorporation and the Bylaws of Bancorp and
the Charter and Bylaws of the Bank are available without charge from the Bank.
The Bank's principal office is located at 417 Bloomfield Avenue, Caldwell, New
Jersey and its telephone number is (973) 226-7911.

                                      143
WEST ESSEX BANK AND SUBSIDIARY
                       CONSOLIDATED FINANCIAL STATEMENTS
                  (WITH INDEPENDENT AUDITORS' REPORT THEREON)
                               December 31, 1997

                                     INDEX
                                     -----
Page
                                                                                  ---------------
Management Responsibility Statement                                                      F-2
                                                                                          
Independent Auditors' Report                                                             F-3
                                                                                          
Consolidated Statements of Financial Condition                                            
  as of March 31, 1998 (unaudited) and December 31, 1997 and 1996                        F-4
                                                                                          
Consolidated Statements of Income for the Three-Month Periods Ended                       
  March 31, 1998 and 1997 (unaudited) and for Each of the Years                           
  in the Three-Year Period Ended December 31, 1997                                        41
                                                                                          
Consolidated Statements of Comprehensive Income for the Three-Month                       
  Periods Ended March 31, 1998 and 1997 (unaudited) and for Each of                       
  the Years in the Three-Year Period Ended December 31, 1997                             F-5
                                                                                          
Consolidated Statements of Retained Earnings for the Three-Month                          
  Period Ended March 31, 1998 (unaudited) and for Each of the Years                       
  in the Three-Year Period Ended December 31, 1997                                       F-6
 
Consolidated Statements of Cash Flows for the Three-Month Periods
  Ended March 31, 1998 and 1997 (unaudited) and for Each of the
  Years in the Three-Year Period Ended December 31, 1997                             F-7 to F-8
 
Notes to Consolidated Financial Statements                                           F-9 to F-34
[LETTERHEAD OF WEST ESSEX BANK APPEARS HERE]

                      MANAGEMENT RESPONSIBILITY STATEMENT
                      -----------------------------------

Management of West Essex Bank, F.S.B and Subsidiary is responsible for the 
preparation of the consolidated financial statements and all other consolidated 
financial information included in this report. The consolidated financial 
statements were prepared in accordance with generally accepted accounting 
principles applied on a consistent basis. All consolidated financial information
included in this report agrees with the consolidated financial statements. In 
preparing the consolidated financial statements, management makes informed 
estimates and judgments, with consideration given to materiality, about the 
expected results of various events and transactions.

Management maintains a system of internal accounting control that includes 
personnel selection, appropriate division of responsibilities and formal 
procedures and policies consistent with high standards of accounting and 
administrative practice. Consideration has been given to the necessary balance 
between costs of systems of internal control and the benefits derived.

Management reviews and modifies its systems of accounting and internal control 
in light of changes in conditions and operations as well as in response to 
recommendations from the independent certified public accounts. Management 
believes the accounting and internal control systems provide reasonable 
assurance that assets are safeguarded and financial information is reliable.

The Board of Directors (the "Board") is responsible for determining that 
management fulfills its responsibilities in the preparation of the consolidated 
financial statements and in the control of operations. The Board appoints the 
independent certified public accountants. The Board meets with management, the 
independent certified public accountants and the internal auditor, approves the 
overall scope of audit work and related fee arrangements and review audit 
reports and findings.

/s/ Dennis A. Petrello                       /s/ Leopold W. Montanaro 
------------------------------               ------------------------------
    Dennis A. Petrello                           Leopold W. Montanaro 
    Executive Vice President                     President & CEO

     
                         /s/ Charles E. Filippo
                         -------------------------------
                             Charles E. Filippo
                             Executive Vice President

                                      F-2
[LETTERHEAD OF RADICS & CO., LLC APPEARS HERE]

                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------
                                        

To The Board of Directors
West Essex Bank

We have audited the accompanying consolidated statements of financial condition
of West Essex Bank (the "Bank") and Subsidiary as of December 31, 1997 and 1996,
and the related consolidated statements of income, comprehensive income,
retained earnings and cash flows for each of the years in the three-year period
ended December 31, 1997.  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 consolidated financial statements are
free of material misstatement.  An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements.  An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation.  We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to in the second
preceding paragraph present fairly, in all material respects, the consolidated
financial position of West Essex Bank and Subsidiary as of December 31, 1997 and
1996, and the results of their operations and cash flows for each of the years
in the three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.

/s/ Radics & Co., LLC

Pine Brook, New Jersey
March 6, 1998, except for the tenth paragraph
 of Note 15, as to which the date is April 8, 1998

                                      F-3
WEST ESSEX BANK AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                 ----------------------------------------------
March 31,               December 31,       
                                                                                                     ----------------------------
ASSETS                                                            Note(s)                1998              1997         1996     
------                                                       -----------------     --------------    -------------  -------------
                                                                                     (unaudited)
Cash and amounts due from depository institutions                                  $   1,839,621     $  1,832,548   $    925,769 
Interest-bearing deposits in other banks                                              15,489,434        6,863,570      6,828,493 
                                                                                   --------------    -------------  -------------
                                                                                                                                 
     Total cash and cash equivalents                              1 and 17            17,329,055        8,696,118      7,754,262 
                                                                                                                                 
Term deposits                                                                          5,000,000           -             -       
Securities available for sale                                   1, 2 and 17            7,105,300        7,080,550      1,647,454 
Investment securities held to maturity                          1, 3 and 17           28,768,169       22,928,866     22,476,466 
Mortgage-backed securities held to maturity                   1, 4, 11 and 17        122,632,889      130,174,291    113,254,086 
Loans receivable                                                1, 5 and 17          114,302,459      112,734,741     82,134,147 
Real estate owned                                                 1 and 6              1,120,197        1,214,840      1,394,068 
Premises and equipment                                            1 and 7              3,112,703        3,122,584      1,640,355 
Federal Home Loan Bank of New York stock                            11                 2,281,500        2,183,800      1,670,400 
Accrued interest receivable                                     1, 8 and 17            2,071,895        2,012,197      1,651,427 
Excess of cost over assets acquired                               1 and 9              5,680,692        5,828,884        -       
Other assets                                                        14                 3,116,933        3,047,961      2,346,712 
                                                                                   --------------    -------------  -------------
                                                                                                                                 
       Total assets                                                                $ 312,521,792     $299,024,832   $235,969,377 
                                                                                   ==============    =============  =============
                                                                                                                                 
Liabilities and retained earnings                                                                                                
---------------------------------                                                                                                
                                                                                                                                 
Liabilities                                                                                                                      
-----------                                                                                                                      
                                                                                                                                 
Deposits                                                         10 and 17         $ 239,120,486     $238,192,141   $179,945,503 
Borrowed money                                                   11 and 17            42,300,000       30,300,000     23,650,000 
Advance payments by borrowers for taxes and insurance                                    795,177          772,429        622,190 
Other liabilities                                                13 and 14               505,033          485,553      3,299,447 
                                                                                   --------------    -------------  -------------
                                                                                                                                 
                                                                                     282,720,696      269,750,123    207,517,140 
                                                                                   ==============    =============  =============
                                                                                                                                 
Commitments and contingencies                                    15 and 17              -                -              -        
                                                                                                                                 
Retained earnings                                                12 and 14                                                       
-----------------                                                                                                                
                                                                                                                                 
Retained earnings - substantially restricted                                          29,721,316       29,210,175     28,473,335 
Accumulated other comprehensive income - Unrealized                                                                              
   gain (loss) on securities available for sale, net                                      79,780           64,534        (21,098)
                                                                                   --------------    -------------  -------------
     Total retained earnings                                                          28,801,096       29,274,709     28,452,237 
                                                                                   --------------    -------------  -------------
                                                                                                                                 
     Total liabilities and retained earnings                                       $ 312,512,792     $299,024,832   $235,969,377 
                                                                                   ==============    =============  =============
See notes to consolidated financial statements.

                                      F-4
WEST ESSEX BANK AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                -----------------------------------------------
Three Months Ended March 31,                Year Ended December 31,
                                                  ----------------------------       -----------------------------------------
                                                     1998              1997              1997           1996          1995
                                                  ----------        ----------       -----------    -----------    -----------
                                                           (unaudited)
Net Income                                        $  511,141        $  523,056       $   736,840    $ 1,656,008    $ 2,271,955
                                                  ----------        ----------       -----------    -----------    -----------

Other comprehensive
     income, net of income taxes:
       Unrealized holding gains (losses)
         on securities available for sale             15,246            (5,424)           65,387         20,679         84,946

       Reclassification adjustment 
         for realized gains (losses) on 
         securities available for sale                 -                 -                20,245        (80,813)        22,014
                                                  ----------        ----------       -----------    -----------    -----------
Other comprehensive income                            15,246            (5,424)           85,632        (60,134)       106,960
                                                  ----------        ----------       -----------    -----------    -----------
Comprehensive income                              $  526,387        $  517,632       $   822,472    $ 1,595,874    $ 2,378,915
                                                  ==========        ==========       ===========    ===========    ===========
See notes to consolidated financial statements.

                                      F-5
WEST ESSEX BANK AND SUBSIDIARY
                  CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
                  --------------------------------------------
Retained       Accumulated                    
                                                                 Earnings -        Other                       
                                                               Substantially    Comprehensive                  
                                                                 Restricted        Income            Total        
                                                               -------------    -------------    -------------
Balance - December 31, 1994                                    $ 24,545,372     $   (67,924)     $  24,477,448  
                                                                                                                
Unrealized gain on securities available                                                                         
for sale, net of income tax effect                                        -         106,960            106,960  
                                                                                                               
Net income for the year ended December 31, 1995                   2,271,955               -          2,271,955  
                                                               ------------     -----------      ------------- 

Balance - December 31, 1995                                      26,817,327          39,036         26,856,363

Unrealized loss on securities available
for sale, net of income tax effect                                                  (60,134)           (60,134)      

Net income for the year ended December 31, 1996                   1,656,008               -          1,656,008
                                                               ------------     -----------      -------------   

Balance - December 31, 1996                                      28,473,335         (21,098)        28,452,237    

Unrealized gain on securities available                                 
 for sale, net of income tax effect                                       -          85,632             85,632     

Net income for the year ended December 31, 1997                     736,840               -            736,840 
                                                               ------------     -----------      -------------     

Balance - December 31, 1997                                      29,210,175          64,534         29,274,709   

Unrealized gain on securities available for
 sale, net of income tax effect (unaudited)                               -          15,246             15,246            

Net income for the three months ended
 March 31, 1998 (unaudited)                                         511,141               -            511,141
                                                               ------------     -----------      -------------      

Balance - March 31, 1998 (unaudited)                           $ 29,721,316     $    79,780      $  29,801,096
                                                               ============     ===========      =============
See notes to consolidated financial statements.

                                      F-6
WEST ESSEX BANK AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                     -------------------------------------
Three Months Ended March 31,   
                                                                                            ------------------------------  
                                                                                                1998              1997      
                                                                                            ------------      ------------  
                                                                                                      (unaudited)
Cash flows from operating activities:                                                                                       
  Net income                                                                                $    511,141      $    523,056  
  Adjustments to reconcile net income                                                                                       
  to net cash provided by operating activities:                                                                             
     Depreciation and amortization of premises and equipment                                      74,659            51,918  
     Net accretion of premiums, discounts and deferred loan fees                                 (79,971)          (21,631) 
     Amortization of intangibles                                                                 148,192             -      
     Provision for loan losses                                                                   (22,050)           55,000  
     Provision for losses on real estate owned                                                    22,050           170,000  
     Loss (gain) on sale of securities available for sale                                          -                 -      
     (Gain) on sale of real estate owned                                                          (5,386)          (19,714) 
     Deferred income tax expense (benefit)                                                        49,670             -      
     (Increase) decrease in accrued interest receivable                                          (59,698)         (264,235) 
     Decrease (increase) in refundable income taxes                                               34,070           146,502  
     (Increase) decrease in other assets                                                        (161,281)          (99,299) 
     (Decrease) increase in interest payable on deposits                                            (934)          (16,625) 
     Increase (decrease) in other liabilities                                                     19,480           172,429  
                                                                                            ------------      ------------  
                                                                                                                            
       Net cash provided by (used in) operating activities                                       529,942           697,401  
                                                                                            ------------      ------------  
                                                                                                                            
Cash flows from investing activities:                                                                                       
  Purchase of term deposits                                                                   (5,000,000)            -      
  Proceeds from maturities of securities available for sale                                       -                  -      
  Proceeds from sale of securities available for sale                                             -                  -      
  Proceeds from repayments on and calls of securities available for sale                          -                115,272  
  Purchases of securities available for sale                                                      -             (2,023,131) 
  Proceeds from maturities and calls of investment securities held to maturity                    -              2,000,000  
  Purchases of investment securities held to maturity                                         (5,789,660)       (2,997,060) 
  Principal repayments on mortgage-backed securities held to maturity                          7,534,184         5,774,110  
  Purchases of mortgage-backed securities held to maturity                                        -             (5,243,670) 
  Purchase of loans receivable                                                                   (61,000)            -      
  Net (increase) decrease in loans receivable                                                 (1,448,057)         (863,486) 
  Proceeds from sales of real estate owned                                                        73,979           293,800  
  Proceeds from other payments received on real estate owned                                       4,000            12,402  
  Capitalized cost of real estate owned                                                           -                  -      
  Additions to premises and equipment                                                            (64,778)          (29,618)  
  Purchase of Federal Home Loan Bank of New York stock                                           (97,700)         (150,500) 
                                                                                            ------------      ------------  
                                                                                                                            
        Net cash (used in) investing activities                                               (4,849,032)       (3,111,881) 
                                                                                            ------------      ------------  
                                                                                                                            
Cash flows from financing activities:                                                                                       
  Net increase in deposits                                                                       929,279         1,489,462  
  Proceeds of borrowed money                                                                  30,000,000         4,000,000  
  Repayment of borrowed money                                                                (18,000,000)       (6,000,000) 
  Net increase (decrease) in                                                                                                
  advance payments by borrowers for taxes and insurance                                           22,748           (18,144) 
  Cash received in connection with branch purchases                                               -                  -      
                                                                                            ------------      ------------  
                                                                                                                            
        Net cash provided by (used in) financing activities                                   12,952,027          (528,682)  
                                                                                            ------------      ------------  
                                                                                                                            
Net increase (decrease) in cash and cash equivalents                                           8,632,937        (2,943,162) 
Cash and cash equivalents - beginning                                                          8,696,118         7,754,262  
                                                                                            ------------      ------------  
                                                                                                                            
Cash and cash equivalents - ending                                                          $ 17,329,055      $  4,811,100  
                                                                                            ============      ============
Year Ended December 31,  
                                                                                     --------------------------------------------
                                                                                          1997           1996            1995
                                                                                     ------------    ------------    ------------
Cash flows from operating activities:
  Net income                                                                         $    736,840    $  1,656,008    $  2,271,955
  Adjustments to reconcile net income
  to net cash provided by operating activities:
     Depreciation and amortization of premises and equipment                              230,524         207,456         149,290
     Net accretion of premiums, discounts and deferred loan fees                         (127,373)       (137,517)       (190,428)
     Amortization of intangibles                                                        1,743,062          -                -
     Provision for loan losses                                                            487,015         232,103         509,729
     Provision for losses on real estate owned                                            372,985          45,000          33,749
     Loss (gain) on sale of securities available for sale                                  20,245        (102,752)         22,014
     (Gain) on sale of real estate owned                                                  (30,080)       (117,201)        (69,580)
     Deferred income tax expense (benefit)                                               (725,335)        (36,609)        254,297
     (Increase) decrease in accrued interest receivable                                  (360,770)          1,946        (350,224)
     Decrease (increase) in refundable income taxes                                        90,624        (137,887)         60,824
     (Increase) decrease in other assets                                                 (101,782)        134,560        (298,754)
     (Decrease) increase in interest payable on deposits                                   90,056          24,530          16,320
     Increase (decrease) in other liabilities                                          (2,815,465)      3,009,284         (13,635)
                                                                                     ------------    ------------    ------------ 

       Net cash provided by (used in) operating activities                               (389,454)      4,778,921       2,395,557
                                                                                     ------------    ------------    ------------ 

Cash flows from investing activities:
  Purchase of term deposits                                                                -               -                -
  Proceeds from maturities of securities available for sale                                -              100,000           -
  Proceeds from sale of securities available for sale                                   1,588,229         202,752          27,980 
  Proceeds from repayments on and calls of securities available for sale                  115,272          91,875          94,395 
  Purchases of securities available for sale                                           (7,033,784)        (88,202)        (86,080) 
  Proceeds from maturities and calls of investment securities held to maturity         10,000,000       7,000,000       2,000,000  
  Purchases of investment securities held to maturity                                 (10,399,678)    (10,997,500)    (12,988,750) 
  Principal repayments on mortgage-backed securities held to maturity                  20,084,461      17,384,271      11,750,649  
  Purchases of mortgage-backed securities held to maturity                            (37,026,167)    (30,569,541)    (22,443,315) 
  Purchase of loans receivable                                                             -           (1,621,000)          -       
  Net (increase) decrease in loans receivable                                         (31,617,835)      4,010,899        (621,282) 
  Proceeds from sales of real estate owned                                                483,300         392,228         357,058  
  Proceeds from other payments received on real estate owned                               39,602          15,500          35,256  
  Capitalized cost of real estate owned                                                    (6,665)         -                -      
  Additions to premises and equipment                                                    (352,753)       (332,949)       (317,461) 
  Purchase of Federal Home Loan Bank of New York stock                                   (513,400)       (161,400)       (331,100) 
                                                                                     ------------    ------------    ------------ 

       Net cash (used in) investing activities                                        (54,639,418)    (14,573,067)    (22,522,650) 
                                                                                     ------------    ------------    ------------  

Cash flows from financing activities:
  Net increase in deposits                                                              7,148,632       1,528,768      14,194,772
  Proceeds of borrowed money                                                           44,975,000      15,000,000      19,000,000
  Repayment of borrowed money                                                         (38,325,000)     (8,350,000)    (12,000,000)
  Net increase (decrease) in                                                          
  advance payments by borrowers for taxes and insurance                                   150,239          (4,102)          8,232
  Cash received in connection with branch purchases                                    42,021,857          -                -
                                                                                     ------------    ------------    ------------  
       Net cash provided by (used in) financing activities                             55,970,728       8,174,666      21,203,004 
                                                                                     ------------    ------------    ------------  

Net increase (decrease) in cash and cash equivalents                                      941,856      (1,619,480)      1,075,911
Cash and cash equivalents - beginning                                                   7,754,262       9,373,742       8,297,831
                                                                                     ------------    ------------    ------------  

Cash and cash equivalents - ending                                                   $  8,696,118    $  7,754,262    $  9,373,742
                                                                                     ============    ============    ============
See notes to consolidated financial statements

                                      F-7
WEST ESSEX BANK AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                     -------------------------------------
Three Months Ended March 31,          Year Ended December 31,        
                                                            ----------------------------  -----------------------------------------
                                                                1998            1997          1997           1996           1995  
                                                            -----------    -------------  -----------    -----------    -----------
                                                                    (unaudited)
Supplemental disclosure of cash flow information:                                                                                 
  Cash paid during the year for:                                                                                                  
    Income taxes                                            $   110,480    $    62,078    $ 1,035,078    $ 1,023,150    $   901,127
                                                            ===========    ===========    ===========    ===========    ===========
    Interest                                                $ 2,865,550    $ 2,141,515    $ 9,501,814    $ 8,171,056    $ 7,630,527
                                                            ===========    ===========    ===========    ===========    ===========
                                                            
Supplemental schedule of noncash investing activities:      
    Unrealized gain (loss) on securities                    
      available or sale, net of deferred income taxes       $    15,246    $    (5,424)   $    85,632    $   (60,134)   $   106,960
                                                            ===========    ===========    ===========    ===========    ===========
    Loans receivable transferred to (from) real 
      estate owned                                          $         -    $   157,253    $   679,914    $   377,285    $   (82,943)
                                                            ===========    ===========    ===========    ===========    ===========
    Loans originated to facilitate the sale of real     
      estate owned                                          $         -    $         -    $         -    $         -    $    72,500
                                                            ===========    ===========    ===========    ===========    ===========
    Deferred gain on sale of real estate owned              $         -    $         -    $         -    $         -    $   (92,451)
                                                            ===========    ===========    ===========    ===========    ===========

    Assets acquired in connection with branch purchases:     
      Loans receivable                                      $         -    $         -    $    54,693    $         -    $         -
      Premises and equipment                                          -              -      1,360,000              -              -
      Excess of cost over assets acquired                             -              -      7,571,946              -              -
      Other assets                                                    -              -            457              -              -
                                                            -----------    -----------    -----------    -----------    -----------
                                                            $         -    $         -    $ 8,987,096    $         -    $         -
                                                            ===========    ===========    ===========    ===========    ===========

    Liabilities acquired in connection with branch 
     purchases:
      Deposits                                              $         -    $         -    $51,007,382    $         -    $         -
      Other Liabilities                                               -              -          1,571              -              -
                                                            -----------    -----------    -----------    -----------    -----------
                                                            $         -    $         -    $51,008,953    $         -    $         -
                                                            ===========    ===========    ===========    ===========    ===========
See notes to consolidated financial statements.

                                      F-8
WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                        

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------

     Basis of consolidated financial statement presentation
     ------------------------------------------------------

     The consolidated financial statements include the accounts of the Bank and
     its wholly owned subsidiary, West Essex Insurance Agency, Inc.
     ("Subsidiary"), and have been prepared in conformity with generally
     accepted accounting principles.  All significant intercompany accounts and
     transactions have been eliminated in consolidation.

     In preparing the consolidated financial statements, management is required
     to make estimates and assumptions that affect the reported amounts of
     assets and liabilities as of the dates of the consolidated statements of
     financial condition and revenues and expenses for the periods then ended.
     Actual results could differ significantly from those estimates.  Material
     estimates that are particularly susceptible to significant changes relate
     to the determination of the allowance for loan losses, the valuation of
     real estate owned and the recoverability of excess of cost over assets
     acquired.  Management believes that the allowance for loan losses is
     adequate and that real estate owned and excess of cost over assets acquired
     are appropriately valued.  While management uses available information to
     recognize losses on loans and real estate owned and to assess the
     recoverability of excess of cost over assets acquired, future additions to
     the allowance for loan losses or further writedowns of real estate owned
     and excess of cost over assets acquired may be necessary based on changes
     in economic and market conditions in the Bank's market area.

     In addition, various regulatory agencies, as an integral part of their
     examination process, periodically review the Bank's allowance for loan
     losses and real estate owned valuations.  Such agencies may require the
     Bank to recognize additions to the allowance or additional writedowns based
     on their judgments about information available to them at the time of their
     examination.

     Cash and cash equivalents
     -------------------------

     Cash and cash equivalents include cash and amounts due from depository
     institutions and interest-bearing deposits in other banks with original
     maturities of three months or less.

     Investments and mortgage-backed securities
     ------------------------------------------

     Debt securities that the Bank has the positive intent and ability to hold
     to maturity are classified as held-to-maturity securities and reported at
     amortized cost.  Debt and equity securities that are bought and held
     principally for the purpose of selling them in the near term are classified
     as trading securities and reported at fair value, with unrealized holding
     gains and losses included in earnings.  Debt and equity securities not
     classified as trading securities nor as held-to-maturity securities are
     classified as available for sale securities and reported at fair value,
     with unrealized holding gains or losses, net of deferred income taxes,
     reported in a separate component of retained earnings.

     Premiums and discounts on all securities are amortized/accreted using the
     interest method.  Interest and dividend income on securities, which
     includes amortization of premiums and accretion of discounts, is recognized
     in the consolidated financial statements when earned.  The adjusted cost
     basis of an identified security sold or called is used for determining
     security gains and losses recognized in the consolidated statements of
     income.

                                      F-9
WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Cont'd.)
---------------------------------------------           

     Loans receivable
     ----------------

     Loans receivable are stated at unpaid principal balances less the allowance
     for loan losses and deferred loan fees.  Interest is calculated by the use
     of the actuarial method.

     The Bank defers loan origination fees and certain direct loan origination
     costs and amortizes such amounts, using a method which approximates the
     level-yield method, as an adjustment of yield over the contractual lives of
     the related loans.

     Uncollectible interest on loans that are contractually delinquent ninety
     days or more is charged off and the related loans placed on nonaccrual
     status, or, alternatively, an allowance for uncollectible interest is
     established by a charge to interest income equal to all interest previously
     accrued.  Under either method, income is subsequently recognized only to
     the extent that cash payments are received until, in management's judgment,
     the borrower's ability to make periodic interest and principal payments is
     probable, in which case the loan is returned to an accrual status.

     Allowance for loan losses
     -------------------------

     An allowance for loan losses is maintained at a level considered adequate
     to absorb loan losses.  Management of the Bank, in determining the
     allowance for loan losses, considers the risks inherent in its loan
     portfolio and changes in the nature and volume of its loan activities,
     along with the general economic and real estate market conditions.

     The Bank utilizes a two tier approach: (1) identification of impaired loans
     and the establishment of specific loss allowances on such loans; and (2)
     establishment of general valuation allowances on the remainder of its loan
     portfolio.  The Bank maintains a loan review system which allows for a
     periodic review of its loan portfolio and the early identification of
     potential impaired loans.  Such system takes into consideration, among
     other things, delinquency status, size of loans, type and estimated fair
     value of collateral and financial condition of the borrowers.  Specific
     loan loss allowances are established for identified loans based on a review
     of such information.  General loan loss allowances are based upon a
     combination of factors including, but not limited to, actual loan loss
     experience, composition of the loan portfolio, current economic conditions
     and management's judgment.  Although management believes that adequate loan
     loss allowances are established, actual losses are dependent upon future
     events and, as such, further additions to the level of the allowance for
     loan losses may be necessary.

                                     F-10
WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Cont'd)
---------------------------------------------         

     Allowance for loan losses  (Cont'd)
     -------------------------          

     A loan evaluated for impairment is deemed to be impaired when based on
     current information and events, it is probable that the Bank will be unable
     to collect all amounts due according to the contractual terms of the loan
     agreement.  The amount of loan impairment is measured based on the present
     value of expected future cash flows discounted at the loan's effective
     interest rate or, as a practical expedient, at the loan's observable market
     price or the fair value of the collateral if the loan is collateral
     dependent.  All loans identified as impaired are evaluated independently.
     The Bank does not aggregate such loans for evaluation purposes.  Payments
     received on impaired loans are applied first to interest receivable and
     then to principal.

     Real estate owned
     -----------------

     Real estate owned consists of real estate acquired by foreclosure or deed
     in lieu of foreclosure.  Real estate owned is recorded at the lower of cost
     or fair value at date of acquisition and thereafter carried at the lower of
     such initially recorded amount or fair value less estimated selling costs.
     Costs incurred in developing or preparing properties for sale are
     capitalized.  Income and expense related to the holding and operating of
     properties are recorded in operations.  Gains and losses from sales of such
     properties are recognized as incurred.

     Concentration of risk
     ---------------------

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

     Premises and equipment
     ----------------------

     Premises and equipment are comprised of land, at cost, and buildings and
     improvements, leasehold improvements and furnishings and equipment, at cost
     less accumulated depreciation and amortization.  Depreciation and
     amortization charges are computed on the straight-line method over the
     following estimated useful lives.

        Buildings and improvements      10 to 50 years
        Leasehold improvements          Shorter of useful life
                                        or term of lease
        Furnishing and equipment        3 to 10 years

     Significant renewals and betterments are charged to the property and
     equipment account.  Maintenance and repairs are charged to expense in the
     year incurred.  Rental income is netted against occupancy costs in the
     consolidated statements of income.

                                     F-11
WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Cont'd)
---------------------------------------------         

     Excess of cost over assets acquired
     -----------------------------------

     The cost in excess of the fair value of net assets acquired was recorded on
     October 17, 1997 in conjunction with the acquisition of certain assets and
     assumption of certain liabilities of three branch offices of another
     financial institution.  This asset primarily consists of core deposit
     intangibles, which represent the intangible value of depositor
     relationships assumed in the transaction, and is being amortized to expense
     over a ten-year period  by use of the straight-line method.

     On a periodic basis, management reviews the excess of cost over assets
     acquired and evaluates events or changes in circumstances that may indicate
     impairment in the carrying amount of such asset.  In such instances,
     impairment, if any, is measured on a discounted estimated cash flow basis.

     Interest-rate risk
     ------------------

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

     Income taxes
     ------------

     The Bank and Subsidiary file a consolidated federal income tax return.
     Income taxes are allocated based on the contribution of income to the
     consolidated income tax return.  Separate state income tax returns are
     filed.

     Federal and state income taxes have been provided on the basis of reported
     income.  The amounts reflected on the income tax returns differ from these
     provisions due principally to temporary differences in the reporting of
     certain items for financial reporting and tax reporting purposes.  The
     income tax effect of these temporary differences is accounted for as
     deferred income taxes applicable to future periods.

     Reclassification
     ----------------

     Certain amounts as of and for the year ended December 31, 1996 and 1995
     have been reclassified to conform with the current year's presentation.

                                     F-12
WEST ESSEX BANK SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  ------------------------------------------

2. SECURITIES AVAILABLE FOR SALE
--------------------------------
March 31, 1998
                                             -------------------------------------------------------------------------
                                                   Amortized              Gross Unrealized                Carrying
                                                                 ----------------------------------
                                                     Cost              Gains            Losses              Value
                                             -----------------   ----------------   ---------------   ---------------- 
                                                                              (unaudited)
United States Government obligations:
   Due after one year through five years         $ 6,980,682         $  124,628       $     -            $ 7,105,310
                                             =================   ================   ===============   ================
December 31, 1997
                                             -------------------------------------------------------------------------
                                                   Amortized              Gross Unrealized                Carrying    
                                                                 ----------------------------------                   
                                                     Cost              Gains            Losses              Value     
                                             -----------------   ----------------   ---------------   ----------------
United States Government obligations:
   Due after one year through five years         $ 6,979,747         $  100,803       $     -            $ 7,080,550
                                             =================   ================   ===============   ================
December 31, 1996
                                             -------------------------------------------------------------------------
                                                   Amortized              Gross Unrealized                Carrying    
                                                                 ----------------------------------                   
                                                     Cost              Gains            Losses              Value     
                                             -----------------   ----------------   ---------------   ----------------
Obligations of states and
political subdivisions:
   Due after ten years                           $   114,951         $    5,407        $     -           $   120,358

Equity securities:
   Mutual fund                                     1,553,601                -              26,505          1,527,096
                                             -----------------   ----------------   ---------------   ---------------- 

                                                 $ 1,668,552         $    5,407        $   26,505        $ 1,647,454
                                             =================   ================   ===============   ================
The following table presents details of sales of securities available for sale:
Three Months Ended March 31,              Year Ended December 31,
                                         --------------------------------   -----------------------------------------
                                               1998             1997             1997         1996          1995
                                         ---------------  ---------------   ------------  ------------  -------------
                                                    (unaudited)
Sales proceeds                           $      -         $      -          $ 1,588,229   $   202,752   $    27,980
Gross gains                                     -                -                    -       102,752             -
Gross losses                                    -                -               20,245             -        22,014
F-13
WEST ESSEX BANK AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  ------------------------------------------
                                        

3.   INVESTMENT SECURITIES HELD TO MATURITY
-------------------------------------------
March 31, 1998                      
                                                        -----------------------------------------------------  
                                                          Carrying         Gross Unrealized       Estimated    
                                                                       -----------------------                 
                                                            Value         Gains       Losses      Fair Value   
                                                        ------------   ----------   ----------   ------------  
                                                                              (unaudited)
U.S. Government (including agencies):                                                                          
     Due in one year or less                            $  2,000,131   $   17,049   $    -       $  2,017,180  
     After one year through five years                     3,999,678       14,698        -          4,014,376  
     After five years through ten years                   17,000,000      115,779       34,375     17,081,404  
     After ten years                                       5,618,360      210,145        9,501      5,819,004  
                                                        ------------   ----------   ----------   ------------  
                                                                                                               
                                                          28,618,169      357,671       43,876     28,931,964  
                                                                                                               
Municipal obligation due within one year                     150,000       -             -            150,000  
                                                        ------------   ----------   ----------   ------------  

                                                        $ 28,768,169   $  357,671   $   43,876   $ 29,081,964  
                                                        ============   ==========   ==========   ============
December 31, 1997                      
                                                        -----------------------------------------------------  
                                                          Carrying         Gross Unrealized       Estimated    
                                                                       -----------------------                 
                                                            Value         Gains       Losses      Fair Value   
                                                        ------------   ----------   ----------   ------------  
                                                                              (unaudited)
U.S. Government (including agencies):                                                                          
     Due in one year or less                            $  2,000,150   $   59,850   $    -       $  2,060,000  
     After one year through five years                     3,999,622       11,315        -          4,010,937  
     After five years through ten years                   12,000,000      116,247        -         12,116,247  
     After ten years                                       4,929,094      222,270        -          5,151,364  
                                                        ------------   ----------   ----------   ------------  

                                                        $ 22,928,866   $  409,682   $    -       $ 23,338,548  
                                                        ============   ==========   ==========   ============
December 31, 1996
                                                        -----------------------------------------------------  
                                                          Carrying         Gross Unrealized       Estimated    
                                                                       -----------------------                 
                                                            Value         Gains       Losses      Fair Value   
                                                        ------------   ----------   ----------   ------------  
                                                                              (unaudited)
U.S. Government (including agencies):                                                                          
     Due after one year through five years              $  3,999,631   $   52,244        -       $  4,051,875  
     After five years through ten years                   11,000,000      120,201       21,388     11,098,813  
     After ten years                                       7,476,835      194,044       55,875      7,615,004  
                                                        ------------   ----------   ----------   ------------  

                                                        $ 22,476,466   $  366,489   $   77,263   $ 22,765,692  
                                                        ============   ==========   ==========   ============
There were no sales of investment securities held to maturity during the three
months ended March 31, 1998 and 1997 (unaudited) or during the years ended
December 31, 1997, 1996 and 1995.

At March 31, 1998 and December 31, 1997 and 1996, investment securities held to
maturity with a carrying value of $491,000 (unaudited), $491,000 and $490,000,
respectively, were pledged to the United States Bankruptcy Trustee.

                                     F-14
WEST ESSEX BANK AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  ------------------------------------------
                                        

4.   MORTGAGE-BACKED SECURITIES HELD TO MATURITY
------------------------------------------------
March 31, 1998
                                                        ---------------------------------------------------------  
                                                           Carrying          Gross Unrealized         Estimated    
                                                                        -------------------------                 
                                                             Value          Gains        Losses       Fair Value   
                                                        -------------   -----------   -----------   -------------  
                                                                               (unaudited)
Government National Mortgage Association                $  73,748,361   $ 1,195,007   $     -       $  74,943,368 
Federal Home Loan Mortgage Corporation                     25,388,707       368,255        36,099      25,720,863 
Federal National Mortgage Association                      23,488,732       242,828         4,103      23,727,457 
Other                                                           7,089        -              -               7,089
                                                        -------------   -----------   -----------   ------------- 

                                                        $ 122,632,889   $ 1,806,090   $    40,202   $ 124,398,777  
                                                        =============   ===========   ===========   =============
December 31, 1997
                                                        --------------------------------------------------------- 
                                                           Carrying          Gross Unrealized         Estimated   
                                                                        -------------------------                 
                                                             Value          Gains        Losses       Fair Value  
                                                        -------------   -----------   -----------   -------------
Government National Mortgage Association                $  78,657,282   $ 1,158,307   $    40,774   $  79,774,815 
Federal Home Loan Mortgage Corporation                     26,551,191       275,562        77,959      26,748,794 
Federal National Mortgage Association                      24,958,646       191,719         -          25,150,365 
Other                                                           7,172        -              -               7,172  
                                                        -------------   -----------   -----------   -------------  
                                                                                                                 
                                                        $ 130,174,291   $ 1,625,588   $   118,733   $ 131,681,146  
                                                        =============   ===========   ===========   =============
December 31, 1996                    
                                                        --------------------------------------------------------- 
                                                           Carrying          Gross Unrealized         Estimated   
                                                                        -------------------------                 
                                                             Value          Gains        Losses       Fair Value  
                                                        -------------   -----------   -----------   -------------
Government National Mortgage Association                $  65,995,553   $ 1,099,373   $     -       $  67,094,926 
Federal Home Loan Mortgage Corporation                     32,041,105       227,832       245,424      32,023,513 
Federal National Mortgage Association                      15,204,132        59,035        36,534      15,226,633 
Other                                                          13,296        -              -              13,296 
                                                        -------------   -----------   -----------   ------------- 
                                                                                                                 
                                                        $ 113,254,086   $ 1,386,240   $   281,958   $ 114,358,368 
                                                        =============   ===========   ===========   =============
There were no sales of mortgage-backed securities held to maturity during the 
three months ended March 31, 1998 and 1997 (unaudited) or during the years ended
December 31, 1997, 1996 and 1995.

See Note 11 to consolidated financial statements regarding mortgage-backed 
securities held to maturity pledged as collateral for borrowed money

                                     F-15
5. LOANS RECEIVABLE
-------------------
March 31,             December 31,   
                                                    ---------------------------
                                         1998           1997           1996  
                                     -------------  -------------   -----------
                                      (unaudited)
Real estate mortgage:
      Conventional                   $ 101,179,365  $  99,474,155  $ 74,201,698
      FHA insured                          201,593        257,285       301,161
      VA guaranteed                        441,023        457,155       581,547
                                     -------------  -------------  ------------ 
                                                                 
                                       101,821,981    100,188,595    75,084,406
                                     -------------  -------------  ------------
                                                                 
Agency for International Development        57,326         58,875        87,009
                                     -------------  -------------  ------------ 
                                                                 
Construction and land development        7,141,336      6,484,920     2,080,011
                                     -------------  -------------  ------------ 
                                                                 
Consumer:                                                        
      Passbook or certificate              496,695        550,169       427,122
      Equity                             8,294,785      8,491,437     6,579,475
      Second mortgage                       59,670         62,595        73,591
      Home improvement                           -              -         4,621
      Automobile                           274,127        259,097       163,110
      Credit reserve                        29,795         31,480             -
                                     -------------  -------------  ------------ 
                                                                 
                                         9,155,072      9,394,778     7,247,919
                                     -------------  -------------  ------------ 
                                                                 
      Total loans                      118,175,715    116,127,168    84,499,345
                                     -------------  -------------  ------------ 
                                                                 
Less: Loans in process                   2,009,066      1,437,016       440,400 
      Allowance for loan losses          1,862,971      1,885,021     1,563,991
      Deferred loan fees                     1,219         70,390       360,807
                                     -------------  -------------  ------------ 
                                                                 
                                         3,873,256      3,392,427     2,365,198
                                     -------------  -------------  ------------
                                                                 
                                     $ 114,302,459  $ 112,734,741  $ 82,134,147
                                     =============  =============  ============
The Bank has granted loans to officers and directors of the Bank and to their
associates.  Related party loans are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated persons and do not involve more than
normal risk of collectibility.  The aggregate dollar amount of these loans was
$1,193,000 (unaudited) at March 31, 1998 and $1,200,000 and $501,000 at December
31, 1997 and 1996, respectively.  During the three months ended March 31, 1998,
repayments totalled $7,000 (unaudited).  During the year ended December 31,
1997, new loans granted and repayments totalled $835,000 and $136,000,
respectively.

At March 31, 1998 and 1997 (unaudited) and December 31, 1997, 1996 and 1995,
loans serviced for the benefit of others totalled approximately $45,000
(unaudited), $68,000 (unaudited), $53,000, $72,000 and $92,000, respectively.

                                     F-16
WEST ESSEX BANK AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  ------------------------------------------

5. LOANS RECEIVABLE (Cont'd.)
-------------------           

Nonperforming loans consist of nonaccrual and renegotiated loans.  Nonaccrual
loans are those on which income under the accrual method has been discontinued
with subsequent interest payments credited to interest income when received, or
if ultimate collectibility of principal is in doubt, applied as principal
reductions.  Renegotiated loans are loans whose contractual interest rates have
been reduced or where other significant concessions have been made due to a
borrower's financial difficulties.  Interest on these loans is either accrued or
credited directly to interest income.
 
Nonperforming loans were as follows (in thousands):
March 31,              December 31,
                                                     --------------------------
                                        1998            1997            1996
                                     -------------   ----------      ----------
                                      (unaudited)
Nonaccrual                           $       2,214   $    2,413      $    2,869
Renegotiated                                    92           94              99
                                     -------------   ----------      ----------
                                     $       2,306   $    2,507      $    2,968
                                     =============   ==========      ==========
The impact of nonperforming loans on interest income is as follows (in
thousands):
Three Months Ended                           Year Ended                          
                                                       March 31,                              December 31,                         
                                             ----------------------------       ----------------------------------------------- 
                                                 1998            1997                1997             1996             1995      
                                             ------------    ------------       --------------    ------------     ------------ 
                                                     (unaudited)
Interest income if performing in 
accordance with original terms               $         52    $         67       $         234     $        278     $        229
Interest income actually recorded                      12               5                  57               74               48
                                             ------------    ------------       -------------     ------------     ------------
Interest income lost                         $         40    $         62       $         177     $        204     $        181 
                                             ============    ============       =============     ============     ============
The following is an analysis of the allowance for loan losses:
Three Months Ended                               Year Ended   
                                                         March 31,                                  December 31,  
                                               ----------------------------       ----------------------------------------------- 
                                                   1998            1997                1997             1996             1995     
                                               ------------    ------------       --------------    ------------     ------------ 
                                                       (unaudited)
Balance - beginning                            $  1,885,021    $  1,563,991       $  1,563,991      $  1,199,888     $  1,236,032 
Provision (credited) charged to operations          (22,050)         55,000            487,015           232,103          509,729
Loans charged off to allowance                            -               -           (165,985)                -         (545,873)
Recovery of loan previously charged off                   -               -                  -           132,000                - 
                                               ------------    ------------       ------------      ------------     ------------
                                               $  1,862,971    $  1,618,991       $  1,885,021      $  1,563,991     $  1,199,888
                                               ============    ============       ============      ============     ============
F-17
WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

5. LOANS RECEIVABLE (Cont'd.)
-------------------           

Impaired loans and related amounts recorded in the allowance for loan losses are
summarized as follows (in thousands):
March 31,                    December 31,             
                                                                       ------------------------------------ 
                                                       1998                 1997                 1996       
                                                    -------------      ---------------      ---------------  
                                                     (unaudited)
Recorded investment in impaired loans:                                                                   
  With recorded allowances                          $       1,345      $         1,344      $         1,505 
  Without recorded allowances                                 304                  304                  304  
                                                    -------------      ---------------      --------------- 
     Total impaired loans                                   1,649                1,648                1,809 
  Related allowance for loan losses                           580                  580                  435  
                                                    -------------      ---------------      --------------- 
     Net impaired loans                             $       1,069      $         1,068      $         1,374 
                                                    =============      ===============      ===============
For the three months ended March 31, 1998 and 1997 and the years ended December
31, 1997, 1996 and 1995, the average recorded investment in impaired loans
totalled $1,648,000 (unaudited), $1,757,000 (unaudited), $1,916,000, $1,567,000
and $1,590,000, respectively.  During the year ended December 31, 1996, interest
income of $11,000, all on the cash basis, was recognized on such loans during
the time each loan was impaired.  During the three months ended March 31, 1998
and 1997 (unaudited) and the years ended December 31, 1997 and 1995, no interest
income was recognized on such loans during the time each loan was impaired.

6. REAL ESTATE OWNED
--------------------
March 31,                    December 31,             
                                                                       ------------------------------------ 
                                                       1998                 1997                 1996       
                                                    -------------      ---------------      ---------------  
                                                     (unaudited)
Acquired in settlement of loans                     $   1,120,197      $     1,388,840      $     1,492,068
Allowance for losses                                            -              174,000               98,000 
                                                    -------------      ---------------      ---------------
                                                    $   1,120,197      $     1,214,840      $     1,394,068
                                                    =============      ===============      ===============
The following is an analysis of the allowance for losses:
Three Months Ended                               Year Ended   
                                                         March 31,                                  December 31,  
                                               ----------------------------       ----------------------------------------------- 
                                                   1998            1997                1997             1996             1995     
                                               ------------    ------------       --------------    ------------     ------------ 
                                                       (unaudited)
Balance - beginning                            $    174,000    $     98,000       $     98,000      $     98,000     $    500,000 
Provisions charged to operations                     22,050         170,000            372,985            45,000           33,749
Losses charged to allowance                        (196,050)       (170,000)          (296,985)          (45,000)        (435,749)
                                               ------------    ------------       ------------      ------------     ------------
Balance - ending                               $          -    $     98,000       $    174,000      $     98,000     $     98,000
                                               ============    ============       ============      ============     ============
F-18
WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

6. REAL ESTATE OWNED  (Cont'd.)
--------------------           

The following is an analysis of the (loss) income on real estate owned:
Three Months Ended               
                                                  March 31,                              Year Ended December 31,  
                                           ------------------------        ----------------------------------------------------
                                              1998          1997               1997                1996                1995   
                                           ---------     ----------        ------------         ----------          ----------  
                                                    (unaudited)
Gain on sale, net                         $    5,386     $    19,714       $     30,080       $     117,201       $    162,031      
Carrying cost, net                            (7,084)         (7,035)           (36,965)            (51,638)           (69,349)
Provision for losses                         (22,050)       (170,000)          (372,985)            (45,000)           (33,749)
                                          -----------    -------------     -------------       -------------      -------------     

                                          $  (23,748)    $  (157,321)     $   (379,870)      $       20,563       $     58,933    
                                          -----------    -------------     -------------       -------------      -------------
7. PREMISES AND EQUIPMENT
-------------------------
March 31,                       December 31,
                                                                                  ----------------------------------------
                                                                1998                      1997                       1996   
                                                           -------------          ---------------           --------------
                                                            (unaudited)
Land                                                       $     979,315             $    979,315               $   358,253   
                                                           -------------             ---------------           --------------

Building and improvements                                      2,168,439                2,159,938                 1,419,641 
Less accumulated depreciation                                    800,195                  778,047                   709,995
                                                           --------------            ---------------           --------------

                                                               1,368,244                1,381,891                   709,646
                                                           --------------            ---------------           --------------
Leasehold improvements                                           112,754                  112,754                   112,754
Less accumulated amortization                                    110,282                  110,017                   108,957
                                                           --------------            ---------------           --------------
                                                                   2,472                    2,737                     3,797
                                                           --------------            ---------------           --------------

Furnishings and equipment                                      2,631,742                2,575,464                 2,224,070 
Less accumulated depreciation                                  1,869,070                1,816,823                 1,655,411
                                                           --------------            ---------------           --------------

                                                                 762,672                  758,641                   568,659
                                                           --------------            ---------------           --------------

                                                           $   3,112,703             $  3,122,584              $  1,640,355  
                                                           ==============            ===============           ==============
F-19
WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                        

8. ACCRUED INTEREST RECEIVABLE
------------------------------
March 31,               December 31,
                                                                             ---------------------------
                                                               1998              1997           1996
                                                           -------------     ------------   ------------
                                                            (unaudited)
Loans                                                      $     677,941     $    690,706   $    564,744
Mortgage-backed securities                                       715,833          852,519        691,298
Investments and other                                            686,971          479,574        407,028
                                                           -------------     ------------   ------------
                                                                          
                                                               2,080,745        2,022,799      1,663,070
Less allowance for uncollected interest on loans                   8,850           10,602         11,643
                                                           -------------     ------------   ------------
                                                                          
                                                           $   2,071,895     $  2,012,197   $  1,651,427
                                                           =============     ============   ============
9. EXCESS OF COST OVER ASSETS ACQUIRED
--------------------------------------

On October 17, 1997, the Bank acquired three branch locations from another
financial institution.  The amounts related to the transaction are reflected
separately in the consolidated statement of cash flows for the year ended
December 31, 1997.  The $7,571,946 excess of cost over assets acquired initially
recorded was based upon the amount of deposits the Bank had agreed to acquire.
However, during the period between the purchase agreement date and October 17,
1997, the deposits subject to purchase declined over 18%.  By December 31, 1997,
the balance of deposits at the three purchased locations had stabilized.
Management performed a reassessment of the recoverability of this asset and, as
a result, an impairment loss of $1,585,313 was recorded.  Such impairment loss
is included in "Amortization of intangible" in the consolidated statement of
income for the year ended December 31, 1997.

10. DEPOSITS
------------
March 31, 1998
                                          ------------------------------------------
                                            Weighted
                                            Average
                                              Rate          Amount         Percent
                                          -----------   -------------   ------------
                                                         (unaudited)
Demand accounts:                                      
   Non-interest-bearing                         0.00%   $  11,433,090           4.78
   Interest-bearing                             1.69%      22,255,814           9.31
                                                        -------------   ------------

                                                1.12%      33,688,904          14.09
                                                      
Savings and club accounts                       2.58%      61,840,466          25.86
Certificates of deposit                         5.49%     143,591,116          60.05
                                                        -------------   ------------ 

                                                4.13%   $ 239,120,486         100.00 
                                                        =============   ============
F-20
WEST ESSEX BANK AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                     -------------------------------------

10. DEPOSITS  (Cont'd.)
------------
December 31,                                    
                                             --------------------------------------------------------------------------------    
                                                               1997                                     1996                 
                                             ---------------------------------------    -------------------------------------    
                                               Weighted                                  Weighted                         
                                               Average                                    Average                          
                                                Rate         Amount         Percent        Rate         Amount      Percent      
                                             ----------  -------------    ----------    ----------  -------------  ----------
Demand accounts:
   Non-interest-bearing                        0.00%     $ 11,371,513         4.78         0.00%    $  7,270,396       4.04
   Interest-bearing                            1.84%       21,662,441         9.09         1.81%      15,214,291       8.46
                                                         -------------    ----------                -------------  ----------

                                               1.18%       33,033,954        13.87         1.23%      22,484,687      12.50
Savings and club accounts                      2.60%       62,834,205        26.38         2.49%      49,814,106      27.68
Certificates of deposit                        5.51%      142,323,982        59.75         5.33%     107,646,710      59.82
                                                         -------------    ----------                -------------  ----------

                                               4.14%     $238,192,141       100.00         4.03%    $179,945,503     100.00
                                                         =============    ==========                =============  ==========
The amount of certificates of deposit with balances of $100,000 or more at 
March 31, 1998 and December 31, 1997 and 1996 were approximately $17,596,000
(unaudited), $19,327,000 and $15,064,000, respectively.

The scheduled maturities of certificates of deposit are as follows (in
thousands):
March 31,             December 31,
                                                                                                  -------------------------
                                                                                     1998             1997          1996
                                                                                 ------------     -----------   -----------
                                                                                  (unaudited)
One year or less                                                                 $  115,168       $  114,233    $    86,574
After one to three years                                                             25,387           25,309         16,417
After three years                                                                     3,036            2,782          4,656
                                                                                 ------------     -----------   -----------
                                                                                   
                                                                                 $  143,591       $  142,324    $   107,647
                                                                                 ============     ===========   ===========
F-21
WEST ESSEX BANK AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  ------------------------------------------
                                        

11.  BORROWED MONEY
-------------------

The following table presents details of borrowed money, all of which has been
borrowed from the Federal Home Loan Bank of New York ("FHLB"):
December 31,                
                                                                         --------------------------------------------------------
                                             March 31, 1998                       1997                             1996         
                                   -----------------------------------   -------------------------     --------------------------
                                        Weighted                            Weighted                     Weighted                
                                        Average                             Average                      Average                 
                                         Rate               Amount           Rate         Amount          Rate          Amount 
                                   ----------------     --------------   ------------  ------------    ------------   -----------
                                               (unaudited)
Securities sold under                                                                                                             
   agreements to                                                                                                                   
   repurchase maturing                                                                                                            
   within three months                -  %              $     -               5.82%    $ 18,000,000         5.60%     $  6,000,000
                                                                                                                                   
Convertible advances:                                                                                                              
   due March 24, 2008(a)             5.33%                10,000,000           -  %          -               -  %           -
   due March 25, 2008(b)             5.59%                10,000,000           -  %          -               -  %           -
                                                                                                                                  
Monthly amortizing advances:                                                                                                       
   Payable in sixty monthly                                                                                                        
      principal and interest                                                                                                       
      installments of $96,286
      through February 24, 2003      5.84%                 5,000,000           -  %          -               -  %           - 

   Payable in 120 monthly 
      principal and interest
      installments of $55,591
      through February 25, 2008      6.03%                 5,000,000           -  %          -               -  %           -

Term advances maturing:
   within one year                   6.38%                 7,350,000          6.38%       7,350,000         6.25%        8,350,000
   after one to two years            6.50%                 4,350,000          6.50%       4,350,000         6.57%        4,350,000
   after two to three years          6.95%                   600,000          6.95%         600,000         6.48%        4,350,000
   after three to four years          -  %                    -                -  %          -              6.90%          600,000  
                                                        ------------                   ------------                   ------------

                                     5.86%              $ 42,300,000          6.08%    $ 30,300,000         6.20%     $ 23,650,000
                                                        ============                   ============                   ============
(a)  Convertible at lender option to replacement funding at then current rates
     on March 24, 2001 and quarterly thereafter.

(b)  Convertible at lender option to replacement funding at then current rates
     on March 25, 2003 and quarterly thereafter.

Certain information concerning borrowed money is summarized as follows:
Three Months Ended                            
                                                         March 31,                            Year Ended December 31,  
                                               ----------------------------       ----------------------------------------------- 
                                                   1998            1997                1997             1996             1995     
                                               ------------    ------------       --------------    ------------     ------------ 
                                                       (unaudited)
Average balance outstanding                    $ 30,144,000    $ 22,650,000       $   26,223,000    $ 18,096,000     $ 15,615,000
Maximum month-end balance outstanding            42,300,000      23,650,000           43,675,000      23,650,000       19,000,000
Average interest rate                                 5.80%           6.06%                5.97%           6.36%            6.83%
---------------------------------------------------------------------------------------------------------------------------------
F-22
11. BORROWED MONEY  (Cont'd.)
------------------           

At March 31, 1998 (unaudited) and December 31, 1997 and 1996, the borrowings
were secured by pledges of the Bank's investment in the capital stock of the
FHLB totalling $2,281,500, $2,183,800 and $1,670,400, respectively, and
mortgage-backed securities held to maturity with an aggregate carrying value of
$48,478,000, $39,870,000 and $27,035,000, respectively.

12. REGULATORY CAPITAL
----------------------

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

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of Total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier 1 capital to assets (as defined).
As of March 31, 1998 (unaudited)                  
                                                -------------------------------------------------------------------    
                                                                                             To Be Well Capitalized    
                                                                        Minimum Capital     Under Prompt Corrective    
                                                      Actual              Requirements        Actions Provisions       
                                                ------------------   --------------------  ------------------------    
                                                 Amount     Ratio      Amount      Ratio     Amount        Ratio        
                                                --------  --------   ---------   --------  ---------    -----------    
                                                                    (dollars in thousands)
Total Capital
  (to risk-weighted assets)                    $ 25,292    19.95%      $ 10,144    8.00%    $ 12,680       10.00%

Tier 1 Capital
  (to risk-weighted assets)                      24,040    18.96%             -        -       7,608        6.00%  

Core (Tier 1) Capital
  (to adjusted total assets)                     24,040     7.84%        12,268    4.00%      15,335        5.00%      
                                                                            
Tangible Capital
  (to adjusted total assets)                     24,040     7.84%         4,600    1.50%           -           -
F-23
WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                        

12.   REGULATORY CAPITAL (Cont'd.)
------------------------
As of December 31, 1997
                                     ----------------------------------------------------------------------------
                                                                                         To Be Well capitalized
                                                                 Minimum Capital        Under Prompt Corrective
                                            Actual                 Requirements            Actions Provisions
                                     ---------------------   -----------------------   --------------------------
                                      Amount       Ratio        Amount      Ratio        Amount         Ratio
                                     ---------   ---------   -----------  ----------   -----------  -------------
                                                               (dollars in thousands)
Total Capital                         
  (to risk-weighted assets)           $ 24,566      26.10%      $ 7,530      8.00%       $  9,412       10.00%
                                                                                                             
Tier 1 capital                                                                                               
  (to risk-weighted assets)             23,381      24.84%            -         -           5,647        6.00%
                                                                                                             
Core (Tier 1) Capital                                                                                        
  (to adjusted total assets)            23,381       7.98%        8,794      3.00%         14,657        5.00% 

Tangible Capital    
  (to adjusted total assets)            23,381       7.98%        4,397      1.50%              -           -
As of December 31, 1996
                                     ----------------------------------------------------------------------------
                                                                                         To Be Well capitalized
                                                                 Minimum Capital        Under Prompt Corrective
                                            Actual                 Requirements            Actions Provisions
                                     ---------------------   -----------------------   -------------------------- 
                                      Amount       Ratio        Amount      Ratio        Amount         Ratio   
                                     ---------   ---------   -----------  ----------   -----------  ------------- 
                                                               (dollars in thousands)
Total Capital               
  (to risk-weighted assets)           $ 29,393      39.15%      $ 6,006      8.00%       $  7,507       10.00%  

Tier 1 capital                                                                                                
  (to risk-weighted assets)             28,447      37.90%            -         -           4,504        6.00%
                                                                                                              
Core (Tier 1) Capital                                                                                         
  (to adjusted total assets)            28,447      12.06%        7,079      3.00%         11,798        5.00%
                                                                                                              
Tangible Capital                                                                                              
  (to adjusted total assets)            28,447      12.06%        3,539      1.50%              -           -
As of December 4, 1997, the most recent notification from the OTS, the Bank was
categorized as well capitalized under the regulatory framework for prompt
corrective action.  There are no conditions existing or events which have
occurred since notification that management believes have changed the
institution's category.

13.   RETIREMENT PLAN
---------------------

The Bank has a non-contributory pension plan covering all eligible employee.
The plan is a defined benefit plan which provides benefits based on a
participant's years of service and compensation.  The Bank's funding policy is
to contribute annually the maximum amount that can be deducted for federal
income tax purposes.

                                     F-24
WEST ESSEX BANK AND SUBSIDIARY 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                        

13.   RETIREMENT PLAN (Cont'd.)
---------------------

The following table sets forth the plan's annually determined funded status:
December 31,
                                                                        --------------------------
                                                                           1997            1996
                                                                        -----------     -----------
Actuarial present value of benefit obligation, including                           
vested benefits of $2,658,587 and $2,238,389, respectively.             $  2,709,212    $  2,271,153
                                                                        =============   =============

Projected benefit obligation                                            $ (3,257,644)   $ (2,789,153) 
Plan assets at fair value; primarily mutual funds                          2,984,086       2,534,416
                                                                        -------------   -------------
Projected benefit obligation in excess of plan assets                       (273,558)       (254,737)
Unrecognized net transition obligation                                       189,872         221,517
Unreconized past service cost                                                 80,492          90,045
Unreconized net (gain)                                                      (131,598)       (188,143)  
                                                                        -------------   ------------- 
Accured pension cost included in other liabilities                      $   (134,792)   $   (131,318)    
                                                                        =============   =============
The following table sets forth the components of net periodic pension cost:
Year Ended December 31,
                                                                       --------------------------------------------------    
                                                                           1997               1996               1995
                                                                       ------------       ------------      -------------
Net periodic pension cost
included the following components
     Service cost                                                      $  109,752         $  130,573        $   90,794    
     Interest cost                                                        206,416            187,634           173,961
     Actual return on plan assets                                        (361,720)          (284,857)         (427,904)
     Net amortization and deferral                                        222,518            170,747           348,456
                                                                       ------------       ------------      -------------  
Net periodic pension cost
 included in salaries and employee benfits                             $  176,966         $  204,097        $  185,307  
                                                                       ============        ===========      =============
Retirement Plan expense recorded for the three months ended March 31, 1998 and
1997 totalled approximately $47,000 (unaudited) and $48,000 (unaudited),
respectively.

Assumptions used to develop the net periodic pension cost were as follows:
Year Ended December 31
                                                                      ---------------------------------------------------
                                                                           1997               1996              1995
                                                                      -------------       ------------      -------------
Discount rates                                                                7.50%              7.00%              8.25%
Expected long-term rate of return                                             7.00%              7.00%              7.00%
Rate of increase in compensation levels                                       5.50%              5.00%              6.00%
F-25
WEST ESSEX BANK AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  ------------------------------------------
                                        

14.  INCOME TAXES
-----------------

The Bank qualifies as a Savings Institution under the provisions of the Internal
Revenue Code and, therefore, was permitted, prior to January 1, 1996, to deduct
from taxable income an allowance for bad debts based upon the more favorable of:
(i) a method based on the Bank's actual loss experience (the "experience"
method); or (ii) a method based on eight percent of taxable income before such
deduction, less certain adjustments and subject to certain limitations (the
"percentage of taxable income" method). Effective January 1, 1996, the
percentage of taxable income method was repealed. The Bank may now use either
the experience method or the specific charge off method. See Note 16 to
consolidated financial statements. Retained earnings at December 31, 1997,
include approximately $6.8 million of such bad debt allowance for which federal
income taxes have not been provided.

The components of income taxes are summarized as follows:
Three Months Ended
                                                 March 31,                      Year Ended December 31,
                                        -------------------------     -----------------------------------------
                                           1998           1997            1997           1996           1995
                                        ----------     ----------     -----------    -----------    -----------
                                               (unaudited)
Current tax expense:
     Federal income                     $  193,763     $  261,184     $ 1,066,590    $   801,976    $   925,368
     State income                           16,126         23,301          95,024         70,584         41,152
                                        ----------     ----------     -----------    -----------    -----------

                                           209,889        284,485       1,161,614        872,560        966,520
                                        ----------     ----------     -----------    -----------    -----------
Deferred tax (benefit) expense:    
     Federal income                         45,528         -             (664,857)       (33,554)       197,099
     State income                            4,142         -              (60,478)        (3,055)        57,198
                                        ----------     ----------     -----------    -----------    -----------

                                            49,670         -             (725,335)       (36,609)       254,297
                                        ----------     ----------     -----------    -----------    -----------

                                        $  259,559     $  284,485     $   436,279    $   835,951    $ 1,220,817
                                        ==========     ==========     ===========    ===========    ===========
The components of the net deferred income tax asset are as follows:
March 31,            December 31,
                                                                                     --------------------------
                                                                          1998           1997          1996
                                                                      -----------    -----------    -----------
                                                                      (unaudited)
Deferred tax assets:
     Allowance for loan losses                                        $   716,829    $   777,563    $   519,185
     Deferred loan origination fees, net                                   -              -              89,538
     Goodwill                                                             589,660        581,747         -
     Other                                                                 65,093         41,073         33,450
                                                                      -----------    -----------    -----------

          Total deferred tax assets                                     1,371,582      1,400,383        642,173
                                                                      -----------    -----------    -----------

Deferred tax liabilities:
     Deferred loan origination fees, net                                   57,809         36,940         -
     Unrealized gain on securities available for sale                      44,838         36,269         -
     Other                                                                 -              -               4,065
                                                                      -----------    -----------    -----------

          Total deferred tax liabilities                                  102,647         73,209          4,065
                                                                      -----------    -----------    -----------

          Net deferred tax asset included in other assets             $ 1,268,935    $ 1,327,174    $   638,108
                                                                      ===========    ===========    ===========
F-26
WEST ESSEX BANK AND SUBSIDIARY
                   NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
                   -----------------------------------------

14.  INCOME TAXES (Cont'd.)
-----------------          

Refundable income taxes totalling $54,834 (unaudited), $88,904 and $178,960 are
included in other assets at March 31, 1998 and December 31, 1997 and 1996,
respectively.  Income taxes payable totalling $135,606 (unaudited), $39,069 and
$6,319 are included in other liabilities at March 31, 1998 and December 31, 1997
and 1996, respectively.

The following table presents a reconciliation between the reported income taxes
and the income taxes which would be computed by applying the normal federal
income tax rate of 34% to income before income taxes:
Three Months Ended                        Year Ended
                                                            March 31,                           December 31
                                                     -------------------------      ---------------------------------------
                                                       1998          1997              1997          1996          1995
                                                     ------------  -----------      ----------    -----------   -----------
                                                            (unaudited)
Federal income tax                                   $  262,038    $  274,564       $  398,860     $  847,266   $ 1,187,542
Increases (reductions) in taxes resulting from:                
     Reinstatement of portion of base
     year bad debt reserve for income tax purposes            -             -                -              -       (57,328) 
     Non-deductible captial loss                              -             -            6,883                        7,485
     Utilization of capital loss carryforward                 -             -                -        (34,936)            -
     New Jersey savings institution tax,
       net of federal income tax effect                  13,377        15,379           22,800         44,569        64,911
     Other items, net                                   (15,856)       (5,458)           7,736        (20,948)       18,207
                                                     ------------  -----------      -----------    -----------  -----------
Effective income tax                                 $  259,559    $  284,485       $  436,279     $  835,951   $ 1,220,817
                                                     ============  ===========      ===========    ===========  ===========
15.  COMMITMENTS AND CONTINGENCIES
----------------------------------

The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers and to
reduce its own exposure to fluctuations in interest rates. These financial
instruments primarily include commitments to extend credit. Such instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the consolidated statements of financial condition.
The contractual amounts of these instruments reflect the extent of involvement
the Bank has in those particular classes of financial instruments.

The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instruments for commitments to extend credit is
represented by the contractual amount of those instruments.  The Bank uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments.

At March 31, 1998 (unaudited), the Bank had $12,860,000 in commitments to
originate loans, consisting of $11,445,000 for fixed rate loans with interest
rates ranging from 6.625% to 7.625%, $760,000 for adjustable rate loans with
initial interest rates ranging from 6.625% to 6.875%, $50,000 for a floating
rate equity line of credit with an initial interest rate of 8.00% and $605,000
for the purchase of loan participation interests.  The $605,000 in loan
participations include $275,000 for a twelve-month, 8.25% construction loan,
$80,000 for a fixed rate loan whose rate will be fixed at funding at 1.60% above
the Federal Home Loan Bank CIP advance rate and a $250,000 adjustable rate loan
whose initial rate will be fixed at funding for five or ten years at 1.60% above
the Federal Home Loan Bank CIP advance rate and will adjust every fifth or tenth
year thereafter.

                                     F-27
WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                        

15.  COMMITMENTS AND CONTINGENCIES  (Cont'd.)
----------------------------------           

At December 31, 1997 and 1996, the Bank had $1,324,000 and $2,374,000,
respectively, in outstanding commitments to originate loans. The outstanding
commitments at December 31, 1997 include $724,000 for fixed rate loans with
interest rates ranging from 7.25% to 7.75%, $100,000 for a floating rate equity
line of credit with an initial rate of 8.00% and $500,000 for the purchase of
loan participations consisting of $200,000 for fixed rate loans whose rates will
be fixed at funding at 1.60% above the Federal Home Loan Bank CIP advance rate
and a $300,000 adjustable rate loan whose initial rate will be fixed at funding
for five years at 1.60% above the Federal Home Loan Bank CIP advance rate and
will adjust every fifth year thereafter.

At March 31, 1998 and December 31, 1997 and 1996, undisbursed funds from
approved lines of credit under a homeowners' equity lending program amounted to
approximately $4,339,000 (unaudited), $4,137,000 and $3,117,000, respectively.
Unless they are specifically cancelled by notice from the Bank, these funds
represent firm commitments available to the respective borrowers on demand.  The
interest rate charged for any month on funds disbursed under the program is 1.0%
above the prime rate published in The Wall Street Journal on the last day of the
preceding month.

At March 31, 1998 and December 31, 1997, undisbursed funds from approved
unsecured lines of credit under the Credit Reserve program totalled $115,000
(unaudited) and $99,000, respectively.  Funds drawn on these lines are assessed
interest at a rate of 18.00%.

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee.  Since some of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the counterparty. Collateral held varies but primarily
includes commercial and residential real estate.

Rentals under a long-term operating lease for a branch office amounted to
approximately $12,000 (unaudited) for each of the three months ended March 31,
1998 and 1997 and approximately $50,000 for each of the years ended December 31,
1997, 1996 and 1995.  At December 31, 1997, the minimum rental commitment under
this noncancellable lease expiring in 1998 is $41,000.
 
The Bank also has, in the normal course of business, commitments for services
and supplies.  Management does not anticipate losses on any of these
transactions.

During the year ended December 31, 1997, the Bank became a defendant in a
litigation matter under which it is accused of breach of contract, fraud and
violation of the New Jersey Consumer Fraud Act.  The lawsuit is related to a
condominium construction project which the Bank halted financing on due to
borrower default.  The Bank denies the material allegations set forth in the
Complaint.  The Bank filed a motion to dismiss the contract claims and to re-
plead the fraud claims.  On February 20, 1998, the

                                     F-28
WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                        

Superior Court of New Jersey denied the Bank's motion to dismiss the contract
claims, but granted the Bank's motion requiring plaintiffs to re-plead the fraud
counts with particularity. On March 13, 1998, the plaintiffs filed an amended
complaint and, on April 8, 1998, the Bank filed its answer to the amended
complaint. The plaintiffs are seeking, among other things, compensatory damages,
punitive damages in the amount of $5,000,000, and reimbursement of costs and
legal fees associated with this matter. The Bank's ultimate liability, if any,
which might arise from the disposition of these claims cannot presently be
determined. Accordingly, no provision for any liability that may result
upon adjudication has been recognized in the accompanying consolidated financial
statements.

The Bank is also a party to various litigation which arises primarily in the
ordinary course of business. In the opinion of management, the ultimate
disposition of such litigation should not have a material effect on the
consolidated financial position or operations of the Bank.
 

16.  LEGISLATIVE MATTERS
------------------------

On September 30, 1996, legislation was enacted which, among other things,
imposed a special one-time assessment on Savings Association Insurance Fund
("SAIF") member institutions, including the Bank, to recapitalize the SAIF and
spread the obligation for payment of Financial Corporation ("FICO") bonds across
all SAIF and Bank Insurance Fund ("BIF") members.  The special assessment levied
amounted to 65.7 basis points on SAIF assessable deposits held as of March 31,
1995.  The special assessment was recognized in the third quarter of 1996 and
was tax deductible.  The Bank took a charge of $1,098,000 as a result of the
special assessment.  This legislation eliminated the substantial disparity
between the amount that BIF and SAIF members had been paying for deposit
insurance premiums.

Currently, the FDIC has estimated that, in addition to normal deposit insurance
premiums, BIF members will pay a portion of the FICO payment equal to 1.3 basis
points on BIF-insured deposits compared to 6.4 basis points by SAIF members on
SAIF-insured deposits.  All institutions will pay a pro-rata share of the FICO
payment on the earlier of January 1, 2000 or the date upon which the last
savings association ceases to exist.  The legislation also requires BIF and SAIF
to be merged by January 1, 1999 provided that legislation is adopted to
eliminate the savings association charter and no savings associations remain as
of that time.

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

On August 21, 1996, legislation was enacted to allow for the recapture of post-
1987 tax bad debt reserves ("excess reserves").  Prior to enactment certain
thrift institutions such as the Bank were allowed deductions for bad debts under
methods more favorable than those granted to other taxpayers.  This legislation
repealed the Code Section 593 reserve method of accounting for bad debts by
thrift institutions effective for taxable years beginning after 1995.  Thrift
institutions that are treated as small banks are allowed to utilize the
experience method applicable to such institutions or the specific charge-off
method, while thrift institutions that are treated as large banks are required
to use only the specific charge off method.

                                     F-29
WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                        

16.  LEGISLATIVE MATTERS  (Cont'd.)
------------------------           

For small institutions such as the Bank, the amount of the institution's
applicable excess reserves generally is the excess of the balances of its
reserve for losses on qualifying real property loans and its reserve for losses
on nonqualifying loans as of the close of its last taxable year beginning before
January 1, 1996, over the greater of the balance of (a) its pre-1988 tax
reserves or (b) what the reserves would have been at the close of its last year
beginning before January 1, 1996, had the Savings Bank always used the
experience method. At January 1, 1996, the Bank had excess reserves of
approximately $18,000, which, in accordance with the legislation, are being
recaptured over a six-year period commencing January 1, 1996. As such amount has
been treated as a temporary difference in accordance with Financial Accounting
Standard Board ("FASB") Statement of Financial Accounting Standards
("Statement") No. 109, the recapture has no impact on consolidated earnings.

17.  ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
--------------------------------------------------

The fair value of a financial instrument is defined as the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than a forced or liquidation sale.  Significant estimations were used by
the Bank for the purposes of this disclosure.  Estimated fair values have been
determined by the Bank using the best available data and estimation methodology
suitable for each category of financial instruments.  For those loans and
deposits with floating interest rates, it is presumed that estimated fair values
generally approximate their recorded book balances.  The estimation
methodologies used and the estimated fair values and carrying values of the
Bank's financial instruments are set forth below:

     Cash and cash equivalents and accrued interest receivable
     ---------------------------------------------------------

     The carrying amounts for cash and cash equivalents and accrued interest
     receivable approximate fair value.

     Securities
     ----------

     The fair values for securities available for sale, investment securities
     held to maturity and mortgage-backed securities held to maturity are based
     on quoted market prices or dealer prices, if available.  If quoted market
     prices or dealer prices are not available, fair value is estimated using
     quoted market prices or dealer prices for similar securities.

     Loans
     -----

     The fair value of loans is estimated by discounting future cash flows,
     using the current rates at which similar loans with similar remaining
     maturities would be made to borrowers with similar credit ratings.

                                     F-30
WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                        

17.  ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS  (Cont'd.)
--------------------------------------------------           

     Deposits
     --------

     For demand, savings and club accounts, fair value is the carrying amount
     reported in the consolidated financial statements.  For certificates of
     deposit, fair value is estimated by discounting future cash flows, using
     rates currently offered for deposits of similar remaining maturities.

     Borrowed money
     --------------

     Fair value is estimated using rates currently offered for liabilities of
     similar remaining maturities, or when available, quoted market prices.

     Commitments to extend credit
     ----------------------------

     The fair value of credit commitments is estimated using the fees currently
     charged to enter into similar agreements, taking into account the remaining
     terms of the agreements and the present creditworthiness of the
     counterparties.  For fixed-rate loan commitments, fair value also considers
     the difference between current levels of interest rates and the committed
     rates.

The carrying values and estimated fair values of the Bank's financial
instruments are as follows (in thousands):
March 31,                               December 31,
                                                                      ------------------------------------------------------------
                                                      1998                        1997                             1996
                                             --------------------     -----------------------------      -------------------------
                                             Carrying  Estimated      Carrying         Estimated         Carrying       Estimated
                                              Value    Fair Value       Value          Fair Value          Value        Fair Value
                                             -------- -----------     ----------    ---------------      ----------    -----------
Financial assets                                  (unaudited)
----------------
Cash and cash equivalents                    $ 17,329  $ 17,329         $ 8,696           $ 8,696         $ 7,754         $7,754
Term deposits                                   5,000     5,000               -                 -               -              -
Securities available for sale                   7,105     7,105           7,081             7,081           1,647          1,647
Investment securities held to maturity         28,768    29,082          22,929            23,339          22,476         22,766
Mortgage-backed securities held to maturity   122,633   124,399         130,174           131,681         113,254        114,358
Loans receivable                              114,302   115,352         112,735           114,021          82,134         84,615
Accrued interest receivable                     2,072     2,072           2,012             2,012           1,651          1,651

Financial liabilities
---------------------

Deposits                                      239,120   240,064         238,192           239,241         179,946        181,155 
Borrowed money                                 42,300    41,814          30,300            30,337          23,650         23,730 

Commitments
-----------

Loan origination and purchase                  12,860    12,860           1,324             1,324           2,374          2,374
Unused lines of credit                          4,454     4,454           4,236             4,236           3,117          3,117
F-31
WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                        

17.  ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS  (Cont'd.)
--------------------------------------------------           

Fair value estimates are made at a specific point in time based on relevant
market information and information about the financial instrument.  These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the entire holdings of a particular financial instrument.
Because no market value exists for a significant portion of the financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. These estimates are subjective
in nature, involve uncertainties and matters of judgment and, therefore, cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates.

In addition, fair value estimates are based on existing on-and-off balance sheet
financial instruments without attempting to estimate the value of anticipated
future business, and exclude the value of assets and liabilities that are not
considered financial instruments.  Other significant assets and liabilities that
are not considered financial assets and liabilities include premises and
equipment, real estate owned and advance payments by borrowers for taxes and
insurance.  In addition, the tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in any of the estimates.

Finally, reasonable comparability between financial institutions may not be
likely due to the wide range of permitted valuation techniques and numerous
estimates which must be made given the absence of active secondary markets for
many of the financial instruments.  This lack of uniform valuation methodologies
introduces a greater degree of subjectivity to these estimated fair values.

18.  IMPACT OF NEW ACCOUNTING STANDARDS
---------------------------------------

In June 1996, the FASB issued Statement No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities."  Statement
No. 125 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.  Under
that approach, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes the financial assets when control has been surrendered, and
derecognizes liabilities when extinguished.  This Statement provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings.  A transfer of financial assets in which
the transferor surrenders control, as defined, over those assets is accounted
for as a sale to the extent that consideration other than beneficial interests
in the transferred assets is received in exchange.  Statement No. 125 requires
that liabilities and derivatives incurred or obtained by transferors as part of
a transfer of financial assets be initially measured at fair value, if
practicable, and requires that servicing assets and other retained interests in
the transferred assets be measured by allocating the previous carrying amount
between the assets sold, if any, and retained interest, if any, based on the
relative fair values at the date of the transfer.  Further, servicing assets and
liabilities must be subsequently measured by (a) amortization in proportion to
and over the period of estimated net servicing income or loss and (b) assessment
for asset impairment or increased obligation based on their values.  Statement
No. 125 requires that debtors reclassify financial assets pledged as

                                     F-32
WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

18.  IMPACT OF NEW ACCOUNTING STANDARDS  (Cont'd.)
---------------------------------------           

collateral and that secured parties recognize those assets and their obligation
to return them in certain circumstances in which the secured party has taken
control of those assets.  Statement No. 125 is effective for transactions
occurring after December 31, 1996, with the exception of certain provision which
have had their effective date delayed an additional year via FASB Statement No.
127. The application of the provisions of Statement No. 125 has not had and, for
provisions not applicable until January 1, 1998, is not expected to have a
material adverse effect on the Bank's consolidated financial condition or
results of operations.

In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income".  Statement No. 130 requires that all items that are components of
"comprehensive income" be reported in a financial statement that is displayed
with the same prominence as other financial statements.  Comprehensive income is
defined as the "change in equity (net assets) of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources.  It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners".  Companies
will be required to (a) classify items of other comprehensive income by their
nature in the financial statements and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position.
Statement No. 130 is effective for fiscal years beginning after December 15,
1997 and requires reclassification of prior periods presented.  As the
requirements of Statement No. 130 are disclosure-related, its implementation,
effective January 1, 1998, had no impact on the Bank's consolidated financial
condition or results of operations.  Management has presented a consolidated
statement of comprehensive income corresponding to each period for which a
consolidated statement of income has been presented.

19.  MUTUAL HOLDING COMPANY REORGANIZATION AND INITIAL STOCK OFFERING
---------------------------------------------------------------------
     (UNAUDITED)
     -----------

On March 18, 1998, the Board of Directors of the Bank unanimously adopted the
Plan of Reorganization and Stock Issuance (the "Plan") pursuant to which the
Bank will convert from a federal mutual savings bank to a federal stock savings
bank and reorganize into the federal mutual holding company structure (the
"Reorganization").  As part of the Reorganization, the Bank will concurrently
form a Federally-chartered stock holding company ("Bancorp"), which will own
100% of the Bank's common stock following the conversion, as well as a federal
mutual holding company ("MHC"), which will own at least 51% of Bancorp's
outstanding common stock following the Reorganization and stock issuance, and
Bancorp will issue up to 49% of its outstanding common stock in a subscription
and community offering, as contemplated under the Plan.  The Plan must be
approved by both the OTS and by the Bank's members as of the voting record date
to be established by the Bank.

Following the completion of the Reorganization, all depositors who had
membership or 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 MHC 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 membership and liquidation rights with respect to
the MHC.

                                     F-33
WEST ESSEX BANK AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                        

19.  MUTUAL HOLDING COMPANY REORGANIZATION AND INITIAL STOCK OFFERING
---------------------------------------------------------------------
     (UNAUDITED)  (Cont'd.)
     -----------           

In addition to the shares offered through the subscription and community
offering, Bancorp plans to fund a charitable foundation with a contribution
equal to 4.0% of the common stock sold in the subscription and community
offering as well as a $100,000 cash contribution.  An Employee Stock Ownership
Plan, which is expected to be established by the Bank for the benefit of its
employees, is expected to purchase 8.0% of the combined number of shares issued
to the public and the charitable foundation.  The MHC will maintain the majority
ownership of at least 51% of Bancorp shares issued, in addition to $100,000
received from the Bank, which is the anticipated amount of the initial
capitalization of the MHC. Bancorp will use a portion of the proceeds received
from the stock offering to purchase 100% of the outstanding capital stock of the
Bank.  Costs incurred in connection with the offering, which totalled $30,000 at
March 31, 1998 and are included in other assets, will be recorded as a reduction
of the proceeds from the offering.

                                     F-34
================================================================================

NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE BANK OR WEST ESSEX BANCORP, INC. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE BANK SINCE ANY
OF THE DATES AS OF WHICH INFORMATION IS FURNISHED HEREIN OR SINCE THE DATE
HEREOF.
                           ________________________
                               TABLE OF CONTENTS
Page
                                                                            ----
Summary of the Reorganization and the Offering..............................
Selected Consolidated Financial and Other Data of the Bank..................
[RECENT DEVELOPMENTS].......................................................
Risk Factors................................................................
West Essex Bancorp, M.H.C...................................................
West Essex Bancorp, Inc.....................................................
West Essex Bank.............................................................
Regulatory Capital Compliance...............................................
Use of Proceeds.............................................................
Dividend Policy.............................................................
Waiver of Dividends by the Mutual Company...................................
Conversion of the Mutual Company to Stock Form..............................
Market for the Common Stock.................................................
Capitalization..............................................................
Pro Forma Data..............................................................
Comparison of Valuation and Pro Forma Information With No Foundation........
Consolidated Statements of Income for West Essex Bank, F.S.B
    and Subsidiaries........................................................
Management's Discussion and Analysis of Financial Condition and 
    Results of Operations...................................................
Business of Bancorp.........................................................
Business of the Bank........................................................
Federal and State Taxation..................................................
Regulation and Supervision..................................................
Management of Bancorp.......................................................
Management of the Bank......................................................
The Reorganization and Stock Offering.......................................
Certain Restrictions on Acquisition of Bancorp..............................
Description of Capital Stock of Bancorp.....................................
Transfer Agent and Registrar................................................
Experts.....................................................................
Legal and Tax Opinions......................................................
Additional Information......................................................
Index to Consolidated Financial Statements..................................
________________________

    UNTIL ___________, ____ OR 25 DAYS AFTER COMMENCEMENT OF THE SYNDICATED
COMMUNITY OFFERING, IF ANY, WHICHEVER IS LATER, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER 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.

                               2,071,955 Shares
                                   
                                   
                                   
                           WEST ESSEX BANCORP, INC.
 
 
 
                                 COMMON STOCK

                                  __________
                                   
                                  PROSPECTUS
                                  __________
       
       
       
       
                           __________________, 1998

                            ______________________

================================================================================
PART II
                    INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
SEC filing(1).............................................  $  7,324
     OTS filing fee............................................    23,917
     NASD filing fee(1)........................................     2,300
     Exchange listing fee(1)...................................    25,000
     Printing, postage and mailing.............................   100,000
     Legal fees and expenses...................................   225,000
     Accounting fees and expenses..............................    70,000
     Appraisers' fees and expenses (including business plan)...    33,000
     Marketing fees and selling commissions(1).................   220,000
     Underwriter's expenses (including underwriter's counsel)..    60,000
     Conversion agent fees and expenses........................    15,000
     Transfer agent fees and expenses..........................     3,000
     Certificate printing......................................     1,000
     Blue Sky..................................................    15,000
     Miscellaneous.............................................    19,459
     TOTAL.....................................................  $820,000
                                                                 ========
----------------------
(1)  Unless otherwise noted, based upon the registration of 4,200,000 shares and
     offering of 1,800,000 shares at $10.00 per share.

ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Article XII of the registrant's Bylaws provides as follows:

ARTICLE XII:   INDEMNIFICATION

     The Holding Company shall indemnify all officers, directors and employees
of the Holding Company, and their heirs, executors and administrators, to the
fullest extent permitted under federal law against all expenses and liabilities
reasonably incurred by them in connection with or arising out of any action,
suit or proceeding in which they may be involved by reason of their having been
a director or officer of the Holding Company, whether or not they continue to be
a director or officer at the time of incurring such expenses or liabilities,
such expenses and liabilities to include, but not be limited to, judgments,
court costs and attorneys' fees and the cost of reasonable settlements.

     This indemnification provision is consistent with the Office of Thrift
Supervision Regulation 12 C.F.R. Section 545.121.

ITEM 15.    RECENT SALES OF UNREGISTERED SECURITIES

None.
ITEM 16.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

The exhibits and financial statement schedules filed as a part of this
registration statement are as follows:

(a)  List of Exhibits (filed herewith unless otherwise noted)

1.1    Engagement Letters between West Essex Bank, F.S.B. and Sandler O'Neill &
       Partners, L.P.
1.2    Draft Form of Agency Agreement between West Essex Bank, F.S.B. and
       Sandler O'Neill & Partners, L.P.*
2.1    Plan of Mutual Holding Company Reorganization and Stock Issuance
       (including Federal Mutual Holding Company Charter and Bylaws of West
       Essex Bancorp, M.H.C., Federal MHC Subsidiary Holding Company Charter and
       Bylaws of West Essex Bancorp, Inc. and Federal Stock Charter and Bylaws
       of West Essex Bank)
3.1    Federal MHC Subsidiary Holding Company Charter of West Essex Bancorp,
       Inc. (See Attachment B-1 to Exhibit 2.1)
3.2    Bylaws of West Essex Bancorp, Inc.  (See Attachment B-2 to Exhibit 2.1)
4.0    Draft Stock Certificate of West Essex Bancorp, Inc.
5.1    Draft Opinion of Muldoon, Murphy & Faucette re: legality
8.1    Draft Opinion of Muldoon, Murphy & Faucette re:  Federal Tax Matters
8.2    Draft Opinion of Fontanella and Babitts re:  State Tax Matters
10.1   Form of West Essex Bank Employee Stock Ownership Plan
10.2   Form of West Essex Bank Employee Stock Ownership Plan Trust
10.3   Form of ESOP Loan Commitment Letter
10.4   Form of West Essex Bank Employee Stock Ownership Trust Loan and Security
       Agreement
10.5   Form of Proposed Employment Agreement between West Essex Bank and certain
       executive officers
10.6   Form of Proposed Employment Agreement between West Essex Bancorp, Inc.
       and certain executive officers
10.7   Form of Proposed Change in Control Agreement between West Essex Bank and
       certain executive officers
10.8   Form of Proposed Change in Control Agreement between West Essex Bancorp,
       Inc. and certain executive officers
10.9   Form of Proposed West Essex Bank Employee Severance Compensation Plan
10.10  Form of Proposed West Essex Bank Supplemental Executive Retirement Plan
10.11  Form of Proposed West Essex Bank Management Supplemental Executive
       Retirement Plan
10.12  Employment Agreement between West Essex Bank and Leopold W. Montanaro
10.13  Restated Executive Supplemental Retirement Income Agreement for Leopold
       W. Montanaro
10.14  Restated Executive Supplemental Retirement Income Agreement for Charles
       E. Filippo
23.1   Consent of Radics & Co., LLC
23.2   Consent of Muldoon, Murphy & Faucette
23.3   Consent of Fontanella and Babitts
23.4   Consent and Subscription Rights Opinion of FinPro, Inc.
24.1   Powers of Attorney
27.0   Financial Data Schedule
99.1   Appraisal Report of FinPro, Inc. (P)
99.2   Draft of West Essex Bancorp Charitable Foundation Gift Instrument*

--------------------------------------
*To be filed by amendment
(P) Filed pursuant to Rule 202 of Regulation S-T.
(b)  Financial Statement Schedules

All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.

ITEM 17.  UNDERTAKINGS.

     The undersigned registrant hereby undertakes:

     (1)  To file, during any period in which offers or sales are being made, a
          post-effective amendment to this registration statement:

          (i)  To include any prospectus required by Section 10(a)(3) of the
               Securities Act of 1933;

          (ii) To reflect in the prospectus any facts or events arising after
               the effective date of the registration statement (or the most
               recent post-effective amendment thereof) which, individually or
               in the aggregate, represent a fundamental change in the
               information set forth in the registration statement;

          (iii)To include any material information with respect to the plan of
               distribution not previously disclosed in the registration
               statement or any material change to such information in the
               registration statement;

     (2)  That, for the purpose of determining any liability under the
          Securities Act of 1933, each such post-effective amendment shall be
          deemed to be a new registration statement relating to the securities
          offered therein, and the offering of such securities at that time
          shall be deemed to be the initial bona fide offering thereof.

     (3)  To remove from registration by means of a post-effective amendment any
          of the securities being registered which remain unsold at the
          termination of the offering.

     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to 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.
CONFORMED
                                  SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Caldwell, State of New
Jersey, on June 12, 1998.

West Essex Bancorp, Inc.
(in organization)

By:  /s/ Leopold W. Montanaro
     -----------------------------
     Leopold W. Montanaro
     President, Chief Executive
     Officer and Director

     Pursuant to the requirements of the Securities Act of 1933, this 
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Name                               Title                     Date
             ----                               -----                     ----
/s/ Leopold W. Montanaro           President, Chief Executive Officer  June 12, 1998
---------------------------------  and Director
Leopold W. Montanaro               (principal executive officer)
 
/s/ Dennis A. Petrello             Executive Vice President and        June 12, 1998
---------------------------------  Chief Financial Officer
Dennis A. Petrello                 (principal accounting
                                   and financial officer)

/s/ William J. Foody               Chairman of the Board               June 12, 1998
---------------------------------                                      
William J. Foody

/s/ David F. Brandley              Director                            June 12, 1998
---------------------------------
David F. Brandley

/s/ Everett N. Leonard             Director                            June 12, 1998
---------------------------------                                   
Everett N. Leonard

/s/ James P. Vreeland              Director                            June 12, 1998
---------------------------------                                 
James P. Vreeland

/s/ John J. Burke                  Director                            June 12, 1998
---------------------------------                                         
John J. Burke
As filed with the Securities and Exchange Commission on June 12, 1998
                                              Registration No. 333-_____________
================================================================================
 

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

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

                                   EXHIBITS

                                    TO THE

                                   FORM S-1

                            REGISTRATION STATEMENT

                                     UNDER

                          THE SECURITIES ACT OF 1933

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

                           WEST ESSEX BANCORP, INC.

            (Exact name of registrant as specified in its charter)

================================================================================
TABLE OF CONTENTS

LIST OF EXHIBITS (FILED HEREWITH UNLESS OTHERWISE NOTED)

1.1    Engagement Letters between West Essex Bank, F.S.B. and Sandler O'Neill &
       Partners, L.P.
1.2    Draft Form of Agency Agreement between West Essex Bank, F.S.B. and
       Sandler O'Neill & Partners, L.P.*
2.1    Plan of Mutual Holding Company Reorganization and Stock Issuance
       (including Federal Mutual Holding Company Charter and Bylaws of West
       Essex Bancorp, M.H.C., Federal MHC Subsidiary Holding Company Charter and
       Bylaws of West Essex Bancorp, Inc. and Federal Stock Charter and Bylaws
       of West Essex Bank)
3.1    Federal MHC Subsidiary Holding Company Charter of West Essex Bancorp,
       Inc. (See Attachment B-1 to Exhibit 2.1)
3.2    Bylaws of West Essex Bancorp, Inc. (See Attachment B-2 to Exhibit 2.1)
4.0    Draft Stock Certificate of West Essex Bancorp, Inc.
5.1    Draft Opinion of Muldoon, Murphy & Faucette re: legality
8.1    Draft Opinion of Muldoon, Murphy & Faucette re:  Federal Tax Matters
8.2    Draft Opinion of Fontanella and Babitts re:  State Tax Matters
10.1   Form of West Essex Bank Employee Stock Ownership Plan
10.2   Form of West Essex Bank Employee Stock Ownership Plan Trust
10.3   Form of ESOP Loan Commitment Letter
10.4   Form of West Essex Bank Employee Stock Ownership Trust Loan and Security
       Agreement
10.5   Form of Proposed Employment Agreement between West Essex Bank and certain
       executive officers
10.6   Form of Proposed Employment Agreement between West Essex Bancorp, Inc.
       and certain executive officers
10.7   Form of Proposed Change in Control Agreement between West Essex Bank and
       certain executive officers
10.8   Form of Proposed Change in Control Agreement between West Essex Bancorp,
       Inc. and certain executive officers
10.9   Form of Proposed West Essex Bank Employee Severance Compensation Plan
10.10  Form of Proposed West Essex Bank Supplemental Executive Retirement Plan
10.11  Form of Proposed West Essex Bank Management Supplemental Executive
       Retirement Plan
10.12  Employment Agreement between West Essex Bank and Leopold W. Montanaro
10.13  Restated Executive Supplemental Retirement Income Agreement for Leopold
       W. Montanaro
10.14  Restated Executive Supplemental Retirement Income Agreement for Charles
       E. Filippo
23.1   Consent of Radics & Co., LLC
23.2   Consent of Muldoon, Murphy & Faucette
23.3   Consent of Fontanella and Babitts
23.4   Consent and Subscription Rights Opinion of FinPro, Inc.
24.1   Powers of Attorney
27.0   Financial Data Schedule
99.1   Appraisal Report of FinPro, Inc. (P)
99.2   Draft of West Essex Bancorp Charitable Foundation Gift Instrument*

--------------------------------------
*To be filed by amendment
(P) Filed pursuant to Rule 202 of Regulation S-T.